Riots Engulf Central London as Budget Cuts Come Into Effect

Image via Wikipediaby Eric Hammer | FTMDaily Contributing Writer

TEL AVIV, Mar 28 - A largely peaceful demonstration which featured hundreds of thousands of people marching through Central London to protest planned cuts in the welfare state turned violent Saturday evening. While the mass rally passed peacefully if noisily through London, a small group of a few hundred protestors showed up later determined to do more to show their distaste for British policy than simply give speeches.
The main rally had been organized by a number of large labor unions with the intention of protesting the massive cuts that Prime Minister David Cameron has pushed through Parliament recently. Mr. Cameron had justified those cuts by explaining that Britain could no longer afford the so called welfare state. The cuts affected tens of thousands of working class Britons, sending many of them scurrying to the unemployment rolls and prompting a massive outcry on a scale similar to the protests that engulfed Madison, Wisconsin a few weeks ago.

The protestors also seemed to feel, as many Tea Party activists in the United States do, albeit from a completely different perspective, that their leaders did not go far enough in pressing their demands. Labor leader Ed Miliband was heckled by a number of protestors when he allowed during a speech to the main rally that “some cuts” were needed but that they still needed to “struggle to fight to preserve, protect and defend the best of the services we cherish.”

Interestingly, a number of the rioters seemed especially incensed by the recent deployment of British airmen to Libya to help in enforcing the now NATO led no-fly zone in that country. The feeling seemed to be that at a time when Britain couldn’t afford to keep her own people fed, they had no business getting involved in wars in other countries.

After the largely peaceful rally started to wind down, a group of what most mainstream labor organizers are describing as “hoodlums” came onto the scene, most of them masked and all determined to do as much damage as they could. They attacked the Ritz hotel and an upscale department store in an effort to strike at the rich.

According to local police reports, some 211 people were arrested in the melee that ensued after the main rally dispersed. They were charged with crimes ranging from vandalism and destruction of public property to setting off firecrackers in the middle of the street.

Speaking to reporters after the riots had been put down, Commander Bob Broadhurst of Scotland Yard, which had been in charge of security at the rally praised the protest organizers for having kept things largely peaceful throughout the event.

Regarding the rioters, he told the Guardian newspaper that, "Unfortunately we've had in the region of 500-plus criminals – people hiding under the pretence of the TUC march – who have caused considerable damage, attacked police officers, attacked police vehicles and scared the general public. Unfortunately, because of their mobility and the fact they are aware of some of our tactics, we have been unable to contain them and so we have had these groups wandering around the central London area."

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FTMDaily News Update - Goodbye "Cheap" Chinese Goods

by Jerry Robinson

Good-Bye "Cheap" Chinese Goods...

When my daughter was younger, I used to offer her 25 cents for every item that she could find in our local Wal-Mart store that was not "made in China," or some other Asian nation. Needless to say, she rarely walked out of the store with any money. And while "made in China" used to be synonymous with "cheap and poorly made" goods, it now appears that the "cheap" part of that equation may be going away rather quickly. Last week, the sum of all consumer fears was confirmed. The cheap gadgets, apparel, and toys imported from China, that we Americans have come to love and treasure, may now no longer stay "cheap." This according to the Hong-Kong-based logistics and consumer-good sourcing company, Li & Fung, which is one of the largest suppliers of Chinese goods for Western retailers, especially Wal-Mart.

In a report released last week, the company stated:

“The world has basically been in a low-supply-cost era for the last 30 years. The change in wage policy in China in 2009 — and the subsequent significant higher export prices — brings this status quo to an end.”

Mainland China has been paying their employees unbelievably low wages for decades because 1) it could, and 2) to prop up its export-led strategy. However, a rash of employee suicides in recent years has forced a re-examination of Chinese labor rates and working conditions.

In 2011, wage rates are increasing in China and will continue to do so as the country continues to rapidly grow its overall economy and its middle class. In addition, prices for inputs, such as raw materials, have risen dramatically, leading to higher prices at the consumer level.

Translation: You might want to stock up on any of those "can't live without" imports from China soon as they will never be any cheaper than they are now... In other words, the era of cheap goods is over.

The Truth About the 401(k)...

As we have been telling you for years, maxing out your 401(k) (above the employer match) is just about one of the dumbest financial moves you could ever make. It seems the financial services business is just now finally beginning to figure out why. Learn more here...

(And will somebody please send the memo to Dave Ramsey and Suze Orman... Bless their hearts. Their mantra for years (until just recently) has been: 1) Max out your 401(k), 2) Buy a house because they always go up in value 3) Avoid gold and silver because they are terrible investments and 4) Put all your extra money into mutual funds. Ouch! Maybe this explains why 95% of American reach the age of 65 dead broke.)

British Protest of Budget Cuts Turn Violent...

An estimated 250,000 British public workers took to the streets of London over the weekend to protest new "brutal" spending cuts in government jobs and services. Teachers, nurses, firefighters, NHS workers, students and others spent the day in mass protests. While they were mostly peaceful, some violence did erupt. Over 200 were arrested and 66 were injured in the demonstrations.

And now... New research indicates that the average British worker is bringing home $1,600 less than two years ago due to the effects of inflation. The "official" inflation rate in the U.K is running at 4.4%. Many fear 5% or more is on the way soon.

News on Social Security Income...

The Federal government is projecting a COLA (cost-of-living adjustment) increase in Social Security benefits for 2012 - the first time since 2009. And while the hike in benefits may come as good news to many seniors who have lost money in both the stock market and the housing market, it will be overshadowed by a new hike in required Medicare premiums. For most, the net result will be no raise in income, despite the COLA increase. You can read more here.

