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Archive for February, 2011

By Gary Strauss
USA TODAY

If political unrest in Libya spreads to other oil-rich countries and the ensuing chaos disrupts crude oil production, gas prices could hit $5 a gallon by peak summer driving season, industry analysts say.

Oil prices soared to the highest level in more than two years as violence spread in Libya and Moammar Gadhafi’s grip weakened. Only a small amount of Libya’s oil production appeared to have been affected, though analysts fear revolts will spread to OPEC heavyweights like Iran.

Benchmark West Texas Intermediate for April delivery jumped $4.59, or 5% to $94.30 per barrel on the New York Mercantile Exchange. The last time oil traded at that level was Oct. 2, 2008. The April contract traded as high as $98.48 per barrel.

“If this thing escalates and there’s a good chance that there’d be a shift in supplies, $5 gas isn’t out of the question,” says Darin Newsom, senior analyst at energy tracker DTN.

The average price of regular gasoline is expected to rise to $3.25 within a few days, says Tom Kloza, chief analyst at the Oil Price Information Service. That’s 2.5% above Tuesday’s $3.17 national average.

Spanish oil company Repsol-YPF said Tuesday that it suspended operations in Libya, which produced 34,777 barrels of oil equivalent per day last year. Other oil companies, including Italy’s Eni, Royal Dutch Shell, U.K.-based BP and Germany’s Wintershall, started pulling out employees. Meanwhile, key Libyan officials resigned and air force pilots defected amid a bloody crackdown on the protests.

Libya holds the most oil reserves in Africa and is the world’s 15th-largest crude exporter at 1.2 million barrels per day, according to the Energy Information Administration.

Any production losses out of Libya could be quickly absorbed by other countries like Saudi Arabia, which can ramp up production as much as another five million barrels per day. The main concern stalking markets is that revolts in the Middle East and North Africa will spread to OPEC heavyweights, particularly Iran, the group’s second-largest producer.

Read the entire article HERE.

Pablo Gorondi
Associated Press
Wednesday February 23, 2011, 8:53 am EST

Oil prices rose to fresh two-year highs around $96 a barrel Wednesday amid concerns that a violent power struggle in Libya could disrupt supplies, with experts warning the next weeks and months would prove highly volatile.

If the chaos spreads to other bigger energy producers in the region, such as Iran or Saudi Arabia, price fluctuations could became as sharp as those in the 1970s, when an OPEC embargo caused gasoline shortages in the U.S., analysts warned.

By early afternoon in Europe, benchmark crude for April delivery was up 74 cents at $96.16 a barrel — the highest since October 2008 — in electronic trading on the New York Mercantile Exchange. The contract jumped $5.71, or 6.4 percent, to settle at $95.42 on Tuesday.

In London, Brent crude for April delivery gained $1.65 to $107.43 a barrel on the ICE Futures exchange.

Libyan leader Moammar Gadhafi on Tuesday called on supporters to attack anti-government demonstrators as protesters backed by defecting army units claimed control over almost the entire eastern half of the country, including several oil-producing areas.

Nearly 300 people have been killed so far in the rebellion, according to a partial count by the New York-based Human Rights Watch.

Libya holds the most oil reserves in Africa and is the world’s 15th-largest crude exporter at 1.2 million barrels per day, according to the Energy Information Administration.

“In total, some 300,000 barrels per day is now offline, but … the numbers could rise as we still do not have a clear idea how much oil is being impacted by striking Libyan workers deep inside the country,” said Edward Meir, senior commodity analyst at MF Global in New York.

As the Libyan government cracked down on protesters, Western oil companies including Eni and Repsol-YPF temporarily suspended oil production in the country. BP has started evacuating workers.

“The protests in Libya are the first to meaningfully put oil supplies at risk,” Goldman Sachs said in a report.

Goldman, which is forecasting benchmark crude to rise to $103 within 12 months, said recent violent protests in Bahrain show that wealthy oil-rich Gulf states are also vulnerable to political upheaval.

“These recent developments in Libya and Bahrain increase the risks of major supply disruptions,” it said.

