International Forecaster Weekly

Bernanke Only Adds Fuel To The Fire With Quantitative Easing

Bernanke both author and critic of quantitative easing, the latest bogus statistics, gold moving higher, hiding behind incompetence in the system, housing sales up but far from healthy, FCC taking over the internet.

Bob Chapman | December 29, 2010

Mr. Bernanke, Chairman of the Federal Reserve, a private corporation, would have us believe that, quantitative easing is the only way to save the US economy and to reverse the unemployment problem. He conveniently forgets to tell you that he authored a paper in 1988 with Mr. Michael Baskin that concluded that what Mr. Bernanke is doing with QE does not work. He told watchers of “60 Minutes” that the jobless rate would have been far higher; something like it was in the “Great Depression” at 25%. If Mr. Bernanke had taken time to have his minions do the research, he would have found that U3 at the peak of the “Great Depression” was 25.2% and U6 was 37.6%. As we write U3 is 9.8% and U6 is 17%. If you strip out the bogus birth/death ratio, real unemployment on a U6 basis is probably close to 22-3/8%, as yet, considerably less than in the 1930s, but impressively unacceptable. As those interested now know over the past three years the Fed has bailed out financial firms and many other corporations with funds provided indirectly by the US taxpayer. Little of this largess has fallen into employment and as a result unemployment has risen. It lies in the face of reality for Mr. Bernanke to tell was that QE2 will create employment when QE1 certainly did not.

What Mr. Bernanke has done is add fuel to the fire, which has given us one of the greatest financial scams of all time.

Part of the Fed’s cover is the fiscal irresponsibility of government, which in 2010 created $2 trillion in net liabilities, as federal benefits rose. That was the result of the Financial Report of the US, which rightly applies corporate-style accrual accounting. That includes interest on debt and federal benefits payable when they are incurred. This method illustrates the mounting liabilities of government entitlement programs, such as Medicare, Medicaid and Social Security. 2010’s cash budget may have narrowed to $1.294 trillion from $1,417 trillion in 2009, but the real number was $2,080 trillion.

We have discussed bogus government statistics for more than 20 years, especially over the past ten years. Growth projections for the year are hard to make when the numbers are what government wants them to be. The result is no nonsense it is premeditated fraud. It is called cooking the books and if it weren’t for John Williams our nation would be in the dark, as to what government is up too.

The term now being used within government is information management. In the inflation sphere when the desired result is needed in their basket of goods, and one element is rising, it is replaced with one that is not. This is a field where the goal is continually moved to suit those in control. As a result, the CPI has become useless. Substitution and hedonics are the name of the game. Thus, the pretension of no or lower inflation can be projected, then inflation supposedly is not an issue when in fact it is. This is the Fed’s fake justification for low or no interest rates. Using the 1990 inflation formula inflation is about 6-3/4% and using the 1980 formula the figure is 8-1/4%. That shows you the temerity and the arrogance of government and the Fed, which is well aware of what is going on.

The same fraud is committed in employment figures by the underestimation of real numbers of workers unable to find work. Then there is the notorious birth/death ratio, the ratio of the birth of new businesses and the death of old businesses and their net effect on the hiring and firing of workers. These government statistics are completely bogus. By way of example, U6 is 17%, but if you withdraw the B/D ration unemployment is 22-3/8%.

The heralded number by government and the mass media is the U3 figure of 9-3/4%, which is only the short-term unemployment number, certainly a false reflection of real unemployment.

As we noted in the last issue if consumers are saving and reducing debt how can consumption figures be growing? Does this mean that in order to maintain growth all the piggy banks have been emptied and all the cash has been removed from under the mattress? Of course not, it is because government figures are fake. Later they are revealed to be so, but that is too late. The desired psychological affect has already taken place. The lie of more consumption forces others to follow suit in what is termed the herd mentality.

The current method of quantitative easing will be as unsuccessful as was QE1 and what is worse is the government and the Fed are well aware of this. The elitists are buying time as they have for the past three years.

Government and the Fed engage in subterfuge, lies and psychological warfare to get the herd to buy generally on credit to increase consumer spending.