In a recent interview, FTMDaily.com founder and economist, Jerry Robinson, stated: "Those who are dependent on only one or two fixed income streams are highly vulnerable to wave of U.S. inflation that lies ahead. Now more than ever, individuals need to begin cultivating multiple streams of income that can help them stay financially afloat amid times of economic turmoil."

Through our free monthly webinars and our subscription-based quarterly newsletter, FTMDaily.com is educating thousands of people on how to create financial freedom by diversifying their savings, their investments, and their income.

Also In The News...

1. FORECLOSURE NATION: The national vacancy rate crept up to just over 13% according to last week's decennial census report. That's up from 12.1% in 2007.

2. CURRENCY UPDATE: "Tough talk" from the Federal Reserve on the need for higher U.S. interest rates helped stabilize the dollar over the weekend. But the big news is the Australian dollar, which rose to its highest level against the U.S. dollar since 1983 last week.

3. CONSUMPTION TRAP: Real disposable income fell by 0.1% in February as consumer prices jumped by the largest amount since July 2008, the Commerce Department reported Monday.

4. U.S. SAVINGS RATE: The savings rate fell to 5.8% in February from 6.1% in January.

5. PORTUGAL RATINGS CUT: After lowering Portugal's credit rating by two levels last week following the government's resignation, Standard & Poor's is warning today that it could further downgrade the country's credit rating this week. Portuguese 10 year bond yields are currently at 8.16%.

Finally...

It's beginning to happen. After decades of funny money, the world is finally waking up and smell the coffee. Gold is finally beginning to replace fiat currency as the currency of choice. And who's buying its? The central bankers who sold us on the funny money. The irony is unreal.

Why So Serious?...

Its time to laugh a little. Here's a sampling from the some of the late-night jokers.

"President Obama had to use another door to get into the White House yesterday after he got home and the entrance to the Oval Office was locked. When he couldn’t get in, Obama said “Holy cow, is it 2012 already?” –Jimmy Fallon

"A man in Texas used his obituary to ask for donations to anyone running against Obama in 2012. And then his ghost was offered a nightly show on Fox News." –Jimmy Fallon

"Dennis Kucinich wants to impeach President Obama over Libya. There’s a very good case against impeachment. It’s called "Joe Biden." –Jay Leno

"I read about a three-year-old boy in China who weighs 132 pounds. In fact, he’s so overweight that he can barely walk to work in the morning." –Jimmy Fallon

Cartoon of the Day...



Until tomorrow,

Jerry Robinson - FTMDaily.com

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Jerry Robinson is an economist, published author, columnist, international conference speaker, and the editor of the financial website, FTMDaily.com. In addition, Robinson hosts a weekly radio program entitled Follow the Money Weekly, an hour long radio show dedicated to deciphering the week's economic news.

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The housing bubble hangover, part 2

A booming 'shadow inventory' in the housing market is almost certain to bring another wave of falling prices and another round of Federal Reserve stimulus.

By Bill Fleckenstein

MSN Money

 

Economic and financial problems are now garnering more attention as the "Goldilocks" viewpoint that prevailed earlier this year has disappeared -- which isn't surprising, as that view was only a mirage anyway.

Thus it looks to me like we may be just a data point or two away from seeing the Federal Reserve launch a second round of stimulus, which is sometimes cloaked in the obfuscatory term "quantitative easing" -- or, as I've referred to it lately, "Q.E. II."

If I may mix nautical and aeronautical metaphors, our illustrious Federal Reserve chairman, Ben Bernanke, may already be getting long aviation-fuel futures for his next helicopter mission. I say that because of a Bloomberg TV interview June 23 by former Richmond Fed chief Al Broaddus, who is considered by many to be a tight-money "hawk." (Watch the video here.)

Among other things, Broaddus said that he had expected the language in the Fed's June 23 communiqué to be "markedly more pessimistic, less optimistic than the corresponding statement after the April meeting." Of course, it wasn't markedly different; it was just somewhat weaker. Perhaps the Fed is trying to avoid spooking folks. Broaddus also noted that weakness in the housing market "increases the probability" the Fed will be happy to let Q.E. II set sail.
Much of the blame for upcoming weakness can be laid at the feet of housing, although there are going to be additional culprits. As folks know, government incentives have mostly run out (though the time to close on a home and get a tax break was extended), and supply is building and liable to swamp demand. That should lead to lower prices, which will likely also impact psychology.

Scared of its own shadow

Recently mortgage banker Mark Hanson nicely laid out a handful of reasons for housing's excess supply, or "shadow inventory." Readers may recall from the real-estate bubble days that I used to refer to Mark as "Mr. Mortgage," before he revealed his identity. He understands the housing and mortgage markets better than anyone else I know, so I thought I would share some of the causes for pent-up supply mentioned in his recent report:

• The 8 million loans in some stage of delinquency.

• The 100,000 to 125,000 new notices of default being given out monthly.

• Short sales, which are surging and are now government-endorsed through the Treasury Department's Home Affordable Foreclosure Alternatives Program, and may be the ultimate form of shadow inventory due to the fact the borrower does not have to be delinquent and the property never has to be listed on the Multiple Listing Service. With almost 30% of the 57 million homeowners who have mortgages owing 95% or more on their property, the pool of more than 15 million homes that are short-sale eligible is a mega-threat.

• Modification re-defaults, which, according to Standard & Poor's, will occur at a 70% rate. Based on the national loan modification surge that began in earnest only in the third quarter of 2009, and the ultimate bubble we are experiencing now, we are seeing just the positive effects of modifications and not the negative re-default effects. But the leading edge of the re-default wave is upon us now, and before long it will produce a new and substantial channel of mortgage loan defaults and foreclosures that few are modeling at this time.