The crisis in the Middle East and North Africa began in January with the overthrow of Tunisia ruler Ben Ali, spread to Egypt and the resignation of President Hosni Mubarak and has sparked protests in Yemen, Bahrain, Iran, Algeria, Morocco and Jordan.

Traders are watching closely protests in Iran, OPEC’s second largest producer, and for signs of any unrest in Saudi Arabia, the world’s biggest crude exporter. Analysts fear that further oil price spikes could fuel inflation, undermining consumer spending and global economic growth.

“Saudi Arabia, itself an authoritarian state, now finds itself surrounded by countries in the throes of revolution,” energy analyst Richard Soultanian of NUS Consulting said.

“Should the current situation continue to deteriorate, it has the potential to not only roil the energy markets but also upend the nascent and accelerated recoveries in developed and emerging markets.”

Some observers expect a return to the sharp fluctuations of oil prices seen in the 1970s.

“Today’s situation is reminiscent of the 1970s,” said Anthony Michael Sabino, a professor at St. John’s University’s college of business. “The price of oil will now jump in direct relation to one of its oldest barometers — political tension in the Middle East.”

“Expect nothing but a roller coaster ride for a few weeks, if not months.”

Read the entire article HERE.

An economic blogger recently produced an excellent, two hour webinar on how to profit during hyperinflation. What makes his presentation unique, is that he’s from Chile, and actually went through their hyperinflation in 1991… So he’s literally been there, done that, and has invaluable lessons to share regarding his experience. On February 26, 2011 he will be doing a 2-3 hour webinar for all Elevation Group members free of charge. Experience is key to understanding what to do in times of inflationary pressures.

Register and get info on how to be an Elevation Group member by entering your name and email to the top left hand opt in box.

by John Williams
Shadowstats.com

Have you ever wondered why the CPI, GDP and employment numbers run counter to your personal and business experiences? The problem lies in biased and often-manipulated government reporting.

Alternate Unemployment Charts

The seasonally-adjusted SGS Alternate Unemployment Rate reflects current unemployment reporting methodology adjusted for SGS-estimated long-term discouraged workers, who were defined out of official existence in 1994. That estimate is added to the BLS estimate of U-6 unemployment, which includes short-term discouraged workers.
The U-3 unemployment rate is the monthly headline number. The U-6 unemployment rate is the Bureau of Labor Statistics’ (BLS) broadest unemployment measure, including short-term discouraged and other marginally-attached workers as well as those forced to work part-time because they cannot find full-time employment.

Alternate Inflation Charts

The CPI chart on the home page reflects our estimate of inflation for today as if it were calculated the same way it was in 1990. The CPI on the Alternate Data Series tab here reflects the CPI as if it were calculated using the methodologies in place in 1980. In general terms, methodological shifts in government reporting have depressed reported inflation, moving the concept of the CPI away from being a measure of the cost of living needed to maintain a constant standard of living.

CPI Year-to-Year Growth

The CPI-U (consumer price index) is the broadest measure of consumer price inflation for goods and services published by the Bureau of Labor Statistics (BLS).

While the headline number usually is the seasonally-adjusted month-to-month change, the formal CPI is reported on a not-seasonally-adjusted basis, with annual inflation measured in terms of year-to-year percent change in the price index.
Here we show the annual percent change (year-to-year) in both the CPI-U and the SGS-Alternate CPI.

John Williams:

Walter J. “John” Williams was born in 1949. He received an A.B. in Economics, cum laude, from Dartmouth College in 1971, and was awarded a M.B.A. from Dartmouth’s Amos Tuck School of Business Administration in 1972, where he was named an Edward Tuck Scholar. During his career as a consulting economist, John has worked with individuals as well as Fortune 500 companies.

Formally known as Walter J. Williams, my friends call me John. For nearly 30 years, I have been a private consulting economist and, out of necessity, had to become a specialist in government economic reporting.

One of my early clients was a large manufacturer of commercial airplanes, who had developed an econometric model for predicting revenue passenger miles. The level of revenue passenger miles was their primary sales forecasting tool, and the model was heavily dependent on the GNP (now GDP) as reported by the Department of Commerce. Suddenly, their model stopped working, and they asked me if I could fix it. I realized the GNP numbers were faulty, corrected them for my client (official reporting was similarly revised a couple of years later) and the model worked again, at least for a while, until GNP methodological changes eventually made the underlying data worthless.