The government has said Blackwater was not in New Orleans. We are told that photographs exist that proves they were there. A Blackwater assault team were deposited on the roof of one of the buildings to stop looting and resurfaced with six dead bodies. The police were ineffective and in some instances were seen looting as well. The denial still exists, but someday this photographic evidence will surface and George Bush will have the heat turned up on him a little higher.

The effort by the American voter this past election was woefully inadequate, only some 95 incumbents were removed from office and 1/3rd of them resigned a 14% change, net in both Houses, when 6% normally are defeated.

In the lame duck session, Democrats and liberal republicans completed one of the worst congressional sessions in history. Worse yet, most of the crooks are returning in January for more of the same. They are in service and controlled by their money masters from behind the scenes and they will pass anything they are told to pass. The repeal of “Don’t Ask Don’t Tell” could be a disaster for our military. It is already bad enough that up until now few women re-enlist due to aggressive lesbian activity, but we have been told by excellent sources that 1/3rd of officers and non-coms are intending to complete their enlistments and leave the service, especially those with 19.6 years of service, who would have otherwise stayed for 30 years. That is a big sacrifice for them because of the much higher pension payout.

Scumbag Senator Robert Bennett of Utah, who was defeated in the primaries, paid off his handlers by delivering a missile treaty that allows Russia to renovate its system while America disarms.

As we expressed previously an extension of the Bush tax cuts without the breaks for the rich would have been sufficient, but the Republicans and Democrats loaded the bill with pork, making it another stimulus program and at the same time politically expedient. Rather than have to vote for such largess in a separate bill they attached all of their pet measures.

The Dream Act lost but you can bet it will be back in many forms in the near future.

The Omnibus Spending Bill was laid over for the next session, but the controllers behind the scenes will make sure it includes everything they want.

The 1% financial transaction tax and the grab for IRAs and 401Ks didn’t surface, but there is always next year.

The performance by the Republicans was simply terrible. Let’s hope the soon to be arriving freshman and women have some great new ideas. The Grand Old party is just that, old tired retreads.

Then there was the passing of S510, the “Food Safety Bill,” the Patriot Act for food. That is to allow transnational conglomerates to take a greater percentage of food production. Politicians, being the vermin that they are, passed this bill in the dead of late Sunday night. These are the scum you elected.

Net Neutrality was an end run through the FCC, which has no legal authority to do so. We expect the House and Senate will reverse this edict.

Over the last two years gold has been moving higher in a set pattern of segments establishing support at each interval of about $150.00 higher in price. Consolidations have taken about three months. That means that January is primed for the next upward move, probably to $1,600 to $1,650.

Since July, silver has followed the same pattern from $23.00. Its consolidations have only taken three weeks. This last week of 2010 could see the beginning of its next move, or at least by the first week in January. The next consolidation area should be at $33.00.

One has mixed feelings about the rise in oil prices. They are inflationary and that assists gold and silver prices, but in the longer term they are a real damper on the world economy. We do not really want to see oil at $100 or higher, because the long term affects could help plunge the world economy into depression.

We found it of interest that Goldman Sachs repaid its TARP borrowings to keep it from insolvency by borrowing from the Fed. This would have never been known but for the Bloomberg lawsuit. When the sub-rosa deal was exposed, Goldman said, the Fed forced it to take TARP funds. The truth is Goldman was operating with $25 billion of undisclosed public loans. In addition, the Fed relieved Goldman of more than $30 billion in toxic MBS to help clear its books. As a result, profit grew and bonuses rose to hundreds of millions of dollars.

Recently Bloomberg, which via the Appeals Court, forced the Fed to relinquish who money had been lent to, what collateral was received, has sued the ECB, European Central Bank, to force disclosure of Greece swaps. They must divulge how Greece for years used derivatives to hide its fiscal debt, which helped cause Greece’s and other sovereigns to become mired in a debt crisis. We are told that the moving party to this conspiracy was Goldman Sachs. In due time we will see if this is correct.

The outgoing Larry Summers, who ran the administration’s market manipulations for the “Working Group on Financial Markets,” implied that the Fed erred in 2008, when it concentrated on inflation, and not the national GDP, as markets flashed warning signals. Expectations were falling and inflation was slowly being reversed and the cost of that mistake was significant. What Mr. Summers is saying is that the Fed blew it and it was not his fault or that of the administration.