• An improvement in sentiment and price stability in some regions that has encouraged homeowners to sell after holding off for three years as the market crashed. In fact, as sales surged last month, thanks to the taxpayers' gift (the homebuyer credit), inventories rose sharply, catching even National Association of Realtors economist Larry Yun off guard. He commented on it after last month's existing-home-sales report. This is the first evidence of pent-up supply having a negative impact on housing fundamentals.

I agree with Hanson that the effects of all this are only just beginning to be felt, but it seems to me that the second leg of falling home prices is probably under way. That, plus high unemployment, ought to force the Fed to swing into action.

We could be stuck here awhile

As for the stock market, I have shared my expectations for a somewhat "rangy" environment, in which the market neither crashes nor makes significant progress to the upside (versus the 2010 highs), supported on the one hand by money printing and stimulus but hampered on the other by immense fundamental problems. Thus far, the range on the Standard & Poor's 500 Index ($INX) has been roughly 10% or so -- i.e., from 1,020-ish on the downside, to 1,130 or so on the upside. I expect those "bookends" will probably widen over time, most likely on the downside, and I would not be at all surprised to look back in a few years to find out that the S&P traded between 850 and 1,150.

To me, the probability seems high that we could experience an extended period where the market averages essentially go nowhere (they've done that for a decade already), much as we saw in this country from 1966 to 1982. For reference, during that entire period, the Dow Jones Industrial Average ($INDU) traded in essentially a 300-point range, with around 1,000 on the high end and about 700 on the low.
In the past two weeks, the market has traded at both ends of the recent range, but prospectively, if a large, long-term trading range develops, I wouldn't expect both the upper and lower bounds to be touched every other week.

About Bill Fleckenstein: Bill Fleckenstein is president of Fleckenstein Capital, a money management firm based in Seattle. He writes a daily Market Rap column for his website, Fleckensteincapital.com, as well as the popular column Contrarian Chronicles for MSN Money.

Six Months to Go Until The Largest Tax Hikes in History

In just six months, the largest tax hikes in the history of America will take effect.  They will hit families and small businesses in three great waves on January 1, 2011:

First Wave: Expiration of 2001 and 2003 Tax Relief

In 2001 and 2003, the GOP Congress enacted several tax cuts for investors, small business owners, and families.  These will all expire on January 1, 2011:

Personal income tax rates will rise.  The top income tax rate will rise from 35 to 39.6 percent (this is also the rate at which two-thirds of small business profits are taxed).  The lowest rate will rise from 10 to 15 percent.  All the rates in between will also rise.  Itemized deductions and personal exemptions will again phase out, which has the same mathematical effect as higher marginal tax rates.  The full list of marginal rate hikes is below:

- The 10% bracket rises to an expanded 15%
- The 25% bracket rises to 28%
- The 28% bracket rises to 31%
- The 33% bracket rises to 36%
- The 35% bracket rises to 39.6%

Higher taxes on marriage and family.  The “marriage penalty” (narrower tax brackets for married couples) will return from the first dollar of income.  The child tax credit will be cut in half from $1000 to $500 per child.  The standard deduction will no longer be doubled for married couples relative to the single level.  The dependent care and adoption tax credits will be cut.

The return of the Death Tax.  This year, there is no death tax.  For those dying on or after January 1 2011, there is a 55 percent top death tax rate on estates over $1 million.  A person leaving behind two homes and a retirement account could easily pass along a death tax bill to their loved ones.

Higher tax rates on savers and investors.  The capital gains tax will rise from 15 percent this year to 20 percent in 2011.  The dividends tax will rise from 15 percent this year to 39.6 percent in 2011.  These rates will rise another 3.8 percent in 2013.

Second Wave: Obamacare

There are over twenty new or higher taxes in Obamacare.  Several will first go into effect on January 1, 2011.  They include:

The “Medicine Cabinet Tax”  Thanks to Obamacare, Americans will no longer be able to use health savings account (HSA), flexible spending account (FSA), or health reimbursement (HRA) pre-tax dollars to purchase non-prescription, over-the-counter medicines (except insulin).

The “Special Needs Kids Tax”  This provision of Obamacare imposes a cap on flexible spending accounts (FSAs) of $2500 (Currently, there is no federal government limit).  There is one group of FSA owners for whom this new cap will be particularly cruel and onerous: parents of special needs children.  There are thousands of families with special needs children in the United States, and many of them use FSAs to pay for special needs education.  Tuition rates at one leading school that teaches special needs children in Washington, D.C. (National Child Research Center) can easily exceed $14,000 per year.  Under tax rules, FSA dollars can be used to pay for this type of special needs education.

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.

Third Wave: The Alternative Minimum Tax and Employer Tax Hikes

When Americans prepare to file their tax returns in January of 2011, they’ll be in for a nasty surprise—the AMT won’t be held harmless, and many tax relief provisions will have expired.  The major items include:

The AMT will ensnare over 28 million families, up from 4 million last year.  According to the left-leaning Tax Policy Center, Congress’ failure to index the AMT will lead to an explosion of AMT taxpaying families—rising from 4 million last year to 28.5 million.  These families will have to calculate their tax burdens twice, and pay taxes at the higher level.  The AMT was created in 1969 to ensnare a handful of taxpayers.

Small business expensing will be slashed and 50% expensing will disappear.  Small businesses can normally expense (rather than slowly-deduct, or “depreciate”) equipment purchases up to $250,000.  This will be cut all the way down to $25,000.  Larger businesses can expense half of their purchases of equipment.  In January of 2011, all of it will have to be “depreciated.”

Taxes will be raised on all types of businesses.  There are literally scores of tax hikes on business that will take place.  The biggest is the loss of the “research and experimentation tax credit,” but there are many, many others.  Combining high marginal tax rates with the loss of this tax relief will cost jobs.

