THE GREAT ECONOMIC APOCALYPSE OF 2011/2012

US economy faces a grim outlook in 2011 as Washington's steps taken to handle the financial crisis, including money printing, have put the country on the verge of "bankruptcy," an expert says.

In an interview with Press TV's Max Keiser, Karl Denninger of market-ticker.org noted that neither Europe's austerity measures nor United States' money printing could solve their economic crisis.

"They are both wrong in that neither of these elements proposed in taking those people who made bad loans and holding them to account," Denninger said.

"You have to take these institutions like these banks or whoever has it, and forces them to take the writedowns and mark discredit off," he added.

"The problem is if you do that they are insolvent. So, we have a political system both in the United States and in Europe that is unwilling to stand up to these bankers and say you are bankrupt," Denninger argued.

He said that the US has suffered a "total systematic indebtedness to GDP" over the past 30 years that could shape a destiny similar to Greece and Ireland for the US.

"It's just a question of how long it will go on. And what happens Max is the same thing that happened to Greece and Ireland. Everything seems to be Okay one day and the next morning you wake up and bonds are blowing out and auctions are failing. That has been the history on this crisis and it's going to continue," he concluded.

A recent study has found that around one hundred US banks, which have been rescued by the federal government, are facing the prospect of bankruptcy again.

A total of 98 unsteady banks that were bailed out by Washington authorities and received more than $4.2 billion from the Treasury Department under the Troubled Asset Relief Program (TARP) are now sinking toward failure again, a recent analysis of federal data by The Wall Street Journal revealed.

According to the study, TARP was originally created in the middle of the US financial crisis to help only healthy banks.

The Great Economic Apocalypse of 2011-2012  

COMMENTARY:   I have been through all the recessions in the 70's, 80's, 9o's and the Great Recession which began in 2007.  The current financial condition of the U.S. government and banking system has never given me cause for hope.   The U.S. economy is slowly showing signs of recovery, the unemployment rate is down and retail sales are up, the stock market has risen by 10%, but under that thin veneer there are some terrible signs.  

There  have seen several financial collapses and bubbles:  

• Financial meltdown of September 2008 - Wall Street firms and the entire U.S. banking system was on the verge of collapse.  Several went out of business.  The federal government intervened with an emergency bailout of $876 billion. 
• Sub-prime real estate bubble -  The period of "cheap money" which lasted from 2003 through 2006 and a period of very lax lending policies led to an eventual real estate bubble has resulted in over eight million foreclosures.  Foreclosures continue to this date.  A record 3 million foreclosures are projected for 2011.  Real estate values continue to drop and several economists are predicting a second real estate bubble in 2011, and this could easily lead to a double dip recession.  
• Commercial real estate bubble - Most American's are not aware that there is was a commercial real estate bubble during the Great Recession.  Over 4 million construction jobs were lost.  Commercial real estate values dropped by 30% to 40% in some markets and vacancy rates of 20% to 30% are quite common.  Beginning in 2011. $1.5 trillion in commercial loans are scheduled for rate adjustments or come due.   
• The financial collapse of several EU countries - Green, Spain, Portugal and Italy are at the highest risk of bond default.  Greece has already been bailed out.   
• National debt - The total U.S. debt now exceeds $14 trillion, or roughly $48,000 for every man, woman and child in the U.S.  
• Monetary policy solution - The U.S. treasury department is printing money to buy back maturing bonds.  This kind of situation can not  continue without resulting in runaway inflation.
• Over-the-Counter Derivatives - The banks are holding nearly $40 trillion in investment securities that are based on the the value of other assets (real estate, foreign currencies, commodities and so forth).  If any of those assets should take a sudden drop in value, the banks will have write down their derivatives, and I don't have to tell you what will happen next.

Those are just the major items under that hidden and very delicate veneer.   Although the unemployment rate was  8.9% at the end of February 2011, most of the decline is the result of unemployed worker's who have given up looking for work because there simply aren't any jobs where they live.  The actual unemployment rate is 18% to 22%.  The Department of Labor Statistics ignores people who quit looking and counts part-time workers as full-time workers.    

Corporations are mostly not hiring, although there are some bright spots.  In February 2011, 192,000 "new" non-farm jobs were added.  Still don't have the numbers for March.  Employer's are "sort of" hiring.  Let me explain this.  A lot of employer's are practicing a new form of employment discrimination--hiring only worker's that are "currently employed".  Those were not really new jobs, but are counted as such.  The bulk of the remaining jobs were part-time and seasonal jobs.

Banks are not really lending.  A lot of what you are seeing are renewals of revolving lines of credit. Many banks require that the old line of credit be fully paid off, usually for a period of 30 days.  If the borrower can satisify this requirement, and is still creditworthy, the line of credit is usually renewed.  The banks count this as new loans, when in fact there was no net new lending.  In fact, banks have reduced their loans to SMB's by $48 billion in 2010.  How are small businesses to survive?

There is a student loan crisis because college graduates owe on average about $50,000 in colleg student loans.  40% of college graduates have not gotten full-time jobs, many are working part-time, many working several part-time jobs, just to make ends meet.  60% of college graduates have moved back with mom and dad.   This situation has given rise to a potential Student Loan Bubble. It's not a small amount either, about $860 billion in outstanding student loans, to be exact.   

The turmoil in North Africa and the Middle East has caused oil prices to exceed $100 per barrel. Gasoline now averages $3.81  nationally, and $4.20 in California.  In some areas, the price is already at $5.00 per gallon.  Some oil experts predict that the national price of gasoline will reach $5.o0 per gallon by early summer.  This could put a sudden stop to economic recovery.  We have yet to see how the turmoil in many of those affected countries will affect the availability of Middle East oil and oil prices in general.

The U.S. has undergone the largest shift in wealth from the lower and middle class to the top 3% of the wealtiest Americans.   We didn't have not experienced those kind of levels since the Great Depression, and we all know what happened then.  

Food prices worlwide have increased by double digits, and some economists predict food prices in the U.S. will reach record levels that we haven't experienced since 2007 and 2008.  In some part of the globe, there are already food riots, with the countries in North Africa and Middle East leading the way.

Anybody that tells me that everything is hunky-dory is a fool or just doesn't understand basic economics, living in a bubble or already rich and just doesn't give a damn.  If your basic barometer for an economic recovery is the increased value of your 401(K) or stock portfolio, then you will be again caught off guard again when there is a major market adjustment.   Remember, those are just paper profits.  When the banks, Wall Street investment firms and rich get out of the market, a lot of people will be left standing without a chain when the music stops.

Similar problems are happening in other countries.  Japan has a debt loan twice that of the U.S. on a per capita basis, and unemployment is nearly 8%, something unheard of in Japan.  Japan's economy has been in a funk since the late 1990's, and remains so even now.  This is a warning the the U.S.--we're next.  

I have been ringing the alarm bells for quite sometime going as far back as 2006 when I prediced the real estate prices could not be sustained and that there would eventually be a real estate bubble.   

Courtesy of an article dated February 10, 2011 titled, "The Great Economic Apocalypse of 2011/2012"

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Comments

[Church Mortgages]

These weaker banks need to be consolidated in with stronger better managed banks. If they can not stay afloat let them lose their identity.

[Reserve Currency]

The econonmy needs to make these jobs for a while before the recovery can be certain.

[Employment Genius]

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