246 Is the Recovery Real? Fed still building bank reserves - Paul Craig Roberts

*Is the Recovery Real? Fed still building bank reserves - Paul Craig
Roberts *

*(1) Banks as Foreign Debtors - letter to Michael Hudson, and reply*

*(2) Is the Recovery Real? Fed still building bank reserves - Paul Craig
Roberts*

*(3) Tent cities house desperate families; silent Black depression in US*

*(4) Are We Into Hard Times? - James Cumes*

*(5) New home sales plunge + more bank failures for US; but Russia
well-placed*

*(6) State economies strained by effort to balance the budget*

*(1) Banks as Foreign Debtors - letter to Michael Hudson, and reply*

{to Michael Hudson} Michael,

I once asked how Australia's banks could be Foreign Debtors - as they are.

One way happens when Japanese/Chinese exporters deposit their proceeds
here. Or the Bank of Japan does, after changing $ for Yen.

But a Central Banker told me another way:

Australia's home Mortgage market was deregulated about 1995. Before
that, borrowers had to have been saving with their bank for 20 years or
so. Afterwards, loans were issued much more freely & widely, to spread
home-ownership more widely.

I pointed out that the Boom created a bubble which made houses
unaffordable, thus defeating this noble purpose.

He said that during that period the banks' deposits were lower than
their loans, so they were borrowing funds overseas. In this way, they
became foreign debtors.

Why would they have done this? How would this have benefited them? And
how would it have affected them during the Crisis? The Government had to
guarantee their loans.

 From which countries would they have been borrowing? The US was one. ==

*Reply from Michael Hudson:*

From: Michael Hudson <michael.hudson@earthlink.net> Date: 5 March 2010
11:08

Subject: banks as Foreign Debtors

As to "why," the answer is because they didn't understand that *domestic
credit creation* is free. There was no need at all to borrow abroad to
issue domestic credit. It's a pure giveaway.

The inference is that only people who don't understand this are put in a
position to decide policy.

Michael ==

Comment (Peter M.);

Before the abolition of tariffs, economies were more self-sufficient.
But with Free Trade, industry after industry disappears as we specialize
on just a few..

A corollary is that Domestic Credit no longer suffices for the purchase
of these goods we no longer make.

Free Trade creates narrowly specialized economies. They can purchase
their own internal goods & services using Domestic Credit, but for
everything else they need export earnings or Foreign Credit.

This places countries more at the mercy of International Banks.

*(2) Is the Recovery Real? Fed still building bank reserves - Paul Craig
Roberts*

{The retail banks bank at the Central Bank, ie they have balances there
which are called their "Reserves", and which give them Liquidity; this
is not the same as Capital Adequacy. Governments pay salaries and
contractors by issuing checks (cheques) drawn on the Central Bank. As
retail banks cash these checks, they themselves acquire balances
(reserves) at the Central Bank, by the same amount. When a customer
writes a check, drawing on bank A to pay somewho who deposits it into
bank B, bank A's reserves at the Central Bank are debited by the amount
of the check, and bank B's reserves increase by the same amount. This is
called "clearing a check" - Peter M.}

From: IHR News <news@ihr.org> Date: 08.03.2010 04:01 PM

Is the Recovery Real?

Paul Craig Roberts

http://www.creators.com/opinion/paul-craig-roberts/is-the-recovery-real.html


http://www.counterpunch.org/roberts03042010.html

2 Mar 2010

Happy news! The government has come up with a 5.9 percent GDP growth
rate in the fourth quarter of 2009. The recession is over.

Or is it? Statistician John Williams has informed us that 69 percent of
this growth, or 4.1 percentage points, is the result of inventory
accumulation. That leaves a 1.8 percent growth rate, and the 1.8 percent
is likely due to the underestimate of inflation and other statistical
problems.

The Federal Reserve's own monetary evidence contradicts the recovery
assurances from Fed chairman Ben Bernanke. The *Federal Reserve
continues to pour massive reserves into the banks*. The monetary base,
which consists of currency in circulation and bank reserves (the basis
for new loans), has surged from $850 billion last year to $2.2 trillion
on Feb. 24.

