Forty years ago, I used to say this as a joke, “So whadya expect during the collapse of western civilization?” About ten years later, it wasn’t quite so funny anymore because I began to see the consequences of Nixon’s closing the “gold window” with the introduction of fiat currency no longer backed by, or convertible into, gold. It became obvious that our economies were becoming a house of cards built on a sand foundation. Like all financial bubbles, a house of cards eventually collapses.
I began acquiring basic survival gear and skills in the early 1980s. I didn’t know then how long it would take before the collapse but I remember hoping it wouldn’t take too long as I’d still be young, able to withstand the collapse and strong enough to rebuild. Little did I know how long the disease of fiat currency and endless credit expansion could take. Little did I realize that the longer it takes, the bigger the bubble becomes and the harder would be the inevitable economic collapse.
I see now that I’ll probably go to my grave long before we emerge from this collapse. I fear the most I can do now is warn others and provide them some guidance. After all, forewarned is forearmed. We cannot prevent the inevitable (by definition) but at least we won’t be surprised or blind-sided by it.
In past commentaries I outlined the things you must do to prepare and survive so I won’t repeat them here. This article is an update. Nothing fundamental has changed. None of the problems have been solved; the power elite continue to address results and consequences rather than root causes. They continue lining their pockets at our expense and, as the late Kurt Vonnegut was fond of saying, “And so it goes.”
Our economic problems are becoming so blatantly obvious that even the power elite can no longer publicly deny them. The latest Fed “Beige Book” (the U.S. Federal Reserve “Summary of Commentary on Current Economic Conditions”) although as cryptic as usual, finally admits that the economic crisis is entrenched and endemic. Noteworthy is the last part of their release below.
“Participants generally anticipated that, in light of the severity of the economic downturn, it would take some time for the economy to converge fully to its longer-run path as characterized by sustainable rates of output growth, unemployment, and inflation consistent with participants’ interpretation of the Federal Reserve’s dual objectives; most expected the convergence process to take no more than five to six years.” (my emphasis, Gerold)
In other words, the economy isn’t expected to improve until 2015 or 2016. Since the power elite has consistently understated the severity of the crisis, you can bet the bottom won’t be reached for another 10 to 20 years or more. In other words, it’ll be the average duration of the last two Great Depressions i.e. 19.6 years. And, that’s assuming we do everything right from here on. What do you think the chances of that are?
That’s not as far fetched as it might seem considering the way the power elite have blundered until now. The latest G-20 meeting in Toronto, besides roasting marshmallows over burning cop cars conveniently left unattended in the middle of demonstrations (you think that wasn’t planned?) actually showed the power elite coming to their senses. 19 out of 20 countries realized we cannot borrow and spend our way out of debt (it took the assholes long enough didn’t it?) with only the ever-recalcitrant U.S. demanding ever more borrowing and spending.
Unfortunately, austerity measures now are too little, too late; the horse long being out of the barn. At least it’s a step in the right direction. Will it cause pain? Of course, it will. It will be painful regardless. The only difference is “how long?”
There are two ways to remove a bandage:
1) fast and a lot of pain and then it’s over and done with, or
2) slow and painful for a long, long time.
Until now, the power elite in their efforts to control the media and spread their lies chose door number two. Now they’ve realized their error and, if we’re lucky and nothing goes wrong, we can have a twenty year depression rather than one that lasts a hundred years or worse; forever. Sorry, boys and girls but that’s the best it’s going to get.
However (you knew there’d be a “however”, didn’t you?) there are a lot of black swans in the form of natural and man-made disasters that can derail the best of efforts.
Natural disasters:
– devastating earthquakes in Haiti, China and Chile,
– sunspots have disappeared for longer than anytime in the previous three centuries heralding turbulent weather ahead,
– meteorologists are forecasting a large number of hurricanes this year, half or which will be major,
– volcanoes are coming to life. The one that erupted in Iceland is small compared to the giant right next to it that is starting to rumble back to life.
– global heatwave,
– freak weather – it’s not as if nature is conspiring against us but, these things couldn’t happen at a worse time. It’s like the drought during the last Great Depression, the “Dirty Thirties.” Neither one “caused” the other directly but it was just bad luck they happened together because each made the other worse. Icelandic volcano – Gulf oil spill – freak weather http://www.france24.com/en/20100505-freak-waves-smash-french-riviera-storm-cannes-nice-disaster-destruction-beach-croisette
Man-made disasters:
– Gulf of Mexico oil volcano compounded by a predicted large number of hurricane,
– in 2010 the Gulf oil will destroy the Gulf grasslands that hold together the barrier islands. In 2011 the barrier islands that protect New Orleans from the full impact of hurricanes will wash away. And, in 2012 a hurricane will destroy unprotected New Orleans and whatever is left of Gulf coast communities.
– America’s two-front war in Iraq and Afghanistan is transforming into a four front war to include Iran and Pakistan
– Israel, America’s lapdog in the Mideast is poised to make a major miscalculation according to Jim Sinclair and America’s military is stretched too thin to rescue Israel from the consequences.
Double-Dip; here we come
Governments have shot their wads and failed to resuscitate the dead corpse of western economies. The stimulus of the electric paddles made the corpse’s feet briefly spasm (remember “green shoots”?) but it failed to produce a heart beat. We are approaching the back end of the eye of this economic hurricane. The back side of the storm will be much worse. Interest rates can’t go any lower so governments are out of ammunition. Taxes, however, will go a lot higher as will unemployment. House prices will continue to fall in the U.S. and are BEGINNING to fall in Canada as will be discussed further below.
The next bubble
To stave off the consequences of the last bursting bubble, governments create ever larger ones. The next bubble is government bonds and debt. It’s only a question of which government “pops” first. As we’ve learned with black swans, they’re always a surprise. American states will need to be bailed out. Cities and counties will need to be bailed out. Greece will need to be bailed out. The Club Med PIIGS will need to be bailed out. The U.S. will need to be bailed out. Everybody and his uncle will need to be bailed out. The height of stupidity will finally be realized when everybody is bailing out each other and at that point the entire global financial system will melt down, the shit will hit the fan and we’ll start all over again, vowing that we’ll never let this happen again – at least not until next time because we never learn from our mistakes. After four generations we do the same stupid things all over again. Dumb human beans!
Some interesting quotes
“Economics isn’t rocket science. It’s cause and effect and since the introduction of debt-based money, the primary cause of economic expansion has been credit.”
“The consequence of credit is its deadly effluvia, debt; and when the issuance of credit can no longer service or roll-over constantly compounding debt, parcus nex, economic death, otherwise known as the end game, ensues.”
