The Federal Reserve came out again this week saying they are committed to keeping interest rates near zero until at least 2013. It doesn’t seem like much of a commitment if they need to reassure us after every Fed meeting that they haven’t changed their minds. The problem is that the Republicans and their own flat earth economists keep screaming about run away inflation being just around corner (be afraid, be very afraid and buy our gold). They don’t get it, or choose not to get that since we are de-leveraging a couple of trillion dollars of debt each year, and will for years to come, inflation just can‘t happen.
Speaking of the gold you bought on the advice of Glenn Beck or Ron Paul, it’s down about $150/oz since Friday. Gold funds are dumping their holdings to raise cash in order to cover margin calls. Most other non-food commodities fell more than 5% today as well, the stock markets were down for the third straight day.
European banks with branches in the US are experiencing a good old fashioned bank run as the Euro problem is not being solved. Bank of America has been hemorrhaging depositors as well. Some 99% protesters have been transferring their accounts to credit unions, but any large depositor would be nuts to stay with BoA with its $75 trillion of exposure to derivatives.
“Only” $47 trillion of BoA’s derivatives have been transferred to its banking division from Merrill Lynch, but this is putting the FDIC on the hook to cover the insured portion of depositors accounts. A big depositor would take a loss on the balance of his account not covered by the FDIC. Every time BoA gets a credit downgrade it has to post more collateral on those $75 trillion in derivatives. Their banking division has a higher credit rating than Merrill so this has held creditors at bay, but another downgrade will likely do in the bank. That is unless the Fed intervenes, they can and have simply printed money to bail out the big zombie banks in the past.
Remember the Bankruptcy “Reform” Act that Republicans passed a few years back? Besides screwing consumers, it moved derivative contract holders to the very top of the list to be paid from any bankruptcy filing, customer deposit accounts are far down the list. This explains why a bank with a sixth of all US deposits would be able to cover the margin call on $47 trillion in derivative contracts, at least for now. This may well be where the $1.2 billion “missing” from Jon Corzine’s MF Global went, but they’re “still looking”. A Republican member of the Commodity Futures Trading Commission said today that its auditors have know where the money went, but they aren’t saying just yet.
The Census Bureau has come out with some numbers: homelessness among children continues to increase, up nearly 40% from three years ago; the Census also reports November retail sales were up 6.7% from last year. This is the sixth straight month of increased retail activity, but the increase from October was only 0.2%. Black Friday, as I predicted, turned out to be largely hype. We are seeing some pent up demand released as consumers are spending on things they have been putting off, and the rest is price inflation from fuel cost increases as well as food commodity speculation. Realistically, the trend in actual goods being sold is probably flat at best.
China is about to put a 21% tariff on the importation of cars from America. No matter that a large share of the parts came from China, or maybe the tariff would be higher except for the credit we receive for “domestic content”. Keep in mind that we are already at a 40% price disadvantage from the undervaluing of the Renminbi enforced by China. Remember how “free trade” was going to open up a huge market in China?
The USD dipped to under a $1.30 per euro today as the specter of austerity creeps across Europe’s economy. Hard right political parties are gaining new traction in some countries even to the point of creating paramilitary wings reminiscent of early in the last century. Of course their uniforms are probably made in China just like American flags. www.prairie2.com