That began a lengthy process of exploring the history and nature of economic reporting and in interviewing key people involved in the process from the early days of government reporting through the present. For a number of years I conducted surveys among business economists as to the quality of government statistics (the vast majority thought it was pretty bad), and my results led to front page stories in the New York Times and Investors Business Daily, considerable coverage in the broadcast media and a joint meeting with representatives of all the government’s statistical agencies. Despite minor changes to the system, government reporting has deteriorated sharply in the last decade or so.

An old friend — the late-Doug Gillespie — asked me some years back to write a series of articles on the quality of government statistics. The response to those writings (the Primer Series available on this page) was so strong that we started Shadow Government Statistics in 2004. The newsletter is published as part of my economic consulting services.

- John Williams

Submitted by Tyler Durden on 02/21/2011 12:04 -0500
Zerohedge.com

The first very shy tick above $34 in the last 31 years is in the history books. Will soon be followed by many more. And only $16 more to go to all time nominal highs… and ~$160 to real ones. What is truly hilarious vis-a-vis claims that the dollar is a reserve currency is that in the period in which gold has risen by 2.9%, and silver, 12.3%, the DXY has dropped by 1.45%. It would be quite amusing if Schumer’s push to unpeg the CNY came true, only for the US to realize that its currency is now completely irrelevant.

Submitted by Tyler Durden on 02/21/2011 07:49 -0500
Zerohedge.com

Is this one of those “who could have possibly seen it coming” moments? As events in Libya overnight spiralled out of control, with dozens if not hundreds killed, the parliament buildng in Tripoli on fire, and output at one of the country’s oil fields reported to have been stopped by a workers’ strike, BP has said it will soon begin evacuating some of its personnel from the 9th largest producer of oil. And just to complete the total chaos, Iran warships are now going to pass the Suez on Tuesday instead of today, to the full glory of a fully open US stock market. The result: gold over $1,400; silver over $33.50; Crude front month over $93; Brent over $105; etc. Luckily, the US stock market is closed, meaning all this will be “priced in” by tomorrow, and the HFT levitation can resume tomorrow as if today never happened…

Some of the key overnight highlights:

Dozens of people were reported killed in Tripoli overnight as anti-government protests reached the Libyan capital for the first time and the building where the country’s parliament meets was ablaze on Monday.

One of Muammar Gaddafi’s sons said the veteran leader would fight the popular revolt that has shaken his 40-year rule until “the last man standing.”

Anti-government protesters rallied in Tripoli’s streets, tribal leaders spoke out against Gaddafi, and army units defected to the opposition in a revolt that has cost the lives of more than 200 people.

Output at one of the country’s oil fields was reported to have been stopped by a workers’ strike and some European oil companies withdrew expatriate workers and suspended operations.

Al Jazeera television quoted medical sources as saying 61 people had been killed in the latest protests in Tripoli.

It said security forces were looting banks and other government institutions in Tripoli and protesters had broken into several police stations and trashed them.

The building where the General People’s Congress, or parliament, meets when it is in session in Tripoli was on fire on Monday morning, a Reuters reporter said.

The eastern city of Benghazi, where the protests began last week after the arrest of a human rights lawyer and where scores of people have been killed by security forces, was said by some residents to be effectively in the hands of the protesters.

Gaddafi’s son Saif al-Islam Gaddafi appeared on national television in an attempt both to threaten and to calm people, saying the army would enforce security at any price to put down one of the bloodiest revolts to convulse the Arab world.

“We will keep fighting until the last man standing, even to the last woman standing.

Wagging a finger at the camera, he accused Libyan exiles of fomenting the violence. But he also promised dialogue on reforms and wage rises.

In an indication of disagreement inside Libya’s ruling elite, Mohamed Bayou — who until a month ago was chief government spokesman — said the leadership was wrong to threaten violence against its opponents.

Bayou called on Saif al-Islam to start talks with the opposition.

On imminent evacuations:

BP says it is “very likely” some of the oil company’s employees in Libya will be evacuated in the coming days as the violent unrest in the north African country spreads.