“The enormous amount of government debt—total sovereign debt now totals $34 trillion dollars—can never be repaid. The end of the end-game will come when investors collectively realize this is so. That realization has not yet happened. When it does, for most it will be too late.” – Darryl Robert Schoon – “THE END-GAME AND THE ILLUSORY GOLD BUBBLE” 6-13-10
“just because the system was saved, doesn’t mean it has been fixed.” – The Boeckh Newsletter, Vol. 2.6 May 4, 2010
“Paper money is a check drawn by legal looters upon an account which is not theirs.” – Ayn Rand
“The former Soviet Union did not implode because it was attacked; it imploded because it was broke.” – U.S. Congressman, Ron Paul May 24-2010
“Given these alarming statistics, one is forced to conclude five things about our future. First, taxes are going to go up. Second, credit is likely going to become very expensive and/or unavailable. Third, we are going to experience little or no economic growth, and in fact, we could see another serious recession starting as early as next year. Fourth, we could see another wave of falling stock and real estate prices, otherwise known as asset price deflation. And finally, we have the potential for a dollar crisis.” – Doug Fabian July 29. 2009 The Obama Impact on Your Money
“We have a choice, we could drag this out and make it unpleasant for a long time or we can make it EXTREMELY unpleasant in the short term. Those are our two choices.” – Rick Rule in the Daily Bell, July 4, 2010
“Canada too is softening and the cracks are starting to deepen in the housing market.” – David Rosenberg July 16, 2010
It is hardly a confident sign when one of the few big customers left for US government paper i.e. bonds is the US government itself.
It smacks of a bar that starts to sell a lot of booze. Except, it sells it to the bar owner. On credit. How long do you think that would work? – gerold paraphrasing, unable to attribute.
August Forecast Market Update
April 30, 2010
“A new credit squeeze is coming as banks in Europe pull away from each other in fear of sovereign defaults. Deflation will resume.”
Global Wealth Redistribution
We are in an era of global wealth redistribution. What this means is we in the western world will have less money and wealth and the poor people of the world will have more than they had in the past. What this means is we in the western world will have lower standards of living than we have been accustomed to and the transition will be unpleasant and in many cases painful. This transition is not voluntary but it is inevitable and is already underway. The centers of financial power will shift to Asia.
China has a very long memory. They still remember the humiliating Opium Wars of the 1800s when the British forced the Chinese to accept the importation of addictive opium from India. The multi-trillion dollar foreign currency reserve that China has today will enable China to weather financial storms as well as acquire commodities from overseas to fuel its rapid expansion. As western countries meltdown financially, Asia continues to grow. This is not to say that the Asians will not have hiccups along the way but they are financially strong enough to weather them. Maybe. Cracks are starting to appear in China as well. More later.
The Pot Calling the Kettle Black
It’s ironic to read the British financial media and their schadenfreud attitude to the Eurozone’s financial problems, “See we told you the EU couldn’t hold itself together.” This is laughable considering that the UK’s finances are in worse shape than either Greece or the U.S. and when the UK melts down it will be stinky indeed.
Another example of the pot calling the kettle black is the U.S. demanding that China revalue its currency to make it more expensive and therefore increase the price of Chinese products. Treasury Secretary “Tax Cheating” Timothy Geithner’s quick trip to China and the sudden end of the U.S. administrations demands for Chinese currency revaluation probably means that China rattled their huge bag of U.S. foreign currency reserves, “You want we sell lots American dollars and kill your currency?” caused the Whitehouse to wake up and smell the coffee. American financial pundits are gleefully reporting that the Euro is falling in value. Stupid American financial pundits don’t realize that’s exactly what the Europeans want. The cheaper the Euro, the more attractive European products are and the more they increase European exports. Stupid American financial pundits haven’t woken up and smelled the coffee yet; otherwise they’d realize that devaluing currency is what the Americans have been trying to do to their own dollar. Europe has allowed the Greek “crisis” to do the same and in such a way they can’t be accused of protectionism. Europeans aren’t stupid. They’ve been scheming and screwing others for thousands of years long before the U.S. even existed.
“When equity bubbles burst, investors who made money in the boom typically swallow their losses and the world trudges on, for example after the bursting of the technology bubble in 2001. But when debt markets collapse, there inevitably follows a long, drawn-out conversation about who should bear the losses. Unfortunately, all too often the size of debts, especially government debts, is hidden from investors until it comes jumping out of the woodwork after a crisis.”
“In China today, the real problem is that no one seems to have very good data on how debt is distributed, much less an understanding of the web of implicit and explicit guarantees underlying it. But this is hardly a problem unique to China. Even as published official government debt soars, huge off-balance-sheet guarantees and borrowings remain hidden for political expedience around the world. The timing is very difficult to call, as always, but even as global markets continue to trend up, it is not so hard to guess where bubbles might be lurking.” – Ken Roggoff – “Bubbles Lurk in Government Debt: April 7, 2010 Kenneth Rogoff is is a professor at Harvard University and co-author (with Carmen Reinhart) of ‘This Time is Different: Eight Centuries of Financial Crises‘
Another nail in the coffin
Nations are now waging economic war on each other at a time when the global economy is already weak and the last thing we need is to beggar our neighbours…. The attack on Greece (bonds & currency) has Goldman Sachs’ fingerprints all over it. What better way to distract attention from the crumbling U.S. than to create panic in the European markets?
This is aided and abetted by American credit rating agencies who downgrade the sovereign debt of nations that American bankster/gangsters have shorted thereby guaranteeing the obscene profits of these financial oligarchs. It was amusing to see a Chinese credit rating agency downgrade the U.S. with nary a whimper heard from the Americans. They know who’s the boss.
Below is an interesting article on the U.S. from Mish Shedlock with weblinks for further reading if you’re interested.
For a different perspective, consider Wealth, Income, and Power by Professor G. William Domhoff at the University of California at Santa Cruz. – Mike “Mish” Shedlock
“Summary of Key Points
- The Bottom 80% have a mere 7% of financial wealth.
- The Bottom 80% have a mere 8.9% of stock ownership
- Only 31.6% of the population has more than $10,000 in stocks.
- 70% of white families’ wealth is in the form of their principal residence; for Blacks and Hispanics, the figures are 95% and 96%, respectively. “
“Economic Implications: Record 39 Million Receive Food Stamps, the 14th Consecutive Monthly Increase. (Gerold comment: it is now 40 million and expected to climb to 43 million by 2011.) Consumer Credit Drops $11.5 Billion, 5.6% annualized, 12th drop in 13 Months. The Increase In January was a Mirage related to Student Loans.”
“The facts do not point to a robust recovery in spending. Indeed they do not point to any recovery in spending beyond the massive government intervention that we have seen to date.”
“This is not 2006. Homeowners cannot tap their houses for home equity spending. Moreover, some of the data for that report was from 2007. There have been millions more bankruptcies since then.”
“Millions of households are underwater in their mortgages. Banks are stuck with massive numbers of REOs via foreclosure.”
“The unemployment rate is hugely understated at 9.7%. Alternative measures show unemployment at 16.9% and even that number does not count Realtors and self employed persons on commission who have not had reportable income for months.”
“There is no driver for jobs except government stimulus.”