Despite this potential for massive new money creation, the broadest
measure of money growth is still contracting. The banks are too impaired
and so are consumers for the banks to create new money by making loans.

The economy, in other words, is going nowhere.

As I have emphasized for years, an economy that moves its high
productivity, high value-added jobs offshore is going nowhere but down.
Except for the super-rich, there has been no growth in people's incomes
for a decade. To substitute for the missing income growth, consumers
took on more debt. The growth in consumer debt kept the economy going.
However, most consumers have now reached their maximum debt load, and
millions went beyond their limit, resulting in foreclosures and lost homes.

There are no jobs to which people can be called back to work. The *jobs
have been given to the Chinese and Indians*.

The economy is set for a “double-dip,” that is, renewed decline. This,
of course, means larger federal, state, and local budget deficits. The
U.S. federal deficit is now so large that it *can no longer be financed
by the trade surpluses of China, Japan, and OPEC*.

Currently the deficit is being financed by deterioration in the Federal
Reserve's balance sheet. The *Fed is creating new reserves for the
banks* (thus the surge in the monetary base) *in exchange for the banks'
toxic financial instruments*. The banks are using the reserves to
purchase Treasury debt instead of making new loans. This makes money for
the banks, but does not grow the economy or create jobs for the millions
of unemployed.

According to reports, recent auctions of Treasury debt have not gone well.

China, America's biggest creditor, has reduced its participation and is
even selling some of its existing holdings. Whenever all of a new
Treasury debt offering is not taken, the *Federal Reserve buys the
remainder*. This results in debt monetization. The Fed pays for the
bonds by creating new checking accounts for the Treasury, in other
words, by printing money.

On Feb. 24, Fed chairman Ben Bernanke told Congress that the U.S. faced
a serious debt crisis and that the Fed was *not going to print money in
order to pay the government's bills*. In fact, Bernanke would have no
choice but to print money.

Bernanke's warning to Congress is his way of adding Federal Reserve
pressure to that of Wall Street and former Treasury Secretary Paulson
for *Congress to balance the budget by gutting Social Security* and
Medicare. In case you haven't noticed, *no one* in Washington or New
York *talks about cutting trillion dollar wars *or trillion dollar
*handouts to rich bankers*. They only talk about taking things away from
little people. It is not the Bush/Cheney, Obama, neocon wars that are in
the cross hairs; it is Social Security and Medicare.

Other Obama economic officials, such as White House economist Larry
Summers, a former Treasury secretary, have called for a middle class tax
increase. The problem with this "solution" is that *a good part of the
middle class is now jobless and homeless*.

Money will have to be found somewhere if the Fed is to avoid printing
it. During the Clinton administration a Treasury official proposed a 15
percent capital levy on all private pensions to make up for their tax
deferral status. This idea didn't fly, but today a desperate government,
which has wasted $3 trillion invading countries that pose no danger to
the U.S. and wasted more trillions of dollars combating a crisis brought
on by the government's failure to regulate the financial sector, is
likely to steal people's pensions as well as to gut Social Security and
Medicare.

The reason is that the dollar's role as reserve currency is at stake. If
the Federal Reserve has to monetize the federal deficit, the *world will
turn its back on a rapidly depreciating dollar*. The minute the dollar
loses the reserve currency role, the U.S. can *no longer pay its bills
in its own currency*, and its *days as a superpower come to a sudden
end*. Wars can't be financed, and Washington's pursuit of world hegemony
will hit a brick wall.

The power-mad denizens of D.C. will do anything to further the expansion
of their world empire.

Paul Craig Roberts was Assistant Secretary of the Treasury during
President Reagan’s first term. He was Associate Editor of the Wall
Street Journal. paulcraigroberts@yahoo.com

*(3) Tent cities house desperate families; silent Black depression in US*

From: WVNS <ummyakoub@yahoo.com> Date: 08.03.2010 01:45 PM

America After the Quiet Coup

Tue, 02/16/2010

by Edward L. Palmer, Robert N. Rhodes and Alice J. Palmer

http://www.blackagendareport.com/?q=content/america-after-quiet-coup

"There has been a quiet coup in the US in which a financial oligarchy
has gained hegemony over the government structure." That seizure of
power has resulted in devastation for Black America, where "48% of the
children of middle class Black Americans border on poverty." Among the
general public, "70% of last year's college graduates in the US did not
receive job offers."

