THE US ECONOMY AL BORDE DEL PRECIPICIO

Hudson and Wolff on the new class warriors
a good video to watch on the US Economy
http://richardbrenneman.wordpress.com/2011/04/24/hudson-and-wolff-on-the-new-class-warriors/

also in:

10 Million Foreclosures Matter
April 24, 2011
By Michael Hudson
http://michael-hudson.com/2011/04/10-million-foreclosures-matter/


READ THIS ARTICLE SUGGESTING THAT A NEW QE COULD COME:


IF QE3 COMES THE LATINO AMERICAN ECONOMIES WILL BE HIT AGAIN

Bernanke Strikes Again; QE2 sends margin debt soaring to new highs

By Mike Whitney , april 21. [[EXTRACTS]]
http://www.informationclearinghouse.info/article27939.htm

April 21, 2011 "Information Clearing House" -- -Interest rates are the Fed's main tool for implementing policy, but when interest rates are already at zero and activity is still weak, then the Fed may try other unconventional strategies to rev up the economy. Quantitative Easing (QE) is one such strategy. In practice, it works like this; the Fed purchases some type of financial asset (stocks, bonds, mortgage-backed securities) which adds to the money supply thereby creating (in effect) negative interest rates. The Fed believes that this "monetary easing" can stimulate the economy.

The Fed is currently in the process of purchasing $600 billion in US Treasuries from the big banks while at the same time recycling the proceeds of $300 billion from maturing mortgage-backed securities (that the Fed already has on its balance sheet) into reserves at the banks. This may sound complicated, but it's really not. In essence, the Fed is reducing the supply of financial assets and, thus, pushing more liquidity into riskier assets, like stocks. As a result, the S&P 500 and the Dow Jones Industrials have climbed roughly 11 and 12 percent respectively since the program began.

So, is the Fed mainly responsible for the recent uptick in stock prices?

In large part, yes. Here's how Nomura's global macro strategist Bob Janjuah puts it:

"I strongly believe QE2 added over 250 points to the S&P based on where it closed the year....We think QE1 and QE2 have failed the real economy in the US at the expense of pushing up asset prices in financial markets. (eg house prices vs. stocks) Most American families own a home, but most Americans do not own a meaningful amount of stocks. Bernanke’s solution seems to rely on the US public buying into another round of bubble blowing and on the idea of trickledown economics.

...We think QE3 will be both unavoidable and a grave policy mistake in the hard landing outcome. We think it (QE3) is unavoidable because under this outcome, where we expect a significant slowdown in global growth in H2, driven by an EM (Emerging Market) slowdown and an end to the global super-cycle in manufacturing, it is the only "stimulative‟ policy option left, and Bernanke and Obama both seem fixated with stimulus, at any cost it seems….("Bob Janjuah – told you so America", Ft Alphaville)

So, Janjuah lays out the basic case against QE2, which is, that while it pushes stock and commodities prices up, it provides very little relief for underlying economy. In other words, Bernanke is just blowing bubbles instead of addressing the fundamental lack of demand.

QE has been the most controversial policy in the Fed's history, and for good reason. The policy is seen as a direct intervention into the markets. Bernanke denies this, but at the same time, he boasts that QE2 has raised stock prices and strengthened the recovery. So, which is it; either the Fed is meddling in the markets or it is not?

Also, Bernanke continues to say that the economy is close to a "self sustaining recovery". But if that's true then why are interest rates still below the rate of inflation (which provides a subsidy to the banks for borrowing from the Fed), and why has the Fed announced that it will not end QE2 on schedule (at the end of June) but will continue to recycle funds from maturing bonds into the purchase of more Treasuries? Here's the scoop from Bloomberg:

"Federal Reserve Chairman Ben S. Bernanke may keep reinvesting maturing debt into Treasuries to maintain record stimulus even after making good on a pledge to complete $600 billion in bond purchases by the end of June.

The Fed chief’s top two lieutenants said this month the economy and inflation are too weak to warrant the start of a monetary-policy reversal. Investors and economists including David Kelly at JPMorgan Funds see that as a signal the Fed will keep its balance sheet at current levels by replacing about $17 billion a month in maturing mortgage debt with Treasuries.

Ending the reinvestment policy and the $600 billion program at the same time would be like quitting stimulus “cold turkey,” said Kelly, who is based in New York and helps oversee $400 billion as chief market strategist at JPMorgan." ("Bernanke May Sustain Stimulus to Avoid ‘Cold Turkey’ End to Aid", Bloomberg)

This shocking policy reversal by the Fed suggests that the economy is still so weak, that the ventilator and feeding-tubes must remain in place to forestall another disaster.