“A Record 39 Million Receive Food Stamps, the 14th Consecutive Monthly Increase.” (gerold comment: it is now 40 million and expected to climb to 43 million by 2011.) “Consumer credit does not give any hints of sustainable increases in spending or lending. Please consider Consumer Credit Drops $11.5 Billion, 5.6% annualized, 12th drop in 13 Months. The Increase In January was a Mirage related to Student Loans.”
“Also note that millions of boomers are headed into retirement severely underfunded. That fact alone shows how wrong it is to expect a huge bounce in consumer spending.”
“It is important to factor in the effects of increased cutbacks by cities and states in response to numerous fiscal crises. For example…”
- ” Los Angeles: L.A. to Shut Down City Departments in Budget Crisis; IBEW Local 18 Head: “How Taxpayers Feel Is Not Relevant”
- Detroit: Detroit Bankruptcy Looms with Deficit of $446 Million in Budget of $1.6 Billion
- Los Angeles: LA Deputy Chief of Staff Says “Unions Have Priced Themselves Out Of A Job”
- New Jersey: Governor Christie Calls Unions “Crass Bullies of State Street”; Says Unions Have a Choice “Givebacks or Layoffs”
- Missouri, Indiana, Washington, Kansas: Missouri Budget Overstates Revenues By Up To $1 billion; Indiana Revenue Falls Short; Budget Battles In Washington; Budget Gaps In Kansas
- Illinois: Rep. Suzie Bassi: “Illinois in Utter Crisis, Next to Bankruptcy, $13bn Hole in a $28bn Budget”; Ambrose Evans Pritchard Inflicted with FIV “
“That is just a small sampling of problems facing cities and states. Layoffs are coming. Those layoffs need to be factored into to consumer spending. So does the rise in mortgage rates now that the Fed has stopped monetizing treasuries.”
“Finally, consumer and bank attitudes play a key role. Consumer attitudes towards spending and consumption have changed for good. So have bank attitudes towards lending. Bernanke can cajole all he wants, but $1 trillion in excess reserves tells part of the story. Undercapitalization of banks tells much of the rest.”
“All thing considered, it is a mistake to extrapolate forward a continued recovery in spending from the depressed levels of 2009. It is far more likely, this is about all we get.” – Mike “Mish” Shedlock http://globaleconomicanalysis.blogspot.com
Much Hope Rests on China
“Paradoxically, tens if not hundreds of millions of workers and investors including investment professionals are walking around these days with their fingers crossed hoping that the old men who run the Chinese government will engineer what Keynesians call a soft landing. Consider the irony of the situation! The same leadership was involved in the repression at Tiananmen Square and more recently endless attempts at building an effective Chinese Internet firewall. But it is now seen as the last, best hope of the Western world (by mainstream media anyway) for salvaging the West’s collective economy from the ravages of the dreaded “double dip.” – Daily Bell “China on the Brink?” July 7, 2010
Steel, The Number One China Indicator, Is In Deep Trouble
Business Insider Vincent Fernando, CFA | Jun. 8, 2010
“China’s Baoshan Iron & Steel (60019 CH), the largest listed steelmaker, has cut its steel prices for the first time in eight months.”
“You know demand has to be pretty weak for them to cut prices, since they’re being squeezed from the cost side due to higher iron ore prices at the same time.”
China Daily: “Some steel producers are already tottering on the brink of losses. They will have to make output cutbacks or resort to maintenance shutdowns, if the prices continue to fall,” said Zhang Lin, an analyst with the Beijing-based Lange Steel Information Research Center.”
“Baosteel cut prices of hot-rolled products for July by 300 yuan ($44) per ton and cold rolled prices by 500 yuan per ton.”
‘We’ve seen orders dwindling in downstream sectors like auto, shipping, home appliances and property,’ said Zhang.”
“Chinese mills across the board have reportedly cut prices in June. We can’t think of a better indicator for a China slow-down than steel demand.”
Read more: http://www.businessinsider.com/china-steel-slow-down-2010-6#ixzz0qURixLOy
China on ‘Treadmill to Hell’ Amid Bubble, Chanos Says
By Shiyin Chen April 8 (Bloomberg) –
“China’s property market is a bubble that may burst by as early as this year, according to hedge fund manager James Chanos.”
“The world’s third-biggest economy may need to keep up the pace of property investment because up to 60 percent of its gross domestic product relies on construction, said Chanos. The bubble may begin to “run its course” in late-2010 or 2011, he said in an interview on “The Charlie Rose Show” that will air on PBS and Bloomberg TV.”
“China is “on a treadmill to hell,” said Chanos, who said in January the nation is Dubai times a thousand. “They can’t afford to get off this heroin of property development. It is the only thing keeping the economic growth numbers growing.”
“Property prices in China rose at the fastest pace in almost two years in February even after officials this year re-imposed a tax on homes sold within five years of their purchase to curb speculation and ordered banks to set aside more funds as reserves to cool lending. The boom in China’s real estate has fueled concern that China may face a collapse seen in Dubai that has hurt the ability of some of its companies to repay debt.”
“Since his January prediction, Chanos, the founder of Kynikos Associates Ltd, has been joined by Gloom, Doom & Boom publisher Marc Faber and Harvard University professor Kenneth Rogoff in warning of a potential crash in China’s property market.”
“Chinese state and local governments are among the most leveraged to property-related borrowings and the nation will “ultimately” have to nationalize a lot of the bad loans that will arise from the end of the bubble, Chanos said.”
“China’s Reserves
China’s foreign currency reserves will be “one asset” that can be used to fund a cleanup of the banking system, he said. The country has accumulated a record $2.4 trillion of reserves, and $889 billion of U.S. government debt, partly a consequence of its exchange-rate policy.”
“Chanos was one of the first investors to foresee the 2001 collapse of Houston-based energy company Enron Corp. The investor said he is short-selling Chinese developers as well as companies supplying building-related materials to the country, without identifying any stocks.”
“In a short sale, investors bet on declines in securities by borrowing stock to sell on the expectation it can be purchased at a lower price before handing it back.”
“To contact the reporter on this story: Shiyin Chen in Singapore at schen37@bloomberg.net“
Last Updated: April 8, 2010 00:12 EDT
More U.S. Mortgage Pain
The second shoe to drop in mortgages are commercial mortgages in the article below. The third shoe, Residential Alt-A and Option ARM was discussed in previous commentary.
“American CMBS Delinquencies Above $50 Billion
According to Horsham, Pennsylvania-based Realpoint LLC, the delinquent unpaid balance for commercial mortgage-backed securities (CMBS) rose 6.8% in March, up to a staggering $51.05 billion.