Tax Benefits for Education and Teaching Reduced.  The deduction for tuition and fees will not be available.  Tax credits for education will be limited.  Teachers will no longer be able to deduct classroom expenses.  Coverdell Education Savings Accounts will be cut.  Employer-provided educational assistance is curtailed.  The student loan interest deduction will be disallowed for hundreds of thousands of families.

Charitable Contributions from IRAs no longer allowed.  Under current law, a retired person with an IRA can contribute up to $100,000 per year directly to a charity from their IRA.  This contribution also counts toward an annual “required minimum distribution.”  This ability will no longer be there.

Read more: http://www.atr.org/sixmonths.html?content=5171#ixzz0saVAaztD

Obama and the Fiscal 'Road to Hell' - Karl Rove

Wall Street Journal  |  By KARL ROVE

At last week's G-20 meeting, President Barack Obama achieved a two-fer. He suffered a significant international defeat, and he increased the chances his party will suffer a major domestic one this fall.
Mr. Obama's international defeat was self-inflicted. He went to Toronto to press other major nations to do as he has done: Expand government spending, or suffer, in the president's words, "renewed economic hardship and recession."

Getty Images

President Barack Obama speaks at the G20 Summit in Toronto

Canada, Germany, Great Britain and most other countries declined Mr. Obama's invitation. The German economic minister "urgently" prodded America to cut spending at a press conference on June 21, prior to the G-20 meeting. The president of the European central bank took direct aim at Mr. Obama's argument, telling the Italian newspaper La Repubblica on June 16 that "the idea that austerity measures could trigger stagnation is incorrect." 

The European Union president, Czech Prime Minister Mirek Topolanek, tore into Mr. Obama's stimulus and other spending policies in a stunning address to the European Parliament in March 2009, calling them "the road to hell" and saying "the United States did not take the right path."

If it sounds strange to have European leaders lecturing the U.S. about fiscal restraint, it should. But that is where America finds itself after Mr. Obama's 17-month fiscal orgy. 


The other flaw in his G-20 appearance is domestic. The president's statements that more deficit spending was "necessary to keep economic growth strong" and his cautioning against "the consequential mistakes of the past" when stimulus spending "was too quickly withdrawn" puts his administration and party squarely in favor of policies unpopular with most Americans.

Since 2000, the Gallup organization has asked voters what they believe will be the most important problem for the U.S. in 25 years. This year Americans are saying the challenge will be the deficit. And last month, almost eight in 10 voters surveyed by the Associated Press called the federal budget deficit an "extremely" or "very important" issue.

There was more bad news Tuesday for Democrats from recent focus groups conducted in battleground congressional districts in Iowa, Ohio, New Jersey, Arkansas and Florida.
A report on these focus groups issued this week by Resurgent Republic (a group I helped found) showed that both political independents and tea party participants passionately denounced federal spending and deficits, using words like "reckless," "out of control," "unnecessary" and "unhelpful." The evidence suggests that both groups remain deeply skeptical of Mr. Obama's stimulus package and are unpersuaded by the administration's arguments in its favor.

The authors of the Resurgent Republic study concluded that both independents and tea party voters believe "nearly unanimously" that reckless government spending, not lack of tax revenues, is responsible for the deficits. This goes to the very heart of the modern Democratic agenda with its guiding philosophy of bigger government and higher taxes.

All of this negative news is wearing on the president. At the G-20's concluding news conference, Mr. Obama—brittle and petulant—attacked GOP critics "who are hollering about deficits," saying he would be "calling their bluff" next year by "presenting some very difficult choices." Then "we'll see how much of . . . the political arguments they're making right now are real, and how much of it was just politics."
The president's problem is largely a mess of his own making. Deficit spending did not begin when Mr. Obama took office. But he and his Democratic allies have supported, proposed, passed or signed and then spent every dime that's gone out the door since Jan. 20, 2009.

Voters know it is Mr. Obama and Democratic leaders who approved a $410 billion supplemental (complete with 8,500 earmarks) in the middle of the last fiscal year, and then passed a record-spending budget for this one. Mr. Obama and Democrats approved an $862 billion stimulus and a $1 trillion health-care overhaul, and they now are trying to add $266 billion in "temporary" stimulus spending to permanently raise the budget baseline.

It is the president and Congressional allies who refuse to return the $447 billion unspent stimulus dollars and want to use repayments of TARP loans for more spending rather than reducing the deficit. It is the president who gave Fannie and Freddie carte blanche to draw hundreds of billions from the Treasury. It is the Democrats' profligacy that raised the share of the GDP taken by the federal government to 24% this fiscal year.
This is indeed the road to fiscal hell, and it's been paved by the president and his party. Voters will have their chance this November to render their verdict on the Obama years. No wonder Republicans feel confident these days.

Mr. Rove, the former senior adviser and deputy chief of staff to President George W. Bush, is the author of "Courage and Consequence" (Threshold Editions, 2010).

Go back to Follow the Money Daily 

Time runs out for 1.2 million on unemployment

(Jerry's Comments: It is currently a sad state of affairs in our nation. The high unemployment that America has been suffering imparts extreme to our nation's economy. The time is counting down and Washington knows something must give. But the options are few when spending cuts are unacceptable and our monetary system remains corrupted by central banking schemes. America, this is your wake-up call.)

By Christina Zdanowicz, CNN
June 30, 2010 11:29 a.m. EDT

(CNN) -- With her unemployment benefits coming to a halt, Miriam Cintron is forced to make a difficult choice between health insurance and daily expenses.

Signing into her unemployment benefits account last week, the New Yorker was horrified to see she hadn't received any money for three weeks, she says.

What would the four-year cancer survivor do if she couldn't afford to pay her $650 monthly COBRA payment? Her health insurance helped pay for life-saving treatment before, so giving it up is not an option, she says.