A spokesman for BP PLC said the company is drawing up plans for evacuating staff “in the next couple of days.”

Anti-government violence has spread from Libyan cities such as Benghazi to the capital, Tripoli. Protesters are clashing with police and demanding the ouster of longtime ruler Moammar Gadhafi.

BP has about 140 employees in the country, of which less than a third are expatriates, spokesman David Nicholas said.

After passing $105 briefly, Brent has since retreated to $104.30. What else can we say – disinflation.

Read the entire article HERE.

By Stephen Kirkland
Bloomberg
Feb 21, 2011 7:44 AM PT

Oil rose to a two-year high and gold rallied for a sixth day surpassing $1,400 an ounce, as tension in the Middle East escalated. Stocks fell for the most in a month as Eni SpA led companies with operations in Libya lower.

Brent crude gained as much as 2.5 percent, trading up 2.4 percent at 10:40 a.m. in New York. Gold climbed 1.1 percent and silver added 3.4 percent. The Stoxx Europe 600 Index declined 1.3 percent, with Eni sinking the most since July 2009 on a closing basis. Standard & Poor’s 500 Index futures lost 0.8 percent. Bahrain’s 2020 bond yield increased for a 10th day after S&P cut its debt rating. The New Zealand dollar strengthened against its major peers. U.S. markets were closed for the Presidents’ Day holiday.

Libyan security forces attacked anti-government protesters as demonstrations spread across the Middle East and North Africa, a region that accounts for 36 percent of global crude output. Chinese authorities blocked foreign news reports on protests across the country to stamp out any movement toward pro-democracy revolts.

“You’ve got to be very concerned, particularly because it can affect the oil price, and if you have the oil price spike up another $20, $30, you could reenter a global recession,” Bill Belchere, global chief economist at Mirae Asset Securities, said in a Bloomberg Television interview in Hong Kong.

Brent crude rose to as high as $105.08 in London. West Texas Intermediate oil for April delivery jumped 4.2 percent to $93.49 a barrel in New York. Gold climbed to as high as $1,404.22 an ounce, and last traded at $1,404.15. Silver rose to a 30-year high of $33.7625 an ounce.

Libya Ties

Eni, the largest foreign oil and gas producer in Libya, lost 5.3 percent, while OMV AG, central Europe’s biggest oil company, which has been in Libya since 1975, slid 5.1 percent. Tekfen Holding AS tumbled 8.4 percent as the Turkish builder suspended work on a Libyan project, saying its priority now is the safe evacuation of 1,197 non-Libyan employees.

Merck KGaA gained 3.7 percent as earnings beat forecasts. Alpha Bank SA rose 5 percent as the shares resumed trading following a takeover bid from National Bank of Greece SA.

The MSCI Emerging Markets Index slid 0.1 percent. Benchmark indexes in Russia and South Africa rose more than 1 percent while gauges in Turkey, Dubai and Morocco sank at least 1.3 percent. Brazil’s Bovespa fell 1 percent.
Facing Civil War

Muammar Qaddafi’s son called on protesters to engage in dialogue or face a civil war, as violence escalated amid reports protesters seized control of Libya’s second-biggest city. Violence has flared in Yemen, Djibouti, Iran and Bahrain as governments sought to crack down on demands for change.

Bahrain’s dollar bond due 2020 fell as S&P cut its rating and signaled further downgrades were possible, saying it expected protests to persist. The 10-year bond yield rose 16 basis points to 6.79 percent, increasing 89 basis points since Feb. 7. The cost of insuring the country’s debt against default using credit default swaps rose seven basis points to 312, according to CMA.

Default swaps on Dubai jumped 11 basis points to 448, contracts on Qatar increased seven basis points to 113, and those for Saudi Arabia climbed five basis points to 144, according to CMA.

India’s Sensitive Index climbed 1.3 percent on gains by oil shares and Wipro Ltd.’s biggest rally since November after Credit Suisse Group AG recommended the software services provider. Vietnam’s VN Index slumped 4 percent, the most since November 2009, after the government said it will raise electricity prices by a record 15.3 percent.

Read the entire article HERE.