The delinquent unpaid balance is now up 268% from a year ago and more than 23 times the low point of $2.21 billion in March 2007. Furthermore, the March delinquency ratio of 6.4% is nearly four times the 1.66% reported in the same month last year and about 23 times the Realpoint recorded low point of 0.28% in June 2007. Here’s a chart showing monthly delinquencies since May of 2008:”
Casey Research 4-29-10
More gobal fear-mongering
Global Warming having been discredited as the junk science that it really is, the power elite never stops its efforts to increase its power and wealth (at our expense, of course.) I’ll bet you didn’t notice how the ass media seamlessly transitioned from “Global Warming” to “Climate Change”?
Why is this scam so important to the power elite? I’m glad I asked. The answer is money. There was money to be made selling toxic derivatives to unsophisticated investors including cities, counties, municipalities and various levels of governments world-wide, many of whom are headed to bankruptcy (see Jefferson County, Alabama http://mobilebaytimes.com/alabama.pdf )
There’s still money to be made only this time it’s “Carbon Credits” which is the latest twist on derivatives and allows the world’s bankster/gangsters to once again earn obscene commissions selling this toxic junk. However, it goes one step further and incorporates a tax. This is of course why Carbon Credits have the full support of governments and demonstrates once again that western governments have been hijacked by the financial oligarchs. Who is going to pay for all this? Silly question! You are. Consumers and taxpayers will pay in the form of higher prices. Wanna bet government inflation statistics won’t conveniently disregard this portion of future price increases? Of course they will. Bend over and get ready to get it up the ass again.
And, to add insult to injury, here’s another “social meme” the power elites are going to stick us with:
UN Swaps One Fear for Another
Daily Bell – Monday, May 24, 2010 – by Staff Report
“Goods and services from the natural world should be factored into the global economic system, says UN biodiversity report … The economic case for global action to stop the destruction of the natural world is even more powerful than the argument for tackling climate change, a major report for the United Nations will declare this summer. The Stern report on climate change, which was prepared for the UK Treasury and published in 2007, famously claimed that the cost of limiting climate change would be around 1%-2% of annual global wealth, but the longer-term economic benefits would be 5-20 times that figure. The UN’s report – dubbed the Stern for Nature – is expected to say that the value of saving “natural goods and services”, such as pollination, medicines, fertile soils, clean air and water, will be even higher – between 10 and 100 times the cost of saving the habitats and species which provide them. To mark the UN’s International Day for Biological Diversity, hundreds of British companies, charities and other organisations have backed an open letter from the Natural History Museum’s director Michael Dixon warning that “the diversity of life, so crucial to our security, health, wealth and wellbeing is being eroded”. – UK Guardian
Dominant Social Theme: OK, OK, global warming didn’t work quite out, but now we’ve got one that will really run shivers up and down your spine – the “destruction of the natural world.”
Diminishing Marginal Productivity of Debt in the US Economy
The graph below demonstrates Jim Sinclair’s “Formula” – that we have reached a point of diminishing returns where every extra dollar of debt produces less bang for the buck. We are now in negative territory where every extra dollar of government debt produces next to nothing in return.
“Anyway, as far as the US recovery itself goes, this is a most misleading conversation within the mainstream press. Even during less severe downturns, Western economies have continually degraded and this is no ordinary downturn as we have pointed out many times. This time around the fiat money system basically collapsed. The entire system has been on life-support for about two years now.” (emphasis mine – gerold) – Daily Bell – US Economic Recovery of Lies Wednesday, June 02, 2010
“Some miscellaneous but irrelevant news came out in housing and auto sales today. Auto sales were better than expected but are still at 1980’s level. Home sales are more silly; this report was also better than expected but that’s because YOU PAID FOR IT TO BE BETTER. Last month is when the free government cheese (read: wasted money) ended. Said another way, the government stopped borrowing money from China – AT INTEREST – to give away to people who do not need it.”
“What’s more telling is today’s mortgage application data sans the insane debt being racked up to bailout the homebuilders. Bloomberg put it this way – “The Mortgage Bankers Association’s purchase index extended its deep post-April plunge, down 4.1 percent in the May 28 week to dig out a new 13 year low. The index is down more than 40 percent from four weeks ago as April’s end to stimulus has apparently dried up the home sales market.” – Larry Levin 6-03-10
How’s this for a scary US job chart?
The August Review June 7, 2010
“Bank failures on track to break 2009 record. Falling euro means larger U.S. trade deficits. America’s true debt/GDP ratio is way worse than Greece, Portugal, Spain and Hungary. Risk is increasing for a global liquidity freeze. Mutual funds owners are flocking to the exits as trouble brews. Stocks have been knocked to the mat and can’t seem to even get back on their knees.”
European recession next year “almost inevitable” – Soros
Adrian Croft, Tue. June 15, 2010 4:16pm EDT
(Reuters) – “Europe faces almost inevitable recession next year and years of stagnation as policymakers’ response to the euro zone crisis causes a downward spiral, billionaire U.S. investor George Soros said on Tuesday.” Jim Sinclair 6-16-10
When even former Fed Chairman, Allan Greenspan starts warning us …
4 Urgent Warnings From The Most Unlikely Source
by Martin D. Weiss, Ph.D. 06-21-10
“A former emperor with no clothes is finally telling the naked truth.
His name: Alan Greenspan.
His primary role in history: Chief architect of the boom-and-bust cycle that caused the fiscal madness he now condemns.
His most recent act: To issue four warnings in Friday’s Wall Street Journal that are precisely the same as those we issued here in Money and Markets months earlier …
Greenspan Warning #1 Greece is a wake-up call for the U.S. and most of the developed world.
Greenspan says that Greece should drive U.S. authorities to make “a tectonic shift in fiscal policy.”
Greenspan Warning #2 The contagion is ALREADY reaching the United States.
How do you know if the sovereign debt crisis has hit the United States, or not?
To the lay observer, it’s often murky. But to an interest-rate analyst, the clues are straightforward: When the federal government has to pay a higher rate for its borrowings than a supposedly riskier private corporation, you know the sovereign debt crisis is here.
That’s precisely the situation Greenspan describes for the U.S. credit markets today: Based on one key measure, the U.S. government was recently paying 0.13 percent MORE for 10-year loans than private borrowers!
Greenspan Warning #3 Interest rates could skyrocket like they did in the 1980s.
Greenspan Warning #4 Surging gold prices are the harbinger of future fiat money collapses.”
Roof Collapses on (U.S.) Housing Market – Mish 6-25-10
“Rosenberg has some interesting comments on housing in Thursday’s Breakfast With Dave.”
“New home sales cratered a record 33% in May, to a record low of 300,000 units at an annual rate. This breaks the prior all-time low of 341,000 set back in April 2009 when the economy was knee deep (more like six feet under) in recession.”
“There must have been a wave of cancellations too because April was revised down to 446,000 from 504,000 and March to 389,000 from 439,000. The only other time when new home sales made a new low 11 months after the end of a recession was during the double dip of the early 1980s – assuming that the pundits are correct on this assessment of when the economy bottomed out.”