As oil prices rise economies come under pressure. This was the case in Shanghai this past week. If oil stays about $90.00 a barrel for 3 to 6 months it will have a very negative affect on economies, particularly those such as China, which is a major importer. This has come about as China raises bank reserve requirements, which is tantamount to raising interest rates.

This level of oil prices sucks $60 billion out of the economy and sends it to oil producing nations.

As a result New Zealand will see 2010 GDP growth of minus 0.2% versus earlier projections of plus 0.1%. Japan sees a 1.5% GDP gain versus a 3% estimate of the past year. If the price stays at $90, the damage will be extensive for the year ahead.

Globally money managers have been sellers of bonds having raised equity exposure to 54%, the highest in ten months. Bonds fell to 34%.

A buoyant Christmas sales season was very surprising. We wonder what these big spenders will do when the bills come in late in January? They will have to deal with higher gas pump prices as well.

Thus far there have been little progression in reducing unemployment. Most jobs created are part-time. That forces government to provide more stimuli and create more debt. We even hear Social Security cash flow may be plundered in the process. At the same time there is downward pressure on wages and salaries, as inflation increases at a 6-3/4% clip, and savings fall again. That is accompanied by thrift shop second-hand sales, which are up 13% yoy, the strongest in five years.

30-year fixed rate mortgage interest rates are well over 5% and as a result applications have fallen 18.6%, the worst drop in a year.

If oil prices remain above $90.00, the affect will be detrimental to the economy.

In 2011, analysts and economists are in for a big surprise. The economy is not going to grow as much as they think it will. If retail investors continue to withdraw funds from stocks and bonds, those funds will go into commodities and gold and silver. Where else can it go? Going to real estate at this level is suicidal.

Bullish market sentiment continues to climb up to 58.8% last week from 55.8%. This is the highest reading since 2007, before the market tanked. Investors think the market is bulletproof due to QE2. They should take a harder look at Europe and the possibility that Germany, France, Holland and Austria could go broke bailing out Greece, Ireland, Portugal, Spain, Belgium and Italy. Many are missing the worldview. Professionals are too optimistic. It should also be of interest that dividend yields are the lowest since 2000. By any measure the general market is overvalued. Just to show you with the number of rallies in the market since 2003 it has still performed poorly versus gold. When we started recommending gold shares and coins in 2000 it took 40 ounces of gold to buy the Dow. Today, it takes 8 ounces. That is a compounded return of 19.6% annually over the past ten years. It doesn’t get much better than that. Now P/E ratios are at almost 23 times, whereas 15 times is normal. Once the market hits a low P/E’ will range from 6 to 12 times earnings. Do not forget as well that there are record residential home inventories, some 80% above normal close to four million homes. We are still looking at an average correction of some 25% from here and a bottom that could last 8 to 30 years.

The IMF gold overhang is gone, so it is only a matter of time before gold resumes its upward march along with silver. You cannot be a winner if you are not in the game. Do not forget that gold could close out the year up 30%. We do not see those kinds of gains in bonds or shares with the exception of gold and silver shares. The stock may be up, but without trillions of dollars of stimulus from the Congress, the administration and the Fed, the market and the economy would look like a wet noodle.

Last week the Dow rose 0.7%, S&P gained 1.0%, the Russell 2000 rose 1.2% and the Nasdaq 100 rose 0.5%. Banks rose 3.3%; broker/dealers 2.4%; cyclicals 0.8%; transports 0.5%; consumers 0.7%; utilities 0.9%; high tech 0.7%; Internets 0.2%; semis were unchanged and biotechs gained 0.9%. Gold bullion rose $6.00, the HUI gold index gained 0.5% and the USX rose 0.1% to 80.47.

Two-year T-bills rose 5 bps to 0.655% and the 10-year notes rose 7 bps to 3.40%, as German bund yields fell 5 bps to 2.98%.

Freddie Mac’s 3-year fixed rate mortgage fell 2 bps to 4.81%, the 15’s fell 2 bps to 4.15%, one-year ARMs rose 5 bps and 30-year fixed rate jumbos fell 12 bps to 5.51%.

Fed credit jumped $14.2 billion to another new record at $2.388 trillion. That is up 7.7% annualized and 7.9% year-on-year. Fed foreign holdings of Treasuries and Agencies rose $14.0 billion to another new record $3.351 trillion. Custody holdings for foreign central banks have increased $396 billion year-to-date, and year-on-year 13.3%.