When Cintron was laid off from her job as a case worker at a homeless shelter in late 2008, she never imagined she'd go on unemployment. But even with 17 years experience, she's been unable to land a new job.

Cintron isn't alone. Unemployment benefits are set to run dry for 1.2 million people nationwide Friday after the U.S. Senate decided not to extend a deadline to file for these benefits last week, according to the National Employment Law Project.

Come Saturday, the number of people cut from unemployment benefits will surge to 1.63 million, according to U.S. Department of Labor estimates. By mid-July, about 2 million unemployed Americans could lose their benefits.
It's very hard for me to get into this feeling sorry for myself. ... But I am getting there.
--Miriam Cintron, unemployed American

Before last month, out-of-work Americans were eligible for extensions once they maxed out at 26 weeks of state benefits. Depenging on the state, people could qualify for up to 73 weeks of federal benefits -- a total of 99 weeks. But, Senate Republicans blocked the extension with a 57-14 vote last week.

The House could vote again as soon as late Wednesday.

"The reality is that we have the worst job market on record going back to the Great Recession," says Maurice Emsellem, policy co-director at National Employment Law Project.

"There's only one job available for every five unemployed workers."

For people who are apt to say, "Go find a job," Emsellem says the predicament of the unemployed isn't easy to escape.

"For anybody that has a thought in their head that unemployed workers are to blame for their situation, the reality is that workers are struggling hard to find work, but the jobs are just not there."

National Employment Law Project resources for the unemployed

While Cintron has been struggling to make ends meet for the last year-and-a-half, she worries about other people in the same predicament.

"My story is one story and it's unique," she says. "But, there are so many people with children, other issues, that are in dire situations."

"I'm just shocked that more attention isn't being paid to this story."

She's thankful she doesn't have any children relying on her for support right now. But, she does care for her mother. Part of Cintron's unemployment checks have been going toward her mother's expenses since she moved in with her a few months before Cintron lost her job.

Cintron's $425 unemployment check each week -- or $1,700 each month -- has to stretch a long way. She pitches in for appliances, groceries and whatever else her mother needs. Health insurance payments burn a hole in her wallet at a whopping $650 per month. And then there's the storage fee of $300 she pays for all her excess furniture from her old apartment.

If Congress fails to pass the bill granting the unemployment benefit extensions this week, Cintron says she will only be able to stay afloat for a month. She will have to dip into her 401(k) retirement plan to continue to pay for health care, she says.

As to what happens after that, Cintron says she just doesn't know.

"I will try to survive and see what I can do for paying the health insurance for at least another few months with my 401(k)."

"I don't qualify for Medicaid, I make too much money. I have to pay the $650 to a private health insurer."

Finding the income to support her expensive health insurance hasn't been an easy task. For the last year-and-a-half, Cintron has been applying to jobs at homeless shelters in New York. Even though she has landed several interviews, they haven't amounted to anything.

"The agencies where I'm applying to, they're all cutting back too," she says, citing city funding cutbacks.

Cintron is considering part-time or customer service work as a last resort, but she's worried she may be worse off.

"I certainly don't want to live on unemployment," she says. "The customer service jobs don't pay well, don't have health insurance. I really need insurance because I'm a cancer survivor."

For now, Cintron keeps logging into the unemployment benefits website, typing in her account number and trying to claim benefits.

Cintron says the New York State Department of Labor has instructed her to keep logging in as normal, even though she's not getting a dime. Cintron says the website is confusing and she's unsure of how many extensions she's had.

With all the stress and lack of income, Cintron's been relying on hobbies to try to keep her spirits up.

Ever since she lost her job, she's been an active iReporter, scouting events and stories in her native New York. Videography and photography have become her focus. In this digital age, it's free for her to upload her images, so it's a cheap hobby.

Her other passion is music. She's sad she's had to nix going to concerts, but says she's lucky to live in a city where so many free shows are going on at any time.

Even though she's found ways to lead a semi-normal life, her time being unemployed is starting to wear her down.

"I'm a glass half-full kind of person. I'm a very positive person. It's very hard for me to get into this feeling sorry for myself, what-am-I-going-to-do mode," she says.

"But I am getting there."

UN report: Abandon the U.S. dollar

REUTERS

A new United Nations report released on Tuesday calls for abandoning the U.S. dollar as the main global reserve currency, saying it has been unable to safeguard value.

"The dollar has proved not to be a stable store of value, which is a requisite for a stable reserve currency," the U.N. World Economic and Social Survey 2010 said.

The report says that developing countries have been hit by the loss of value of the U.S. dollar in recent years.

"Motivated in part by needs for self-insurance against volatility in commodity markets and capital flows, many developing countries accumulated vast amounts of such (U.S. dollar) reserves during the 2000s," it said.

The report supports replacing the dollar with the International Monetary Fund's special drawing rights (SDRs), an international reserve asset that is used as a unit of payment on IMF loans and is made up of a basket of currencies.

"A new global reserve system could be created, one that no longer relies on the United States dollar as the single major reserve currency," the U.N. report said.

It said a new reserve system "must not be based on a single currency or even multiple national currencies but, instead, should permit the emission of international liquidity (such as SDRs) to create a more stable global financial system."

"Such emissions of international liquidity could also underpin the financing of investment in long-term sustainable development," it said.

Nobel Prize winner Joseph Stiglitz, who previously chaired a U.N. expert commission that considered ways of overhauling the global financial system, is among the economists who have advocated the creation of a new reserve currency system, possibly based on SDRs.

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Consumer Confidence Index plummets to 52.9 in June; Lowest numbers since March

U.S. consumer confidence plummets on job worries

By Ruth Mantell, MarketWatch

WASHINGTON (MarketWatch) -- U.S. consumers are increasingly worried about jobs and the economy, the Conference Board said Tuesday, as it reported that its consumer confidence index plummeted to 52.9 in June -- the lowest level since March -- from a downwardly revised 62.7 in May.