“The inventory backlog, which had taken a dive in April as the tax credits were about to expire, soared from 5.8 months to an 11-month high of 8.5 months. And, this excess supply is exerting more downward pressure on pricing – the median price of a new home fell 1% MoM in May to $200,900 and is now down nearly 10% for the year (was $222,600 in December). Home prices have not been this low since December 2003 and are light years away from the $257,000 peak established in mid-2006.”
“Despite all the stimulus aimed at the housing market, it took builders a record median 14.2 months to find a buyer for a completed home in May. This sector is broken. People don’t want to buy an asset they see will depreciate in value. And people don’t want to pursue the dream of homeownership if it means taking out a mortgage – the scars from the credit collapse are obviously lingering if not accelerating.”
“Housing’s Upside Down V-Shaped Recovery”
“Median Months To Sell New Single-Family Homes”
“Estimates I’ve seen suggest that 14% of these 56 million mortgages are already in arrears or in the foreclosure process. This means that about eight million Americans have stopped paying their mortgage. Staggering.
Other estimates suggest that over 90% of these late-paying/non-paying debtors will never get back to being current. So what we are looking at is something like 7.2 million mortgages that will inevitably go into foreclosure in the near future.” – David Rosenberg, Breakfast with Dave 7-05-10
Nearly 1 in 3 first-quarter (U.S.) home sales a foreclosure
CIGA Eric (Jim Sinclair 6-30-10)
“As the report suggests, this is a significant number that reflects the extent of the distress in the real estate market.”
“Nearly one out of every three U.S. home sales in the first quarter was a foreclosure property as steep price discounts boosted demand for distressed real estate, RealtyTrac said in a new report on Wednesday.”
“Foreclosure homes accounted for 31 percent of all residential sales in the first quarter of 2010, with the average sales price of properties that sold while in some stage of foreclosure nearly 27 percent below homes that were not in the process, Irvine, California-based RealtyTrac said.”
“In a normal market, only 1 to 2 percent of home sales are foreclosures, so this is certainly a significant level,” Rick Sharga, senior vice president at RealtyTrac, said in an interview.”
Source: finance.yahoo.com
Patrick Wood – August Forecast June 30, 2010
“The Baltic Dry Index is down another 4 percent in two weeks, offsetting any claims by manufacturing that it is in recovery mode. The Gulf oil spill will cost gulf states hundreds of billions to mitigate and some cities may have to be completely relocated, creating economic dead zones. Real estate faces a sudden-death collapse that could begin at any time. The Congressional Budget Office warns Congress that it is leading the country toward disaster with runaway debt and spending.”
“The Baltic Dry Index has fallen for 25 days, the longest decline since August 2005.” – Global Research 7-03-10
Email From Canada: It’s Different Up Here – It Really Is! Mish Shedlock 5-17-10 http://globaleconomicanalysis.blogspot.com
Canada Housing Fundamentals
“Here are a couple charts from David Rosenberg, one of the world’s leading economists.”
Canada Home Price to Rent
“In Canadian Home Prices Bubbly Rosenberg writes…
“Take a look at the two charts above, which benchmark resale home prices to income and rents in Canada. Both show home prices in overvalued territory (while resale home prices have slipped from record highs, they are still running at 17% YoY).”
“Relative to labour income, home prices are about 1.5 standard deviations above norm (data going back to 1980).”
“The situation is even more dire when we look at resale home prices versus rental prices — this metric is over 2.5 standard deviations above the average, which is very reminiscent of what we saw in the U.S. in 2004-2006.”
“Our statistical work implies that given current income and rent, we could see a price correction of around 15-35% if these ratios were to mean revert, which would certainly be a U.S.-style correction.”
“Rosenberg is far too generous. Home prices to rental prices was one of the key factors that signaled a major crash in the US. Moreover, when crashes occur, they tend to overshoot, not just revert to the mean.”
“A Canadian housing crash is a given. Timing it is the only issue. Furthermore, the bigger the bubble the bigger the crash. Only fools believe “It’s different in Canada”.
“The pool of greater fools always exhausts itself. Timing it is the only problem. One timing indicator that frequently marks the top is taunts from the true believers who think “It’s different this time.”
“It never is.”
Canadian Housing as per Garth Turner
“In case you missed the news, house sales in the country’s hot markets have crashed. Last month, down 30% in Vancouver, off 23% in the GTA, weaker by 42% in Calgary and fading 37% in Edmonton. Right on sked. The agenda I laid out some months ago: Listings pop first (late Spring), followed by Maalox-gulping sales reductions (summer), then by the din of tumbling prices (frost) and finally the growing spectre of a US-style, multi-year slow melt. The reasons are many and, as you know, now don’t even include rising interest rates. Mortgages can go to zero and this worm will keep turning. Real estate’s finally being seen for what we’ve made it – an overvalued, burdensome, expensive, illiquid wealth trap. Looks like legions of people will learn now what experience has taught me: easy to buy, queasy to sell.”
“Of course, to the list of negatives affecting real estate – crappy economy, negligible job growth, tapped-out households, tighter lending, falling confidence, higher taxes …”- Garth Turner “Engineers” July 6, 2010
“But if you’re tempted, understand the potential the Canadian housing market has to repeat the US housing meltdown – an event which is about to go into its sixth year and has yet to hit bottom. Said an American article this past weekend entitled, Buyer’s remorse: “Today, recently baptized homeowners regret buying their homes because they overpaid. Almost one quarter of all single family homes with a mortgage have negative equity, according to Zillow Real Estate Market Report.” – Garth Turner “Buyer’s Revenge” July 11, 2010
| Vancouver Home Sales Drop 30 Percent , Calgary 42 Percent – First Comes Volume, Then Comes Price; Canada Housing Peak is Finally In |
The Globe and Mail reports Vancouver home sales drop sharply.
“The Real Estate Board of Greater Vancouver reported yesterday that home sales fell 30.2 per cent in June from the inflated levels of a year earlier, and 5.8 per cent from May. New property listings rose 1.2 per cent from May and 32 per cent from a year earlier.”
“The Calgary Real Estate Board, meanwhile, reported sales of single family homes fell 16 per cent in June from May and 42 per cent from June of 2009, while condo sales fell 14 per cent from a month earlier and 40 per cent from a year earlier. Notable is that sales of high-end properties worth $1-million or more are rising, the group said.”
“We are seeing continued moderation in Calgary’s home sales in the face of higher mortgage rates, increased inventory levels and a decreasing number of fist-time home buyers entering the market,” said board president Diane Scott.”
“This pattern is quite similar to how things cascaded in the US once the top was in.”