M2 narrow money supply rose $16.5 billion to a record $8.830 trillion. That is up 3.6% annualized.

Total money market fund assets fell $9.3 billion to $2.788 trillion.

Total commercial paper declined $8 billion to $974 billion, CP has fallen $196 billion YTD and $186 billion YOY.

The six largest U.S. airlines have built a $23.8 billion cash hoard to cut debt and build a cushion against future shocks, bucking a pattern in other industries of returning money to investors. As the carriers dig out from two years of collective losses, stockholders must be content with the knowledge that the group led by United Continental Holdings Inc. may be better protected against fuel-price surges and recessions, according to analysts at Fitch Ratings and Standard & Poor’s.

New Jersey’s pension-funding deficit increased by $8.05 billion, or 18%, this year to $53.9 billion as the state failed to make contributions. The unfunded pension liability was $45.8 billion as of June 2009. New Jersey also faces an unfunded liability of $66.8 billion for providing medical care to retired public employees.

Cash-strapped states and municipalities will lose tax revenue of about $8 billion in 2011 under the extension of Bush-era income tax cuts. Revenue- generators excluded from the measure include subsidies for taxable Build America Bonds and payments to state housing authorities.  Those provisions were scuttled in final negotiations on the $858 billion tax-cut extension measure.

Washington State may not pay for glasses anymore. Massachusetts already chopped dentures. As of Oct. 1, North Carolina no longer covers surgery for the clinically obese.   Governors nationwide are taking a scalpel to Medicaid, the jointly run state and federal health-care program for 48 million poor Americans, half of whom are children. The single biggest expense for states, Medicaid consumes about 22% of their total $1.6 trillion in expenditures, more than what is allocated to elementary and secondary education.

On Monday, 12/20/10, the U.S. Conference of Mayors released its 2010 survey of 27 cities on hunger and homelessness and found, not surprisingly, that the problem is getting worse.

On hunger the survey found the following:

  • Every city surveyed reported that requests for emergency food assistance increased over the past year, by an average of 24 percent;
  • Among those requesting emergency food assistance, 56 percent were persons in families, 30 percent were employed, 19 percent were elderly and 17 percent were homeless;
  • Cities reported an average 17 percent increase in the amount of food distributed during the past year;
  • Fifty-six percent of the cities responding expect that resources to provide emergency food assistance will decrease moderately over the next year;
  • Increasing demand and decreasing resources, particularly related to federal and state budget problems, were cited most frequently by the cities as the biggest challenge to addressing hunger in their areas during the coming year.

Similarly, on homelessness, the survey found increases, though not as dramatic as with hunger, except with regard to homelessness among families. Overall the survey found an increase of 2 percent in homelessness, but an increase of 9 percent among families.

Unemployment led the list of causes of homelessness, but at the same time, 19 percent of homeless adults are actually employed. Across the 27 cities, 27 percent of homeless people needing assistance did not get it. Emergency shelters in 64 percent of the cities must turn away families with children, because there are no beds for them, while 68 percent of cities must turn away unaccompanied individuals for the same reason.

A homeless activist in Texas told EIR, this morning, that in his city, where the homeless population is estimated to be about 4,000 people (though it could really be as high as 8,000), there are only 607 shelter beds, and 80 percent of those are claimed by individuals with special needs. The remainder are parceled out according to a lottery system, leaving many people to sleep in the cold.

More than 500 representatives from 27 nations, including top regulators and central bankers, met dozens of times this year to hammer out 440 pages of new rules to govern the world’s banks.

What’s not in the documents published by the Basel Committee on Banking Supervision, and the escape hatches that are, may have more impact on how financial institutions will operate following a global credit crisis that led to $1.8 trillion in bank losses and writedowns.

The committee’s most significant achievement, members say, an agreement to increase the amount of capital banks need to hold, won’t go into full effect for eight years. Other measures that regulators had hoped would prevent future crises liquidity standards, a capital surcharge on the biggest lenders and a global resolution mechanism for failing firms were postponed, allowing banks to escape the toughest rules that would force them to change the way they do business.