By Professional Investor – David Campbell

Having a good credit score is an asset only if you plan to use it to make money. I know people who consider their 750 FICO as a badge of honor. A credit score is a financial tool, NOT a measure of self-worth. If you aren’t utilizing your credit score to generate passive income, does it matter whether your FICO is 570 or 750? It’s like having a luxury car that is too precious to drive. If your credit score is sitting idle in your garage, it’s time to put it in gear and make money with it!
Here are a few secrets to ponder:

1. A credit score above 680 gives you the ability to borrow money for investing.

2. A higher credit score generally means you will be able to borrow cheaper money.

3. Banks borrow money at a low interest rate (banks can borrow money for 1% or less).

4. Banks invest the money at a higher interest rates (mortgage rates are around 5%).

5. Banks earn 5% and on money borrowed at 1% which results in a 4% profit on other people’s money! It is good to be the bank.

6. Your good credit score allows you to be your own bank! You can earn 9% on money borrowed at 5% which results in a 4% profit on other people’s money. If your credit score allows you to be the bank, what are you waiting for?

I can show you how to turn your good credit and a good job into $800,000 of loans at 5% secured by $1,000,000 of real estate WITH NO MONEY DOWN! If you could borrow $800,000 at 5% ($40,000 year cost) and invest it at 9% ($72,000 income), you would have a 4% profit on $800,000 ($32,000). If you can make an additional $32,000 from investing your credit score and no cash, why would you let your credit score sit idly in the garage?

If you don’t have a good credit score here are a few tips on how to get one.

Read the entire article HERE.

By Matt Taibbi
Rolling Stone Magazine
February 16, 2011 9:00 AM ET

Over drinks at a bar on a dreary, snowy night in Washington this past month, a former Senate investigator laughed as he polished off his beer.

“Everything’s fucked up, and nobody goes to jail,” he said. “That’s your whole story right there. Hell, you don’t even have to write the rest of it. Just write that.”

I put down my notebook. “Just that?”

“That’s right,” he said, signaling to the waitress for the check. “Everything’s fucked up, and nobody goes to jail. You can end the piece right there.”

Nobody goes to jail. This is the mantra of the financial-crisis era, one that saw virtually every major bank and financial company on Wall Street embroiled in obscene criminal scandals that impoverished millions and collectively destroyed hundreds of billions, in fact, trillions of dollars of the world’s wealth — and nobody went to jail. Nobody, that is, except Bernie Madoff, a flamboyant and pathological celebrity con artist, whose victims happened to be other rich and famous people.

This article appears in the March 3, 2011 issue of Rolling Stone. The issue is available now on newsstands and will appear in the online archive February 18. Here is Matt Taibbi being interviewed on MSNBC:

The rest of them, all of them, got off. Not a single executive who ran the companies that cooked up and cashed in on the phony financial boom — an industrywide scam that involved the mass sale of mismarked, fraudulent mortgage-backed securities — has ever been convicted. Their names by now are familiar to even the most casual Middle American news consumer: companies like AIG, Goldman Sachs, Lehman Brothers, JP Morgan Chase, Bank of America and Morgan Stanley. Most of these firms were directly involved in elaborate fraud and theft. Lehman Brothers hid billions in loans from its investors. Bank of America lied about billions in bonuses. Goldman Sachs failed to tell clients how it put together the born-to-lose toxic mortgage deals it was selling. What’s more, many of these companies had corporate chieftains whose actions cost investors billions — from AIG derivatives chief Joe Cassano, who assured investors they would not lose even “one dollar” just months before his unit imploded, to the $263 million in compensation that former Lehman chief Dick “The Gorilla” Fuld conveniently failed to disclose. Yet not one of them has faced time behind bars.

Invasion of the Home Snatchers

Instead, federal regulators and prosecutors have let the banks and finance companies that tried to burn the world economy to the ground get off with carefully orchestrated settlements — whitewash jobs that involve the firms paying pathetically small fines without even being required to admit wrongdoing. To add insult to injury, the people who actually committed the crimes almost never pay the fines themselves; banks caught defrauding their shareholders often use shareholder money to foot the tab of justice. “If the allegations in these settlements are true,” says Jed Rakoff, a federal judge in the Southern District of New York, “it’s management buying its way off cheap, from the pockets of their victims.”