Housing Collapse Cascade Pattern
- Volume drops precipitously
- Prices soften a bit
- Inventory levels rise slowly
- High-end home prices remain relatively steady for a brief while longer
- The real estate industry tries to convince everyone it’s “business as usual” and homes are affordable because rates are low
- Bubble denial kicks in with media articles everywhere touting the “fundamentals”
- Stubborn sellers hold out for last year’s prices as volume continues to shrink
- Inventory levels reach new highs
- Builders start offering huge incentives to clear inventory
- Some sellers finally realize (too late) what is happening
- Price declines hit the high-end
- Increasingly desperate sellers get creative with incentives, offering new cars, below market interest rates, trips, etc
- Gimmicks do not work
- Price declines escalate sharply at all price levels
- The Central Bank issues statements that housing is fundamentally sound
- Prices collapse, inventory skyrockets, and builders holding inventory go bankrupt “
“Some of those may happen simultaneously or in a different order, but the whole mess starts with a huge plunge in volume.”
“I am now confident the peak in Canadian housing insanity is finally in.” – Mike “Mish” Shedlock 7-06-10
http://globaleconomicanalysis.blogspot.com
CANADIAN HOUSING MARKET ROLLING OVER
“With all the U.S. data yesterday, it was easy to miss the Canadian economic data. The June housing data probably raised the most eyebrows … home sales fell dramatically, down 8.2% MoM and down 20% from year-ago levels.”
“Average home prices fell 2.5% on the month; however, are still up 5.0% YoY (quite the dramatic slowing from the double-digit price gains a few months ago). Even if prices remain flat for the next few months, we estimate that year-over-year trends will be in negative territory by the fall.”
“The deteriorating inventory situation could suggest that prices may decline instead of remaining stable over the coming months. In June, months’ supply ticked up to 6.9 months, the highest since March 2009. Rising inventories are not limited to the existing home market — we estimate that builders have been building inventories of new homes for about eight months or so.” – David Rosenberg July 16, 2010
Is there any good news? Yes, there is. The news in Canada isn’t all bad.
| Jobs in Canada Surge |
“Canada Adds a Cool 93K Jobs in June”
“The Canadian job market seemingly exploded in June, adding a surprising and impressive 93,200 jobs over the month. Most of the Canadian data which came out over the last couple of weeks has not be overwhelmingly positive, but this amazing jobs report has made the slightly negative market sentiment turn around in its tracks.”
“The reading shattered expectations of 15,000 jobs added as the market looked for a rather flat reading following an increase of 24,700 in May. However, April GDP numbers were rather disappointing, and the recent data had led many to believe the jobs market would be faltering, especially as double dip recession fears are flaring up around the world. This jobs report shows solid growth in both full-time and part-time employment, with additions of 48.9K and 44.2K respectively. In the last four months, Canada has also added 246,000 jobs in the private sector, which is an excellent indicator for future growth.” – Tyson Wright – Custom House July 9, 2010
Back to the USS of A
Obama is as useless as Jimmy Carter, and, although both are well-meaning, both are naïve and completely incompetent. The biggest difference is that Obama is Jimmy Carter on steroids. Woe is America. Woe is us.
The challenges we face today are much more daunting than the 1930’s Great Depression. Conditions today are more like the Long Depression of 1873 to 1896 or, as Richard Florida calls, “the first great reset.” Then, we transformed from an agricultural to an industrial economy. Today we are transforming from an industrial to a knowledge-based and service industry. The 1930s Great Depression saw no such a radical transformation.
The duration of this painful transformation will depend on how well we manage or mismanage it. Florida says, “Our efforts must concentrate on actively building the economy of the future. Instead of infusing scarce capital into the very banks and financial system that brought us to the brink in the first place, or trying to reinvigorate the housing and mortgage markets that pushed us over the edge, and instead of bailing out mismanaged old-economy companies, we must use whatever resources are available to accelerate the transition to an idea-driven economy, while improving the jobs that have survived or are now being created.” – Richard Florida “The Great Reset” p. 181
Read more: http://opinion.financialpost.com/2010/07/14/the-great-reset-and-the-future-of-toronto/#ixzz0tyGY0BnU
The August Forecast – July 16, 2010
“The world is at risk of folding in on itself”, according to a Roubini economist. Manufacturing and prices both fell in June, marking economic deterioration and deflation at the same time. Consumer sentiment also dropped in July to the lowest level in one year.
Gold Update
Gold priced in dollars is in a correction phase but I don’t expect the price to drop more than 10% as it consolidates (goes sideways) for several months. It will likely drop to its moving averages and scare the crap out of the weaker gold bugs. The same applies to silver.
Remember, gold and silver are not investments. They are insurance. When all hell breaks loose, precious metals protect wealth so don’t let short term volatility spook you into dumping them. If anything, use this as an opportunity to acquire more.
In the 5 year gold chart below, you’ll see the major bottoms shown in green arrows are a couple years apart with about 6 month volatile peaks in between where gold forms a base before the next upward advance like a series of steps. In other words, buy it and forget it and don’t let short term volatility spook you.
Don’t forget, when buying gold and silver, buy the real thing not paper “certificates” which is just so much ass-wipe. Buy coins or bullion and store them yourself. Do not store at a dealer no matter how many safety assurances they give you. Do you think this can’t happen in Canada? Read on.
Scotiabank gives long abuse to cancer victim trying to reclaim her silver
11:15a ET Sunday, July 18, 2010
“Dear Friend of GATA and Gold (and Silver):
“The difficult attempt of a cancer-stricken Toronto woman to exchange her Scotiabank silver certificates for real metal, witnessed last week by a writer for the Globe and Mail, whose account of the matter is appended, recalls the difficult attempt of Harvey and Lenny Organ to do the same thing with the same bank. (See http://www.gata.org/node/8513.) The bank’s mistreatment of the Toronto woman is so outrageous that perhaps some of those who were skeptics of the Organs’ story will begin to wonder if there isn’t after all really a bullion banking policy to discourage buyers from taking possession of their metal precisely because the banks are selling far more claims to metal than they have actual metal.”
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
There is another lesson here. Do NOT deal with the imbeciles at Scotiabank for any of you banking needs. They are incredibly stupid and historically they are the most incompetent of Canada’s “Big Five” banks by a wide margin. If it’s possible to do everything wrong, Scotiabank somehow does it. How they are still in business is a mystery.
You can read the full Globe and Mail, Christine Blanchford’s article “An Unkind Complicatedness” in NOTES at the end of this commentary.
Stock Market Update
If you are still in the general stock market, be prepared to lose your shirt. Stocks have nowhere to go but down. We are in a long term stock market decline, especially U.S. stocks although general stocks in resource based countries (Canada & Australia) won’t be hit as hard. Gold & silver mining stocks should be safe in the long term but they too will be volatile and require a strong stomach. If you haven’t already bailed out for the summer doldrums, at this point you might as well hang on for the ride.
So far, stock markets are following a similar pattern to the last Great Depression i.e. death by a thousand cuts. There is no reason the stock markets must copy history but they appear to be doing so. The resemblance to 1937 – 42 is quite uncanny. The two charts below use a slightly different timeline but the action is similar. Red is today’s stock markets and green is history.