"A financial oligarchy has gained hegemony over the government structure."

America is on a path toward a savage capitalism that is already
decimating the middle class and working people and swelling the ranks of
the poor. Adam Smith never intended this.

The U.S. government has spent more than one trillion dollars of taxpayer
money to resuscitate the financial services economy and restore the
status quo while unemployment has grown by millions since January 2009,
and all without developing the real economy: production, sustainable
development, infrastructure, and social networks.

Unlike Germany, for example, where, faced with a similar economic
downturn, Chancellor *Angela Merkel,* a conservative, chose to *increase
public spending on production, infrastructure* and human capital. Or, as
in Sweden, which took measures to reverse unemployment and the
contracting gross domestic product by isolating bad debts, stabilizing
their currency, and allowing some banks to fail.

Or, for that matter, the win-win strategy the Chinese favor, which
pursues their national economic interests without seeming to threaten
the national interests of other countries.

Americans should ask themselves the fundamental questions that Bob
Herbert is asking over and over in his New York Times columns: How do
you put together a consumer economy that works when the consumers are
out of work, and when poverty, particularly among Black Americans, is
alarmingly high.

"At least *30% of America's children are poor*; tent cities are now
housing displaced and desperate families."

The statistics about Main Street are distressing. At least 30% of
America's children are poor; *tent cities are now housing displaced and
desperate families*. According to a recent Harper's magazine monthly
index, *70% of last year's college graduates in the US did not receive
job offers*. Some 16% of the daughters and sons of White Americans are
not as financially stable as their parents. Most disturbing is that 48%
of the children of *middle class Black Americans border on poverty* as
they earn little more than $23,000 a year. Their parents, whose incomes
average $55,000, came of age in the 1960's.

For decades, from the late 1940's through the end of the 1980's, Black
men expected to find work in the plants that dominated industrial
centers such as Detroit, Chicago, and Pittsburgh. Steady work, no matter
how initially back-breaking and low-level, afforded Black families
adequate incomes to purchase homes and send their children to college
from which a solid, often politically active, Black middle class emerged.

There is a "*silent Black depression*" in the United States, according
to a 2008 report issued by the Institute of Policy Studies, in which
29.4% of Black households have zero or negative net worth as of 2004
compared with 15% of Whites; and Black males aged 16-19 have a 32.8%
unemployment rate. People of color, in general, are more likely to be
poor in the United States; yet, poverty is rarely discussed as an
element of the country's economic crisis.

"29.4% of Black households have zero or negative net worth."

To gauge the consequences to America's eroding consumer and family
income economies we must look beyond spurious US unemployment and
employment figures that do not adequately tell us how many new jobs are
part time and how many workers are discouraged or under-utilized. Most
European countries count the number of adults who are employed, which is
a more realistic measure. ...

*(4) Are We Into Hard Times? - James Cumes*

From: James <jcumes@chello.at> Date: 08.03.2010 12:45 PM

Are we into hard times?

The question is asked more and more frequently and more and more
insistently.

The short answer is yes. The slightly longer answer is that we are doing
our best to ensure that the times will get harder still and that they
will last longer than we should ever have allowed them to endure.

There is some question about the starting date of the collapse of what
future historians may identify as the most brazenly corrupt domestic and
global financial system we have ever known.

Racket would be a fairer word than “system” and some observers see its
collapse as having started with Bear Stearns. That was about three years
ago.

Alternatively, it may be seen to have begun only with the collapse of
Lehman Brothers, nearly two years ago.

Either is a considerable length of time. It is inordinately long and
dangerous when the issues - domestic and global - are potentially of
such a catastrophic nature as we now know them to be.

Moreover, we have had, within the last one hundred years the clearest
evidence of what economic and financial collapse can mean.