“There will be changes, but not fundamental changes to the banking model,” said Sheila Bair, who as chairman of the U.S. Federal Deposit Insurance Corp. sits on the Basel committee’s top decision-making body. “Hopefully there’ll be some pressure for banks to get smaller and simpler.”

Bair, 56, is one of five U.S. representatives on the board. She has assailed bankers for exaggerating the impact of planned regulations in an effort to scare the public and politicians. In an interview in June, she questioned “whether regulators can place any reliance on industry analysis of the impact of proposals to strengthen capital rules.”

American International Group will pay $100 million in fines to resolve a 50-state investigation into shortchanging state workers’ compensation funds. The insurer will also pay $46.5 million in taxes and assessments, according to a statement yesterday from the Pennsylvania insurance regulator.

Orders for U.S. capital equipment rebounded in November, signaling a slowdown in business investment may be less pronounced than some economists projected.

Bookings for goods like computers and communications gear climbed 2.6 percent after a 3.6 percent decline in October that was smaller than previously estimated, figures from the Commerce Department showed today in Washington. Total orders dropped 1.3 percent, depressed by volatile demand for aircraft, and bookings excluding transportation equipment rose more than forecast.

Capital spending has been a source of strength for the world’s largest economy at the same time that household purchases are starting to accelerate. Manufacturing, the industry that helped pull the U.S. out of the worst recession since the 1930s, has been resilient throughout the recovery, bolstered in part by overseas demand for American-made goods.

“There is still some equipment spending going on,” said Brian Bethune, chief U.S. financial economist at IHS Global Insight in Lexington, Massachusetts. “It’s going to be a positive contributor to growth.”

Another Commerce Department report today showed consumer spending rose in November as incomes climbed. Household purchases advanced 0.4 percent after a 0.7 percent gain in October that was larger than previously estimated. Incomes rose 0.3 percent and the Federal Reserve’s preferred price measure showed inflation remained below policy makers’ comfort zone.

Confidence among U.S. consumers climbed to a six-month high in December, coinciding with a pickup in holiday sales and fewer job cuts.

The Thomson Reuters/University of Michigan final index of consumer sentiment for the month rose to 74.5, matching the median estimate in a Bloomberg News survey, from 71.6 in November. The preliminary December reading was 74.2.

Initial U.S. jobless claims fell last week and the number of people on unemployment benefit rolls dropped to a two-year low, reinforcing evidence the labor market is improving.

First-time filings for jobless insurance declined by 3,000 to 420,000 in the week ended Dec. 18, matching the median forecast in a Bloomberg News survey, Labor Department figures showed today in Washington. Those already collecting benefits fell in the previous week to 4.06 million.

Builders sold fewer new homes than forecast in November, signaling the U.S. housing market is floundering in the face of near-10 percent unemployment and an overhang of unsold existing properties.

Purchases increased 5.5 percent to a 290,000 annual rate from a 275,000 pace in October that was lower than previously estimated, figures from the Commerce Department showed today in Washington. The median forecast of economists surveyed by Bloomberg News projected a 300,000 pace. Sales reached a 274,000 pace in August, the lowest since data collection began in 1963.

The imminent threat to the muni market may be overstated, but there is a compelling argument that the long-term challenges are very real, particularly as the revolve around pensions funds, and generous accounting, and the possibility that money can just run out.

NYT profiles the town of Prichard, Alabama which just stopped sending checks in contravention of state law to about 150 pensioners.

As you can imagine, the ramifications for the pensioners have been about as bad as you would expect. Several have gone bankrupt or have had to unexpectedly go back to work at an old age.

Then there's this:

Far worse was the retired fire marshal who died in June. Like many of the others, he was too young to collect Social Security. “When they found him, he had no electricity and no running water in his house,” said David Anders, 58, a retired district fire chief. “He was a proud enough man that he wouldn’t accept help.”

GDP increased 2.6%; 2.8% was expected. Personal Consumption increased 2.4%; 2.9% was expected.

GDP and consumption would have been worse without the better priced adjustments. The GDP Price Index increased 2.1%; 2.3% was expected.

Ergo, nominal GDP was 0.4 percentage points worse than expected (0.2% + 0.2% from prices).