Disappearing U.S. Middle Class
The middle class is the backbone of western economies and provides governments with the bulk of its tax revenue. The middle class is slowly disappearing in the U.S. which is not only Canada’s closest neighbour but the number one trading partner. Whither goes the U.S. so goes Canada although, hopefully not as severe. 40 million Americans are on food stamps and less than half of American adults pay income taxes. Goodbye, America; it’s been nice knowing you.
For more detail see NOTES at the end of this commentary for “22 Statistics That Prove The Middle Class Is Being Systematically Wiped Out Of Existence In America” and related weblinks for further reading.
Biggest Defaulters on U.S. Mortgages Are the Rich
Not all depressions are the same. During the previous two Great Depressions, the upper classes were spared and fared quite well. In fact they got richer. Now they are defaulting on their mortgages to a greater extent than middle or lower classes. One in 7 mortgages in homes worth more than a million dollars is in default compared to one in 12 below the million dollar mark. This demonstrates the fundamental and painful changes that western economies are going through.
Below are some select points from an Ambrose Evans-Pritchard article:
With the US trapped in depression, this really is starting to feel like 1932
The US workforce shrank by 652,000 in June, one of the sharpest contractions ever. The rate of hourly earnings fell 0.1pc. Wages are flirting with deflation.
he economy is still in the gravitational pull of the Great Recession,” said Robert Reich, former US labour secretary. “All the booster rockets for getting us beyond it are failing.”
“Home sales are down. Retail sales are down. Factory orders in May suffered their biggest tumble since March of last year.”
“Roughly a million Americans have dropped out of the jobs market altogether over the past two months. That is the only reason why the headline unemployment rate is not exploding to a post-war high.”
“Let us be honest. The US is still trapped in depression a full 18 months into zero interest rates, quantitative easing (QE), and fiscal stimulus that has pushed the budget deficit above 10pc of GDP.”
“The share of the US working-age population with jobs in June actually fell from 58.7pc to 58.5pc. This is the real stress indicator. The ratio was 63pc three years ago. Eight million jobs have been lost.”
“Washington’s fiscal stimulus is draining away. It peaked in the first quarter, yet even then the economy eked out a growth rate of just 2.7pc. This compares with 5.1pc, 9.3pc, 8.1pc and 8.5pc in the four quarters coming off recession in the early 1980s.”
“The housing market is already crumbling as government props are pulled away. The expiry of homebuyers’ tax credit led to a 30pc fall in the number of buyers signing contracts in May. “It is cataclysmic,” said David Bloom from HSBC.”
“Investors are starting to chew over the awful possibility that America’s recovery will stall just as Asia hits the buffers. China’s manufacturing index has been falling since January, with a downward lurch in June to 50.4, just above the break-even line of 50. Momentum seems to be flagging everywhere, whether in Australian building permits, Turkish exports, or Japanese industrial output.” – Ambrose Evans-Pritchard 04 Jul 2010
And so it goes. I will update you on the BP Gulf oil disaster as it continues to unfold. As I suspected, they are pretending the oil flow has stopped by using misleading pressure benchmarks. If you haven’t visited Florida yet, time is fast running out.
Enjoy the rest of your summer and stay tuned because it just keeps getting more interesting.
Gerold
Sunday, July 18, 2010
NOTES
22 Statistics That Prove The Middle Class Is Being Systematically Wiped Out Of Existence In America
| Published on 07-16-2010 | |
| By Michael Snyder – BLN Contributing WriterThe 22 statistics that you are about to read prove beyond a shadow of a doubt that the middle class is being systematically wiped out of existence in America.The rich are getting richer and the poor are getting poorer at a staggering rate. Once upon a time, the United States had the largest and most prosperous middle class in the history of the world, but now that is changing at a blinding pace.See proof of the Middle Class extermination –>So why are we witnessing such fundamental changes? Well, the globalism and “free trade” that our politicians and business leaders insisted would be so good for us have had some rather nasty side effects. It turns out that they didn’t tell us that the “global economy” would mean that middle class American workers would eventually have to directly compete for jobs with people on the other side of the world where there is no minimum wage and very few regulations. The big global corporations have greatly benefited by exploiting third world labor pools over the last several decades, but middle class American workers have increasingly found things to be very tough.The reality is that no matter how smart, how strong, how educated or how hard working American workers are, they just cannot compete with people who are desperate to put in 10 to 12 hour days at less than a dollar an hour on the other side of the world. After all, what corporation in their right mind is going to pay an American worker ten times more (plus benefits) to do the same job? The world is fundamentally changing. Wealth and power are rapidly becoming concentrated at the top and the big global corporations are making massive amounts of money. Meanwhile, the American middle class is being systematically wiped out of existence as U.S. workers are slowly being merged into the new “global” labor pool. What do most Americans have to offer in the marketplace other than their labor? Not much. The truth is that most Americans are absolutely dependent on someone else giving them a job. But today, U.S. workers are “less attractive” than ever. Compared to the rest of the world, American workers are extremely expensive, and the government keeps passing more rules and regulations seemingly on a monthly basis that makes it even more difficult to conduct business in the United States.So corporations are moving operations out of the U.S. at breathtaking speed. Since the U.S. government does not penalize them for doing so, there really is no incentive for them to stay.
What has developed is a situation where the people at the top are doing quite well, while most Americans are finding it increasingly difficult to make it. There are now about 6 unemployed Americans for every new job opening in the United States, and the number of “chronically unemployed” is absolutely soaring. There simply are not nearly enough jobs for everyone. Many of those who are able to get jobs are finding that they are making less money than they used to. In fact, an increasingly large percentage of Americans are working at low wage retail and service jobs. But you can’t raise a family on what you make flipping burgers at McDonald’s or on what you bring in from greeting customers down at the local Wal-Mart. The truth is that the middle class in America is dying — and once it is gone it will be incredibly difficult to rebuild. |
|
1) 83 percent of all U.S. stocks are in the hands of 1 percent of the people.
Source: ACS, Lending Report via Financemymoney.com
Read more: http://www.businessinsider.com/22-statistics-that-prove-the-middle-class-is-being-systematically-wiped-out-of-existence-in-america-2010-7#83-percent-of-all-us-stocks-are-in-the-hands-of-1-percent-of-the-people-1#ixzz0ttABPqgd
2) 61 percent of Americans “always or usually” live paycheck to paycheck, which was up from 49 percent in 2008 and 43 percent in 2007.
3) 66% of the income growth between 2001 and 2007 went to the top 1% of all Americans.
4) 36 percent of Americans say that they don’t contribute anything to retirement savings.
5) A staggering 43 percent of Americans have less than $10,000 saved up for retirement.
6) 24% of American workers say that they have postponed their planned retirement age in the past year.
7) Over 1.4 million Americans filed for personal bankruptcy in 2009, which represented a 32 percent increase over 2008.
Note: 2005 spike preceded tougher bankruptcy filing laws
8) Only the top 5 percent of U.S. households have earned enough additional income to match the rise in housing costs since 1975.