Apart from the impact on virtually every kind of business enterprise,
the impact in political and strategic terms can be horrendous.

We pretend sometimes that we pay attention to what happened between 1929
and 1945. At least one of those currently in charge of one of the most
authoritative and respected of our public financial institutions has
been proclaimed an "expert" on that period of the Great Depression.

That makes it all the more surprising that we have done so little to
pull ourselves back from the abyss since Bear Stearns or Lehman Brothers.

Admittedly, there have been great flurries of activity at times. Panic
has often been in the air in the highest policymaking circles. There has
also been a massive outpouring of money, bigger than has anything ever
contrived before.

For some time past, some of the most powerful in our economies and
political and strategic communities have been telling us that we are on
"The Road to Recovery."

The major domestic and global media repeat the theme endlessly. Almost
every piece of data is interpreted to confirm "recovery" or, if the data
is not as encouraging as they wish, to be only a "blip" or "glitch."

This is despite almost all of the data being fraudulent in some degree.
That incudes what used to be the most revered statistics.

The United States does not have 9.7% unemployment. Everyone and, most
importantly, the unemployed know that joblessness is 20% and more. They
know it is growing not receding.

The figures vary for other economies but lead to the same conclusions:
we are not on "The Road to Recovery" and we are as fraudulent in
claiming we are as we were three years and more ago in propagating the
myth that the financial fraud of that time eliminated risk and would
make us all rich.

In saying this, we must interpolate that there are some economies which
have thrived not only during the financial mania before Bear Stearns and
Lehman Brothers but even in the widespread economic and financial
collapse since.

For China, India and some others, any "collapse" has so far been modest.

Those economies have been dedicated throughout to real investment, real
productivity and real production. They have continued to acknowledge the
obvious truth that real wealth and higher real current incomes derive
from real production of goods and services, not from shadow financial
paper and brazen gambling on Wall Street.

But those realities have not been acknowledged by the developed
countries of the West.

They have changed nothing fundamental in the economies and financial
systems that caused their collapse. Instead they have embraced in panic
or with gross, often criminal negligence policies whose main purpose has
been to shore up failed economic and financial institutions.

The bankers including those "too big to fail" seemed briefly contrite
but are now back in positions of power. They exploit the “new” system in
the same old ways or better. Their rewards are obscene. Those for the
most part innocent of blame suffer the "hard times."

They are not suffering alone. They have tens of millions of companions.
However, they really have no one to go effectively into battle for them.

During the Great Depression, a multitude of political, economic and
social movements attended to the interests of virtually every sector of
Western communities. To the Left were the trade unions, socialist and
communist parties, Douglas Credit and International Workers of the
World. There were Fabians and Labour Parties; and, of course there were
parties of the Right.

Especially since 1990, parties of the Left have collapsed with the
demise of the Soviet Union. Few effective trade unions now distinguish
major Western economies and little effective protection exists for that
middle class which once formed the backbone of Western communities.

Centre and right-wing parties occupy the parliamentary benches. Although
we have an awesomely powerful Wall Street, no one waves a banner for the
little guy or the men and women in the middle.

We don't think the great media corporations are too big to fail; but
with corporation money, they play the bankers' game. They sing the
Wall-Street arias. During the Great Depression, the promise was that
"prosperity is just around the corner." Today the media tell us that
we're on the "Road to Recovery."

Most of the most influential media seem intent on re-installing the
exploiters and corrupters of our financial and economic system. Those
who devised and utilised ever more creative derivatives, hedge funds,
Credit Default Swaps and the rest pretended to have no idea what they
did. They did not know what menace they represented. Certainly, they
meant no harm.

We have done nothing effective to reform, regulate or even moderate the
systems which brought us to the edge of the abyss.

Most of us who are not blinded by the media and policymakers who have
been bought by the moneymen know that even a small push will now tip us
over the edge.

Certainly, sovereign debt could tip us over. Here our policymakers show
a total lack of resource. The working and middle classes are being
forced to suffer the cruel injustice of "hard times" for which they have
little or no responsibility.