Q3 GDP is far worse than the headline number because inventories surged $121.4B, which accounts for 1.61 percentage points of GDP. Government & inventories are most of GDP! Real final sales increased only 0.9%!!!

Ergo the Ministry of Truth, utilizing bogus inflation adjustments, will revise GDP back to 1929 – just like Winston Smith used to do at the Ministry of Truth’s Record Division in the book “1984”.

Bond Fund Investors Pull Most Monday In Two Years

U.S. bond funds experienced withdrawals of $8.62 billion in the week ended Dec. 15, up from $1.66 billion the week before, according to a release from the Investment Company Institute, a Washington- based trade group. Last week’s withdrawals were the largest since the week ended Oct. 15, 2008, when investors yanked $17.6 billion from bond funds.

A NY Times’ disturbing report: I was intrigued to hear from the ace data-crunchers at AARP that in the past 20 years the oldest group of workers, the 75-plus work force, has increased enormously.

Sifting through the data from the Bureau of Labor Statistics, AARP analysts found that the number of workers ages 75 and older (meaning they’re employed or seeking employment) has grown to about 1.3 million in 2009, from just under half a million in 1989. That’s still a small sliver of the population over age 75, just 7.3 percent, but a big jump from the 1989 labor force participation rate of 4.3 percent.

Rates on fixed mortgages dipped after rising for five weeks in a row.

Still, they remain more than a half-point higher than last month and are at the highest level since late spring.

Freddie Mac said Thursday the average rate on a 30-year fixed mortgage slipped to 4.81 percent from 4.83 percent in the previous week. Last month, the rate reached a 40-year low of 4.17 percent, but has since been edging higher.

The average rate on the 15-year loan, a popular refinance option, also fell to 4.15 percent from 4.17 percent. It hit 3.57 percent in November, the lowest level on records starting in 1991.

Rates had been rising since early November as investors shifted money out of Treasurys and into stocks on expectations that the recent tax-cut plan will boost economic growth and potentially increase inflation. The sell-off comes even as the Federal Reserve buys up $600 billion in bonds to try to lower interest rates.

Yields tend to rise on fears of higher inflation. Mortgage rates track the yields on the 10-year Treasury note.

This week, Treasury yields stayed in a tight range due to thin trading before the Christmas holiday.

Higher mortgage rates have become another obstacle for the ailing housing market. The number of buyers looking to refinance fell for the sixth straight week, the Mortgage Bankers Association said Wednesday, while the ranks of people applying for a mortgage to buy a home slid 2.5 percent from the week before.

And while more buyers bought previously occupied homes and new homes in November than the previous month, the sales pace of both is far from what analysts consider healthy.

The National Association of Realtors said Wednesday sales of previously owned homes rose 5.6 percent to a seasonally adjusted annual rate of 4.68 million units last month. It's the third gain in four months following the worst summer for home sales in more than a decade.

The Commerce Department said Thursday that sales of new homes rose 5.5 percent last month to a seasonally adjusted annual rate of 290,000 units. But that increase came after sales had fallen to the second-lowest level in 47 years in October.

To calculate average mortgage rates, Freddie Mac collects rates from lenders across the country on Monday through Wednesday of each week. Rates often fluctuate significantly, even within a single day.

The average rate on a five-year adjustable-rate mortgage fell to 3.75 percent from 3.77 percent. The five-year hit 3.25 percent last month, the lowest rate on records dating back to January 2005.

The average rate on one-year adjustable-rate home loans edged up to 3.40 percent from 3.35 percent.

The rates do not include add-on fees, known as points. One point is equal to 1 percent of the total loan amount. The average fee for the 30-year, 15-year and 1-year loans in Freddie Mac's survey was 0.7 point. The average fee for the five-year ARM was 0.6 point.

21K homes sold on a NSA basis in November with revisions DOWN for prior months. That is the lowest total in history since records have been maintained. To make matters worse, homes with a price of over $300,000 managed a just a little over 5,000 homes sold nationwide or about 100 per state. This is not the sign of a recovery despite the myths and bull hockey being spewed on television by the Bubbleconomists. Get ready for a major downturn in the economy in Q1 2011 as this is a constant leading indicators and the Q3 results from Best Buy was the first confirmation that the American consumer is focused on survival, not “stuff.”