"Increasing uncertainty and apprehension about the future state of the economy and labor market, no doubt a result of the recent slowdown in job growth, are the primary reasons for the sharp reversal in confidence," said Lynn Franco, director of Conference Board's consumer research center. "Until the pace of job growth picks up, consumer confidence is not likely to pick up."

Earlier this month the government reported that nonfarm payrolls grew by a seasonally adjusted 431,000 in May, but most of the new jobs were temporary jobs at the U.S. Census, with very weak private-sector hiring. The government's next payrolls report is due out Friday, with economists polled by MarketWatch looking for a June contraction of 130,000.

Economists had expected a June reading for consumer confidence of 62.8. The Conference Board's prior reading for May was 63.3.

Consumers' view on the present situation and their expectations deteriorated in June, with both reaching the lowest levels since March, according to the Conference Board. Their view on the present situation fell to 25.5 in June from 29.8 in May, while the expectations barometer declined to 71.2 from 84.6.

Respondents saying current business conditions are "good" fell to 8% in June from 9.7% in May, while those saying jobs are "hard to get" rose to 44.8% from 43.9%.

Respondents saying they expect business conditions to be worse in six months rose to 14.9% in June from 11.9% in May, while the percentage of those expecting better business conditions fell to 17.2% from 22.8%. Those expecting fewer jobs rose to 20.8% from 17.8%, while those expecting more jobs fell to 16% from 20.2%.
Double dip?

While the confidence report could fuel fears of a "double-dip" recession undercutting U.S. gross domestic product, analysts at RDQ Economics said such worries may be misplaced.

"Confidence has double-dipped in the last two recoveries (in early 1992 and early 2003) without the economy falling back into recession and the June pullback in confidence is far less severe than either of those two episodes," according to an RDQ research note. "Furthermore, we think that the response to the oil leak in the Gulf of Mexico is depressing confidence."

Meanwhile, analysts at Barclays Capital Research said the confidence report contains volatility, and they expect a positive overall trend in confidence as the job market expands in the new few months.

"Despite the drop in today's report, the headline confidence index remains substantially higher than its recent trough," according to a Barclays research note. "Furthermore, this survey is usually conducted near the time of the release of the payroll report and places more emphasis on household reaction to labor market conditions, which may explain some of the pessimism in June since the May rise in private payrolls disappointed expectations."
Buying plans impacted

Consumers with plans to buy a home within six months fell to 1.9% in June - the lowest level since 1982 other than 1.7% in December, according to the Conference Board. In May 2.1% had plans to buy a home.

Those with plans to buy an automobile fell to a record low of 3.7% in June from 6% in May. The data go back to 1967.

Those with plans to buy major appliances fell to 22.9% in June from 26% in May.

"While the recession may have technically ended last summer, consumers remain skittish about job and income prospects and are refraining from consuming in a sufficient enough manner as to create substantial growth in GDP," wrote Dan Greenhaus, chief economic strategist with Miller Tabak, in a research note.

Expectations for the 12-month inflation rate fell to 5.2% in June from 5.3% in May.

Fannie-Freddie Bailout Could Cost Taxpayers $1 Trillion

By: Reported by Steve Liesman, written by Michelle Lodge

For American taxpayers, now on the hook for some $145 billion in housing losses connected to Fannie Mae and Freddie Mac loans, that amount could be just the tip of the iceberg.

According to the Congressional Budget Office, the losses could balloon to $400 billion. And if housing prices fall further, some experts caution, the cost to the taxpayer could hit as much as $1 trillion.

Two things are clear: Taxpayers don’t want to foot the bill, and Fannie and Freddie, taken over by the government in 2008 to stanch the financial bloodletting, need a major overhaul.

“Some of us who don’t even own homes are paying to support others and their home ownership, and they ask ‘why?’ said Robert J. Shiller, a Yale University economics professor and co-creator of the S&P/Case-Shiller Home Price Indices.

The indices measure the US residential housing market by tracking changes in the value of residential real estate both nationally and in 20 metropolitan regions.

Shiller added that the mission of Fannie and Freddie should be severely cut back “so that they’re not helping middle-class homeowners, [but] they’re helping poor people get into the housing market.”

At the crux of the financial crisis, the government took over Fannie and Freddie to avert possible massive losses for banks, money-market funds and, perhaps, most importantly, foreign institutions that purchased billions of Fannie and Freddie debt because of its implied government guarantee.

The Chinese, for example, had invested heavily, and the US decided it didn’t want them to take a loss on their investment.

One possible scenario for the entities is to turn them into utilities, said Sean Dobson, CEO and chair of Amherst Securities, whose company trades as much as $50 billion in mortgages annually.

“Freddie and Fannie could be used to standardize the mortgage product,” Dobson said, “to completely describe what the risks are and then act as a conduit for the capital markets to take the risk.”

Secretive and Powerful BIS Annual Report Released

The very fabric and the seams of the financial system are coming apart. Who knows what the timetable is for the implosion of the current monetary system? We are witnessing the greatest wealth transfer in history, and the horrors of the aftermath of this tragedy will not be forgotten for decades. Keep in mind that the stark warnings from today’s annual BIS (Bank for International Settlements) report are the very reason why it is so important for all readers globally to protect themselves and their families by owning gold.

This was from the annual report released today by the very secretive and extremely powerful BIS: “Three years after the onset of the crisis, expectations for recovery and reform are high but patience is wearing thin. Policymakers face a daunting legacy: the side effects of the ongoing financial and macroeconomic support measures, combined with the unresolved vulnerabilities of the financial sector, threaten to short-circuit the recovery; and the full suite of reforms necessary to improve the resilience of the financial system has yet to be completed.”