Taibblog: Commentary on politics and the economy by Matt Taibbi

To understand the significance of this, one has to think carefully about the efficacy of fines as a punishment for a defendant pool that includes the richest people on earth — people who simply get their companies to pay their fines for them. Conversely, one has to consider the powerful deterrent to further wrongdoing that the state is missing by not introducing this particular class of people to the experience of incarceration. “You put Lloyd Blankfein in pound-me-in-the-ass prison for one six-month term, and all this bullshit would stop, all over Wall Street,” says a former congressional aide. “That’s all it would take. Just once.”

But that hasn’t happened. Because the entire system set up to monitor and regulate Wall Street is fucked up.

Just ask the people who tried to do the right thing.

Here’s how regulation of Wall Street is supposed to work. To begin with, there’s a semigigantic list of public and quasi-public agencies ostensibly keeping their eyes on the economy, a dense alphabet soup of banking, insurance, S&L, securities and commodities regulators like the Federal Reserve, the Federal Deposit Insurance Corp. (FDIC), the Office of the Comptroller of the Currency (OCC) and the Commodity Futures Trading Commission (CFTC), as well as supposedly “self-regulating organizations” like the New York Stock Exchange. All of these outfits, by law, can at least begin the process of catching and investigating financial criminals, though none of them has prosecutorial power.

The major federal agency on the Wall Street beat is the Securities and Exchange Commission. The SEC watches for violations like insider trading, and also deals with so-called “disclosure violations” — i.e., making sure that all the financial information that publicly traded companies are required to make public actually jibes with reality. But the SEC doesn’t have prosecutorial power either, so in practice, when it looks like someone needs to go to jail, they refer the case to the Justice Department. And since the vast majority of crimes in the financial services industry take place in Lower Manhattan, cases referred by the SEC often end up in the U.S. Attorney’s Office for the Southern District of New York. Thus, the two top cops on Wall Street are generally considered to be that U.S. attorney — a job that has been held by thunderous prosecutorial personae like Robert Morgenthau and Rudy Giuliani — and the SEC’s director of enforcement.

The relationship between the SEC and the DOJ is necessarily close, even symbiotic. Since financial crime-fighting requires a high degree of financial expertise — and since the typical drug-and-terrorism-obsessed FBI agent can’t balance his own checkbook, let alone tell a synthetic CDO from a credit default swap — the Justice Department ends up leaning heavily on the SEC’s army of 1,100 number-crunching investigators to make their cases. In theory, it’s a well-oiled, tag-team affair: Billionaire Wall Street Asshole commits fraud, the NYSE catches on and tips off the SEC, the SEC works the case and delivers it to Justice, and Justice perp-walks the Asshole out of Nobu, into a Crown Victoria and off to 36 months of push-ups, license-plate making and Salisbury steak.

That’s the way it’s supposed to work. But a veritable mountain of evidence indicates that when it comes to Wall Street, the justice system not only sucks at punishing financial criminals, it has actually evolved into a highly effective mechanism for protecting financial criminals. This institutional reality has absolutely nothing to do with politics or ideology — it takes place no matter who’s in office or which party’s in power. To understand how the machinery functions, you have to start back at least a decade ago, as case after case of financial malfeasance was pursued too slowly or not at all, fumbled by a government bureaucracy that too often is on a first-name basis with its targets. Indeed, the shocking pattern of nonenforcement with regard to Wall Street is so deeply ingrained in Washington that it raises a profound and difficult question about the very nature of our society: whether we have created a class of people whose misdeeds are no longer perceived as crimes, almost no matter what those misdeeds are. The SEC and the Justice Department have evolved into a bizarre species of social surgeon serving this nonjailable class, expert not at administering punishment and justice, but at finding and removing criminal responsibility from the bodies of the accused.

The systematic lack of regulation has left even the country’s top regulators frustrated. Lynn Turner, a former chief accountant for the SEC, laughs darkly at the idea that the criminal justice system is broken when it comes to Wall Street. “I think you’ve got a wrong assumption — that we even have a law-enforcement agency when it comes to Wall Street,” he says.