We might recall that the Great Depression did not deliver its most
intense miseries immediately after the Great Crash of 1929. For most
countries, those miseries arrived only two or three years later, after
those who govern our destinies had skilfully turned bad into worse.

In Australia, as one example, the deepest depression hit only in 1931
and later. Sovereign debt emerged as a major source of misery.

In order to resolve the problems of debt, especially to overseas
creditors, the Federal Government brought all the State Premiers
together to agree on the Premiers’ Plan.

That Plan cut public spending to the bone, whether on infrastructure,
education, pensions, social welfare or whatever. It suspended new
recruitment to public services, cut public-service salaries heavily and
banned paid overtime.

Creditors in the City of London and the Bank of England wanted more.
They couldn't pay their own debts and wanted those who owed them money
to do "the right thing." The Labor Premier of New South Wales, Jack
Lang, wouldn’t do "the right thing." The State Governor appointed by
London sacked him. A more “cooperative” Premier replaced him.

The Premiers' Plan was a disaster for almost everyone. With it, the
deepest of the miseries of the Australian citizens began. The country
became less able to grow and pay its debts.

Its miseries culminated in the Second World War with Australian youth
staving off Japanese invasion in the Battle of the Coral Sea, on the
Kokoda Track and at Milne Bay.

Many countries paid an even more terrible price for the failure of
economic and financial policies in the 1930s.

Now the scenario is being played out again.

Greece has been obliged to adopt a "Premiers' Plan." Iceland was forced
to agree to pay its creditors in the City of London and The Netherlands.

There has been very little organised opposition effective enough to
frame a more just "settlement" in either case.

The ordinary citizen in Greece or Iceland has been no more responsible
for its country’s financial disaster than the average citizen in the
United States was for the Ponzi fraud of Bernard Madoff.

However, the ordinary citizen must pay up. If they do not, they will be
denied credit by the Eurozone, the IMF and the mighty men of finance.
They will be left to rot in a wilderness to which no banker will be
prepared to extend either his credit or his questionable "charity."

The entire world, if it has a worthwhile ethic at all, should have leapt
to the defence of the Icelanders and the Greeks. It should do the same
for others who may suffer in similar ways at the hands of the moneymen.

The Greeks have trade unions and others determined at least to express
their unhappiness on the streets. In a referendum for which a more
courageous President was responsible, the Icelanders have now said “No”
to the current deal of the moneymen and their supporters.

We can still only guess at the final outcome in Greece and Iceland.
Sovereign debt problems loom in other European countries including the
United Kingdom. They are severe also in the States of the United States.

The solution currently being imposed on Greece and until now demanded of
Iceland will, if persisted with, intensify Depression and spread it more
widely. It is not a solution. Instead, it will breed ever greater
problems, not only economic and financial but also social, political and
strategic.

In an already unstable, violent and heavily armed world, revolution and
armed conflict are likely to spread.

For Greece, as for other European countries who may face the same
dilemma, the choice should not be to pay off the moneymen or face
destruction of the European Union or the Eurozone. Rather we should find
solutions fair to the parties, creditors and debtors, which do not leave
behind features which will threaten regional and global stability. ...

*(5) New home sales plunge + more bank failures for US; but Russia
well-placed*

From: geab@leap2020.eu <geab@leap2020.eu> Date: 25.02.2010 11:16 PM

Subject: Revue de presse NM/E2020 - Crise systemique globale

http://www.leap2020.eu/geab-n-42-contents_a4295.html

Russia: Better prepared to face the coming years than the other big
global players

That may seem paradoxical, especially for those who merely read the
Western media, however the country has gone through a major transition
towards the world after 1945 … since 1989. Russia is, a priori, assured
of a lasting period of stable central power, which is far from being the
case for the other major global players… (page 17) ==

New home sales fall to a record low

Sales of new homes plunged to a record low in January, government
figures showed Wednesday, as the weak economy and a glut of foreclosed
homes continue to weigh on the market. The seasonally adjusted annual
rate of new home sales plummeted 11.2% to 309,000 last month, compared
with a revised rate of 348,000 in December, the Census Bureau said.
That's a decline 6.1% from January 2009.