9) For the first time in U.S. history, banks own a greater share of residential housing net worth in the United States than all individual Americans put together.
10) In 1950, the ratio of the average executive’s paycheck to the average worker’s paycheck was about 30 to 1. Since the year 2000, that ratio has exploded to between 300 to 500 to one.
11) As of 2007, the bottom 80 percent of American households held about 7% of the liquid financial assets.
Source: Dailyfinance.com
Source: Institute for Policy Studies
12) The bottom 50 percent of income earners in the United States now collectively own less than 1 percent of the nation’s wealth.
13) Average Wall Street bonuses for 2009 were up 17 percent when compared with 2008.
14) In the United States, the average federal worker now earns 60% MORE than the average worker in the private sector.
15) The top 1% of U.S. households own nearly twice as much of America’s corporate wealth as they did just 15 years ago.
16) In America today, the average time needed to find a job has risen to a record 35.2 weeks.
17) More than 40% of Americans who actually are employed are now working in service jobs, which are often very low paying.
18) For the first time in U.S. history, more than 40 million Americans are on food stamps, and the U.S. Department of Agriculture projects that number will go up to 43 million Americans in 2011.
19) This is what American workers now must compete against: in China a garment worker makes approximately 86 cents an hour and in Cambodia a garment worker makes approximately 22 cents an hour.
20) Despite the financial crisis, the number of millionaires in the United States rose a whopping 16 percent to 7.8 million in 2009.
21) Approximately 21 percent of all children in the United States are living below the poverty line in 2010 – the highest rate in 20 years.
22) The top 10% of Americans now earn around 50% of our national income
Scotiabank gives long abuse to cancer victim trying to reclaim her silver
An Unkind Complicatedness
By Christine Blatchford
The Globe and Mail, Toronto
Saturday, July 17, 2010
http://www.theglobeandmail.com/news/national/christie-blatchford/an-unki…
In the end, nothing else would do for Scotiabank but that Amar Patel — 73 years old, bald from chemotherapy, in the throes of metastatic breast cancer — should drag her aching bones down to the bank’s head office in downtown Toronto.
The trip from her airy apartment above the Indian Rice Factory, the landmark restaurant she founded in 1970 and has run ever since, was an agony of no fewer than five transfers — from the hospital bed in her living room to a commode, from commode to the chair lift for the first set of stairs, from that chair to the next chair lift for the second set, from that chair to a walker, from walker to the car.
This exercise took 59 minutes and the best efforts of her son Aman, daughter-in-law Deepa, and restaurant employee Chandan Sindhwal
I should note that despite her illness and pain, Mrs. Patel, who hadn’t been out of the apartment for almost two months, was gracious, beautiful in a red-striped caftan, and, but for occasional moans when the car hit a rough patch of road, remarkably uncomplaining.
All she wanted was to do was take delivery of the silver the bank was holding for her in the form of the certificates she’d bought decades earlier.
It was, or ought to have been, an uncomplicated transaction.
Another major financial institution, TD Bank, managed to handle the same transaction within a couple of days, and delivered the bullion to Mrs. Patel’s local branch for pickup.
By this Thursday, Mrs. Patel had done the following to obtain Scotiabank’s agreement to give her what is rightfully hers:
In early March, Aman, a Toronto criminal lawyer, had attended the downtown headquarters to explain his mom’s situation. He suggested that either a bank official go to her apartment to witness her signature (he even offered to pick up and drive back the official) or consider meeting his mother in the car outside the bank to save her a bit of the journey: Both requests were rejected.
On March 17, Aman faxed the silver certificates to his mom’s local Scotiabank branch and then drove his mother there; they were advised she would have to attend the King/Bay office downtown.
For a time, Mrs. Patel gave up; she was hoping she could tackle it in a few weeks or months, when she was better and had her strength back.
When that didn’t happen, she hired a Bay Street lawyer and, through him, signed a power of attorney appointing Aman as her attorney.
In early July, Scotiabank asked first to “pre-inspect” the power of attorney, then demanded the original; then pronounced it unacceptable because it wasn’t sealed; then insisted that a notarized copy, with covering letter from the lawyer, be produced; finally, the notarized POA had to be submitted to the home branch, then the bank’s legal department.
Even with these various approvals finally in place, Aman was told (being a lawyer, he has notes of all these conversations and e-mails) that the bank could still deny the transaction if it was deemed not to be in Mrs. Patel’s “best interest.”
So she hired another lawyer, this time to help her get what was hers.
Then the bank said it had to decide if the transaction was to be for the benefit of the attorney, from a business point of view. In other words, Scotiabank would decide if the transaction made business sense — not Mrs. Patel, or her lawyer, or Aman, who had her power of attorney.
This Thursday, having heard nothing from the bank about whether it would honour the now-approved and vetted POA, Aman called and got Judy McBride, the head of customer service at King and Bay Streets. She told him the bank would not honour the POA and that Mrs. Patel had to come down in person.
Aman again explained how weak his mother was, to no avail.
That afternoon, Aman, his wife and Chandan managed to carry out the five transfers and get Mrs. Patel in the car.
Once they arrived downtown, Aman went in to ask, one last time, if Scotiabank would at least dispatch people outside to do the signing in the car. Absolutely not, came the answer.
They got Mrs. Patel into the commode chair and into the lovely, high-ceilinged headquarters with its polished marble floors they went.
Ms. McBride asked a number of questions, in my presence. Among them: “Do you understand what this transaction is that is taking place? We’re taking your certificates and giving you the actual bullion? Why would you want to do that? It’s more difficult for you to cart around.”
At this point, Aman’s seemingly endless store of patience was exhausted and he said — mildly, I thought, in the circumstances — “That’s none of your business.”
Ms. McBride said that it was, that “simply putting a POA in place doesn’t give carte blanche,” that the bank had a responsibility too, and asked Mrs. Patel, “Why would you need the physical metal?”
Ms. McBride said the bank “reserves a right to ask questions,” because, she said, “We need a comfort level.”
Bank spokesman Joe Konecny denied the bank ever insisted Mrs. Patel had to come in person, said they were “willing to act” on the POA, but that “a heightened level of due diligence was required for a number of reasons,” among them, bizarrely, that the transaction wasn’t initiated at her home branch, although that branch had directed her downtown.
In any case, after about an hour, Mrs. Patel finally got her silver.
But it must have been a mortifying experience for this very dignified woman to make such a trip in her bedclothes, and the whole thing struck me as a profoundly condescending and arbitrary intrusion of bank functionaries into Mrs. Patel’s and her family’s business. And what if her son wasn’t a lawyer who knew how to fight back? What if she’d had a stroke and wasn’t able to sign the documents?
If she wanted to buy crack cocaine with that silver, or sleep with it at her side, that’s her call, because it belongs to her, not the bank. The bully-boy functionaries might want to find a comfort level around that notion.
Disclaimer: I’m not an investment advisor and these articles are for commentary only. For specific advice you should consult your own investment professional.
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