In the hierarchy of the SEC, the chief accountant plays a major role in working to pursue misleading and phony financial disclosures. Turner held the post a decade ago, when one of the most significant cases was swallowed up by the SEC bureaucracy. In the late 1990s, the agency had an open-and-shut case against the Rite Aid drugstore chain, which was using diabolical accounting tricks to cook their books. But instead of moving swiftly to crack down on such scams, the SEC shoved the case into the “deal with it later” file. “The Philadelphia office literally did nothing with the case for a year,” Turner recalls. “Very much like the New York office with Madoff.” The Rite Aid case dragged on for years — and by the time it was finished, similar accounting fiascoes at Enron and WorldCom had exploded into a full-blown financial crisis. The same was true for another SEC case that presaged the Enron disaster. The agency knew that appliance-maker Sunbeam was using the same kind of accounting scams to systematically hide losses from its investors. But in the end, the SEC’s punishment for Sunbeam’s CEO, Al “Chainsaw” Dunlap — widely regarded as one of the biggest assholes in the history of American finance — was a fine of $500,000. Dunlap’s net worth at the time was an estimated $100 million. The SEC also barred Dunlap from ever running a public company again — forcing him to retire with a mere $99.5 million. Dunlap passed the time collecting royalties from his self-congratulatory memoir. Its title: Mean Business.

Read the entire article HERE.

by Congressman Ron Paul
02/15/11
http://paul.house.gov

For the past three decades, the Federal Reserve has been given a dual mandate: keeping prices stable and maximizing employment. This policy relies not only on the fatal conceit of believing in the wisdom of supposed experts, but also on numerical chicanery.

Rather than understanding inflation in the classical sense as a monetary phenomenon– an increase in the money supply- it has been redefined as an increase in the Consumer Price Index (CPI). The CPI is calculated based on a weighted basket of goods which is constantly fluctuating, allowing for manipulation of the index to keep inflation expectations low. Employment figures are much the same, relying on survey data, seasonal adjustments, and birth/death models, while the major focus remains on the unemployment rate. Of course, the unemployment rate can fall as discouraged workers drop out of the labor market altogether, leading to the phenomenon of a falling unemployment rate with no job growth.

In terms of keeping stable prices, the Fed has failed miserably. According to the government’s own CPI calculators, it takes $2.65 today to purchase what cost one dollar in 1980. And since its creation in 1913, the Federal Reserve has presided over a 98% decline in the dollar’s purchasing power. The average American family sees the price of milk, eggs, and meat increasing, while packaged household goods decrease in size rather than price.

Loose fiscal policy has failed to create jobs also. Consider that we had a $700 billion TARP program, nearly $1 trillion in stimulus spending, a government takeover of General Motors, and hundreds of billions of dollars of guarantees to Fannie Mae, Freddie Mac, HUD, FDIC, etc. On top of those programs the Federal Reserve has provided over $4 trillion worth of assistance over the past few years through its credit facilities, purchases of mortgage-backed securities, and now its second round of quantitative easing. Yet even after all these trillions of dollars of spending and bailouts, total nonfarm payroll employment is still seven million jobs lower than it was before this crisis began.

In this same period of time, the total U.S. population has increased by nine million people. We would expect that roughly four million of these people should have been employed, so we are really dealing with eleven million fewer employed people than would otherwise be expected.

It should not be surprising that monetary policy is ineffective at creating actual jobs. It is the effects of monetary policy itself that cause the boom and bust of the business cycle that leads to swings in the unemployment rate. By lowering interest rates through its loose monetary policy, the Fed spurs investment in long-term projects that would not be profitable at market-determined interest rates. Everything seems to go well for awhile until businesses realize that they cannot sell their newly-built houses, their inventories of iron ore, or their new cars. Until these resources are redirected, often with great economic pain for all involved, true economic recovery cannot begin.

Over $4 trillion in bailout facilities and outright debt monetization, combined with interest rates near zero for over two years, have not and will not contribute to increased employment. What is needed is liquidation of debt and malinvested resources. Pumping money into the same sectors that have just crashed merely prolongs the crisis. Until we learn the lesson that jobs are produced through real savings and investment and not through the creation of new money, we are doomed to repeat this boom and bust cycle.

Read the entire article HERE.