The BIS release continues: “When the transatlantic financial crisis began nearly three years ago, policymakers responded with emergency room treatment and strong medicine: large doses of direct support to the financial system, low interest rates, vastly expanded central bank balance sheets and massive fiscal stimulus. But such powerful measures have strong side effects, and their dangers are beginning to become apparent.”

“Here are the worst problems arising now from the continued use of the extraordinary programmes: Direct support is delaying vital post-crisis adjustment and runs the risk of creating zombie financial and non-financial firms. Low interest rates at the centre of the global economy are discouraging needed reductions in leverage, thereby adding to the distortions in the financial system and creating problems elsewhere.”

“The sustained bloat in their balance sheets means that central banks still dominate some segments of financial markets, thereby distorting the pricing of some important bonds and loans, discouraging necessary market-making by private individuals and institutions, and increasing moral hazard by making it clear that there is a buyer of last resort for some instruments. And the fiscal stimulus is spawning high and growing government debt that, in a number of countries, is now clearly on an unsustainable path.”

The first section of the BIS report concludes: “The financial disruptions in the first half of 2010 have brought the fragility of the industrial world’s financial system into stark relief: a shock of virtually any size risks a replay of the events we saw in late 2008 and early 2009. The sovereign debt crisis in Greece is clearly jeopardising Europe’s nascent recovery from the deep recession brought on by the earlier crisis.”

“Unlike then, however, we have hardly any room for manoeuvre. Policy rates are already at zero and central bank balance sheets are bloated. Although private sector debt has started to decline, public debt has taken its place, with sovereign fiscal positions already on an unsustainable path in a number of countries. In short, macro-economic policy is in a vastly worse position than it was three years ago, with little capacity to combat a new crisis – it will be difficult to find a source of further treatment should another emergency arise. Regaining the ability to react to economic and financial crises, by putting policies onto sustainable paths, is therefore a priority for macroeconomic policy.”

Notice the BIS report describes zombie banks and even zombie non-financial firms. They also describe the “high and growing government debt” as clearly unsustainable. They then go on to note the fragility of the financial system and the fact that another shock would be extraordinarily dangerous to the system because central banks are losing the ability to maneuver as interest rates are low and “central banks balance sheets are bloated.”

Gold is often referred to as an insurance policy, and it is one insurance policy you cannot be without when the financial system ultimately implodes. You must own gold to be on the right side of the greatest wealth transfer in history.

Eric King
KingWorldNews.com

The Third Depression

By PAUL KRUGMAN
Published: June 27, 2010

Recessions are common; depressions are rare. As far as I can tell, there were only two eras in economic history that were widely described as “depressions” at the time: the years of deflation and instability that followed the Panic of 1873 and the years of mass unemployment that followed the financial crisis of 1929-31.

Recessions are common; depressions are rare. As far as I can tell, there were only two eras in economic history that were widely described as “depressions” at the time: the years of deflation and instability that followed the Panic of 1873 and the years of mass unemployment that followed the financial crisis of 1929-31.

Neither the Long Depression of the 19th century nor the Great Depression of the 20th was an era of nonstop decline — on the contrary, both included periods when the economy grew. But these episodes of improvement were never enough to undo the damage from the initial slump, and were followed by relapses.

We are now, I fear, in the early stages of a third depression. It will probably look more like the Long Depression than the much more severe Great Depression. But the cost — to the world economy and, above all, to the millions of lives blighted by the absence of jobs — will nonetheless be immense.

And this third depression will be primarily a failure of policy. Around the world — most recently at last weekend’s deeply discouraging G-20 meeting — governments are obsessing about inflation when the real threat is deflation, preaching the need for belt-tightening when the real problem is inadequate spending.

In 2008 and 2009, it seemed as if we might have learned from history. Unlike their predecessors, who raised interest rates in the face of financial crisis, the current leaders of the Federal Reserve and the European Central Bank slashed rates and moved to support credit markets. Unlike governments of the past, which tried to balance budgets in the face of a plunging economy, today’s governments allowed deficits to rise. And better policies helped the world avoid complete collapse: the recession brought on by the financial crisis arguably ended last summer.

But future historians will tell us that this wasn’t the end of the third depression, just as the business upturn that began in 1933 wasn’t the end of the Great Depression. After all, unemployment — especially long-term unemployment — remains at levels that would have been considered catastrophic not long ago, and shows no sign of coming down rapidly. And both the United States and Europe are well on their way toward Japan-style deflationary traps.

In the face of this grim picture, you might have expected policy makers to realize that they haven’t yet done enough to promote recovery. But no: over the last few months there has been a stunning resurgence of hard-money and balanced-budget orthodoxy.

As far as rhetoric is concerned, the revival of the old-time religion is most evident in Europe, where officials seem to be getting their talking points from the collected speeches of Herbert Hoover, up to and including the claim that raising taxes and cutting spending will actually expand the economy, by improving business confidence. As a practical matter, however, America isn’t doing much better. The Fed seems aware of the deflationary risks — but what it proposes to do about these risks is, well, nothing. The Obama administration understands the dangers of premature fiscal austerity — but because Republicans and conservative Democrats in Congress won’t authorize additional aid to state governments, that austerity is coming anyway, in the form of budget cuts at the state and local levels.

Why the wrong turn in policy? The hard-liners often invoke the troubles facing Greece and other nations around the edges of Europe to justify their actions. And it’s true that bond investors have turned on governments with intractable deficits. But there is no evidence that short-run fiscal austerity in the face of a depressed economy reassures investors. On the contrary: Greece has agreed to harsh austerity, only to find its risk spreads growing ever wider; Ireland has imposed savage cuts in public spending, only to be treated by the markets as a worse risk than Spain, which has been far more reluctant to take the hard-liners’ medicine.