A New York court ruled yesterday that a bond insurer claiming Bank of America’s Countrywide unit fraudulently induced it to insure $21 billion of mortgage-backed securities can use statistical sampling to prove its case.

Judge Eileen Bransten granted a motion to allow the insurer, MBIA, to use statistical sampling, turning down the objections by Bank of America.

Bank of America had told investors that it intended to fight repurchase requests also known as put-backs on a “loan-by-loan basis.” That process would have required MBIA and others seeking to force Bank of America to buy back loans it pooled into mortgage securities to proceed one loan at a time, a costly and time-consuming process.

MBIA has proposed that for each of the 15 securitizations each of which contains thousands of home loans it is challenging, it will sample 400 loans. Those loans will be subdivided according to borrowers credit score and loan to value ratios. The samples will then be tested in an effort to prove MBIA’s claims of fraud, breach of insurance contracts, and repurchase demands.

The ruling does not mean that MBIA will automatically prevail if the sampling shows that the loan pools were flawed. Bank of America may still argue that the sampling methodology was too flawed to amount to proof of MBIA’s claims. Alternatively, it could present statistical sampling of its own to counter the findings of MBIA’s sampling. But whether these arguments will prevail will be made by the finder of fact at trial which means either the jury or if Bank of America opts not to have a jury trial the judge.

MBIA has been handed a powerful tool for establishing its claims. And Bank of America is a bit closer to facing the put-back apocalypse it hoped it could avoid or at least slow down by fighting the claims one loan at a time.

Just days after the U.S. Federal Communications Commission (FCC) decided to essentially take over the internet, FOX News is reporting that a procedural delay could bring any new FCC rules to a grinding halt. Several Congressmen plan to take advantage of the 60-day waiting period required before any new rules can come into effect, and effectively block the new regulations.

Sens. John Ensign (R-NV) and Kay Bailey Hutchison (R-TX) together are planning to introduce legislation to overturn the FCC's takeover before it can take effect two months after being published in the Federal Register. And according to FOX News, the FCC is set to publicly release the new rules in early January.

"This vote is an unprecedented power-grab by the unelected members of the Federal Communications Commission, spearheaded by Chairman Genachowski," explained Hutchison in a statement. "The FCC is attempting to push excessive government regulation of the Internet through without congressional authority and these actions threaten the very future of the technology."

The FCC flagrantly violated several previous court rulings by deciding on Tuesday to seize control of the internet. In a 3-to-2 decision, the FCC Commission essentially declared that it would begin policing the internet under the guise of "net neutrality", even though the agency cannot legally do so with approval from Congress.

Rep. Fred Upton (R-MI), incoming overseer of the House Energy and Commerce Committte, has also indicated that he plans to stop the takeover "by any legislative means necessary." And with many new Republicans set to be installed in the new Congress, analysts say it is likely that any new FCC rules will eventually be overturned.

Trenton, NJ The hole in the state’s pension fund grew again this year, by more than $8 billion, a trend that continues after a decade of skipped payments and increased benefits.

The unfunded piece of the state’s pension liability the estimated total amount needed to pay current and future state, county and municipal employees grew by $8.05 billion between June 2009 and June 2010, according to a report released today by the Department of Treasury which indicted the state has a $53.9 billion unfunded promise.

Additionally, the state has a $66.8 billion unfunded promise to future and current employees for lifetime health benefits, the report found.

Gov. Chris Christie has said reforming the pension and health system is a priority for the new year and leaders in the Legislature have agreed to discuss reforms.

"If all the required contributions to the pension funds had been made over the last decade, New Jersey would still not have enough money to pay all the benefits state and local governments have promised to public employees," Treasury Spokesman Andy Pratt said in an e-mail.

In reporting the increase, the administration included a summary of the proposals Christie has made to reform the pension and health systems. They include rolling back a 9 percent increase that was granted for 2011, raising the retirement age to 65 and requiring all employees pay 8.5 percent of their salary to the pension. The plan would also require employees to pay 66 percent of their health costs.

Hetty Rosenstein, New Jersey director of the Communications Workers of America the largest state workers’ union said her members are aware of how serious the problem is.

"We want to be sure that our members’ pensions are secure. So we would never just ignore such a thing. And we want to help to figure out how best to address it," Rosenstein said. "And the governor has to share in the responsibility by discussing how the state is going to fund the pension and making a commitment to fund the pensions."