CNN Money

http://money.cnn.com/2010/02/24/real_estate/new_home_sales_January/index.htm
==

At F.D.I.C. , Bracing for a Wave of Failures

The Federal Deposit Insurance Corporation is bracing for *a new wave of
bank failures* that could cost the agency many billions of dollars and
further strain its finances. With bank failures running at their highest
level in nearly two decades, the F.D.I.C. is racing to keep up with
rising losses to its insurance fund, which safeguards savers' deposits.
On Tuesday, the agency announced that it had placed 702 lenders on its
list of "problem" banks, the highest number since 1993. ==

New York Times

At F.D.I.C. , Bracing for a Wave of Failures

By ERIC DASH

Published: February 23, 2010

http://www.nytimes.com/2010/02/24/business/24fdic.html?hp

*(6) State economies strained by effort to balance the budget*

Bad economies in states to worsen: governors

The already gloomy conditions of states' economies are set to worsen,
according to preliminary survey findings from the National Governors
Association released on Saturday. "The situation is fairly poor for a
lot of states around the country. In fact, most states," Vermont
Governor Jim Douglas, who is chairman of the association, said at a
press conference at its annual meeting.

Reuters

http://www.reuters.com/article/idustre61j26v20100220

Bad economies in states to worsen: governors

Sat Feb 20, 2010 1:57pm EST

WASHINGTON (Reuters) - The already gloomy conditions of states'
economies are set to worsen, according to preliminary survey findings
from the National Governors Association released on Saturday.

"The situation is fairly poor for a lot of states around the country. In
fact, most states," Vermont Governor Jim Douglas, who is chairman of the
association, said at a press conference at its annual meeting.

"What we're finding out from a fiscal standpoint is that the worst is
yet to come," Douglas said.

In a survey conducted last week of 45 of the 50 states, the group found
that states have $18.8 billion of *budget gaps* yet to be closed in
fiscal 2010. This comes after they have already imposed measures to
eliminate budget imbalances totaling $87 billion in the fiscal year,
which for most started last summer.

In the budgets they are drafting for fiscal 2011, states foresee
shortfalls of $53.6 billion and for fiscal 2012 $61.6 billion.

"Economists have declared the national recession over. But for those who
are still unemployed, for those who have lost their homes, it's clear
that as a nation we have a long way to go," said Douglas, who added that
states' revenues have plummeted for four quarters in a row.

States' economic recoveries usually lag national recoveries because of
state governments' increased spending on help for the unemployed and
declines in tax payments.

*All states except for one, Vermont, are required to balance their
budgets*, so during the recession they have drastically *cut spending on
basic programs, laid off workers* and boosted revenue through* raising
taxes and fees*.

The $787 billion stimulus plan the U.S. Congress passed a year ago
included the largest transfer of money from the federal government to
states in the nation's history. But for many states, most of its funding
will run out by December.

New Jersey Governor Chris Christie, also at the press conference, said
the stimulus had delayed problems but not solved them.

Douglas said the governors will press President Barack Obama for more
help when they visit the White House on Monday.

The survey also found that this fiscal year 38 states are bringing in
far less revenue than what they had estimated at the beginning of the
year and 21 states had to cut their budgets by more than 5 percent.

Just as states are gasping for money, they are confronting a crisis in
healthcare, said Montana Governor Brian Schweitzer.

Over the weekend the governors will discuss how to reduce healthcare
costs as the federal push to reform the country's health insurance and
medical treatment systems bogs down in Congress.

"I expected... we would be talking about implementing a new national
health plan," Douglas said about preparing for the meeting. "Here we
are. It hasn't happened."

The healthcare program for those with low incomes, Medicaid, is jointly
administered by the states and the federal government and eats up large
parts of most states' budgets. As people have lost their jobs and
employee-sponsored health insurance during the longest and deepest
recession since World War Two, they have turned to Medicaid and further
strained the system.

(Reporting by Lisa Lambert, editing by Vicki Allen)