It’s almost as if the financial markets understand what policy makers seemingly don’t: that while long-term fiscal responsibility is important, slashing spending in the midst of a depression, which deepens that depression and paves the way for deflation, is actually self-defeating.

So I don’t think this is really about Greece, or indeed about any realistic appreciation of the tradeoffs between deficits and jobs. It is, instead, the victory of an orthodoxy that has little to do with rational analysis, whose main tenet is that imposing suffering on other people is how you show leadership in tough times.

And who will pay the price for this triumph of orthodoxy? The answer is, tens of millions of unemployed workers, many of whom will go jobless for years, and some of whom will never work again.

Derivative Monster: Alive and Kicking Despite Reforms

by Martin D. Weiss, Ph.D.   06-28-10

Anyone who thinks the new financial reform law will save us from the next debt disaster must be dreaming. Here are the facts …

Fact: The U.S. derivatives that helped cause the last debt crisis are merely being shifted around like deck chairs on the Titanic.

Fact: Nothing whatsoever is being done about the derivatives monster overseas, which is more than TWICE as big.

Fact: Most important, despite months of debate and thousands of pages of legislation, the two biggest risk-mongers of all — the Treasury and the Fed — didn’t even get a slap on the wrist. They got more power.

Little has been done to address the huge derivatives risks that the Government Accountability Office (GAO) warned about 16 years ago in its landmark study, Financial Derivatives, Actions Needed to Protect the Financial System.

And nothing has been done to address the risks we warned Congress about 15 months ago in our white paper, “Dangerous Unintended Consequences.”

Need proof? Then read on …

Fact #1 Derivatives at U.S. Banks to Be Shifted Like Deck Chairs on the Titanic

In its latest update, the Comptroller of the Currency (OCC) reports that the national value of derivatives held by U.S. commercial banks is $216.5 trillion, or nearly FIFTEEN times the nation’s Gross Domestic Product.

Moreover, instead of diminishing, they’re getting larger, up by $3.6 trillion — the equivalent of one full quarter of GDP — in just the most recent three-month period.

Yes, regulatory reform takes some steps in the right direction, such as getting a piece of this monster off the street and under the roof of exchanges. But how far is that going to go toward protecting investors if the beast keeps growing bigger?

Despite the new reforms, derivatives will continue to grow in size. And they will continue to be highly leveraged investments that put financial institutions, their trading partners, individual investors, and the entire financial system at risk.

Congress knows — or should know — what these risks are; the GAO explicitly warned about them 16 years ago, long before the 2008 debt crisis began. Derivatives create massive exposure to:

(a) credit risk, defined as “the possibility of loss resulting from a counter party’s failure to meet its financial obligations”;

(b) market risk, “adverse movements in the price of a financial asset or commodity”;

(c) legal risk, “an action by a court or by a regulatory or legislative body that could invalidate a financial contract”;

(d) operations risk, “inadequate controls, deficient procedures, human error, system failure, or fraud”; and

(e) system risk, a chain reaction of financial failures that could threaten the national or global banking system.

Are these risks addressed in financial reform? Only marginally.

Moreover, the GAO warned that a handful of big players accounted for the overwhelming bulk of the derivatives trading — a dangerous concentration of risk.

Has this risk diminished since then? No, it is even more deeply entrenched today: The latest OCC tally of the largest 25 banks (Table 1, pdf page 23) shows that …

• Just FOUR of the largest commercial banks — JPMorgan Chase, Bank of America, Citibank, and Goldman Sachs — control $205.3 trillion in derivatives, or 94.9 percent of the total held by all U.S. banks.
• Only 25 of the top banks control $216.1 trillion in derivatives, or 99.82 percent of the total. In other words, for every $100 of derivatives, the big banks hold $99.82; while all the rest of the banks hold a meager 18 cents’ worth.

Does the new regulatory reform address this intense concentration of risk? Hardly. In fact, I fear it could have precisely the opposite effect, tacitly giving the government’s rubber stamp of approval to this dangerous oligopoly.

Fact #2 The Derivatives Monster Overseas Is Twice as Big. But Nothing Whatsoever Is Being Done to Tame It.

The Bank of International Settlements (BIS) reports that, at year-end 2009, the total notional amount of derivatives traded on the over-the-counter market globally was $614.7 trillion.

In addition, the total traded on organized exchanges was $21.7 trillion in futures contracts and another $51.4 trillion in options.

Grand total globally: $687.8 trillion.

Problem: At this juncture, strictly the portion held by U.S. banks (the $216.5 trillion tabulated by the OCC) has anything to do with the new legislation. The balance of $471.3 trillion — TWICE as much — remains outside the realm of any reforms.

Fact #3 Financial Reform Does Nothing to Curb The Two Biggest Risk-Mongers of All:The Treasury and the Fed

The financial reform bill grants both the U.S. Treasury Department and the Federal Reserve new powers and responsibilities to control and monitor the risk-taking of large financial institutions.

What’s ironic, however, is that these are precisely the agencies that have created — and continue to create — the greatest systemic risks of all:

• The Treasury, by running the largest federal deficits of all time, exposes the U.S. bond market to the same kind of contagion risk that recently struck Greece, Spain, Portugal, and Hungary. And …
• The Federal Reserve, by massively increasing the U.S. monetary base, helps create the same kind of speculative bubbles that caused the debt crisis in the first place.

Clearly, Congress has done little more than tinker — fighting the last war, even as it sits on the powder keg of the next one.

My recommendation: Stay safe. And if you have speculative fund available, start now to stake out positions that stand to profit from the consequences of our government’s failure to act decisively — higher interest rates and lower equity prices.

Good luck and God bless!

Martin

This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.