This year, Christie skipped a $3.1 billion pension payment continuing a decade of gubernatorial administrations shortchanging the system. Christie has said he will not contribute funds until the system is changed.

Rosenstein said the lowest paid government workers should not have to pay 8.5 percent of their salaries towards pensions, as the governor proposed.

"How are you going to say they should pay 8.5 percent, the same as police and fire, when those pensions are worth three times as much?" she said.

U.S. retailers’ 2010 holiday sales jumped 5.5 percent for the best performance in five years as shoppers snapped up clothing and jewelry at Macy’s Inc., Tiffany & Co. and other stores.

Retail sales, excluding autos, rose to $584 billion from Nov. 5 through Dec. 24, said MasterCard Advisors’ SpendingPulse, which measures retail sales by all payment forms. That compared with a 4.1 percent gain a year earlier. The numbers include sales made over the Web.

Apple Inc., maker of the iPhone and iPad, was accused in a lawsuit of allowing applications for those devices to transmit users’ personal information to advertising networks without customers’ consent.

The complaint, which seeks class action, or group, status, was filed on Dec. 23 in federal court in San Jose, California. The suit claims Cupertino, California-based Apple’s iPhones and iPads are encoded with identifying devices that allow advertising networks to track what applications users download, how frequently they’re used and for how long.

“Some apps are also selling additional information to ad networks, including users’ location, age, gender, income, ethnicity, sexual orientation and political views,” according to the suit.

The suit, filed on behalf of Jonathan Lalo of Los Angeles County, identifies applications such as Pandora, Paper Toss, the Weather Channel and, and names them as defendants along with Apple. Lalo is represented by Scott A. Kamber and Avi Kreitenberg of KamberLaw LLC in New York.

Apple iPhones and iPads are set with a Unique Device Identifier, or UDID, which can’t be blocked by users, according to the complaint. Apple claims it reviews all applications on its App Store and doesn’t allow them to transmit user data without customer permission, according to the complaint.

The lawsuit, claiming the transmission of personal information is a violation of federal computer fraud and privacy laws, seeks class-action status for Apple customers who downloaded an application on their iPhone or iPad between Dec. 1, 2008, and last week.

Arizona’s get-tough approach to illegal immigration has sparked court challenges likely to take years to resolve. Randy Terrill, a Republican state lawmaker from Oklahoma, won’t be waiting to see what judges decide.

Terrill is among dozens of state legislators across the U.S. drafting measures that match or go further than the Arizona law, which requires police to check the immigration status of people stopped for questioning. He’s readying legislation to allow Oklahoma authorities to seize and keep the vehicle of anyone found to be harboring an illegal immigrant who is a passenger, regardless of whether smuggling is suspected. The measure would categorize undocumented immigrants as “human contraband.”

Elsewhere, Missouri and Mississippi are among states where lawmakers intend to offer bills similar to Arizona’s “probable cause” law. And legislators in several states want to require employers to verify the immigration status of workers.

The state-by-state efforts underscore the federal gridlock on immigration policy. “States are stepping in where the federal government can’t or won’t act,” said Terrill.

About 300 immigration-related bills were introduced in statehouses in 2005, said Ann Morse, who directs the Immigrant Policy Project for the National Conference of State Legislatures. In each of the last two years, the figure reached about 1,500, she said.

In 2011, state legislators could push the number higher. “Every indication I get is, they’re not done,” Morse said.

GOOD old-fashioned cash is to go down the electronic route, now that it is possible to stamp simple electronic circuits directly onto banknotes.

Modern banknotes contain up to 50 anti-counterfeiting features, but adding electronic circuits programmed to confirm the note's authenticity is perhaps the ultimate deterrent, and would also help to simplify banknote tracking.

Silicon-based electronic circuits are clearly too thick to be incorporated into thin and fragile banknotes, but semi-conducting organic molecules might be a viable alternative.

A team of German and Japanese researchers created arrays of thin-film transistors (TFTs) by carefully depositing gold, aluminium oxide and organic molecules directly onto the notes through a patterned mask, building up the TFTs layer by layer.

All this is done "without aggressive chemicals or high temperatures, both of which might have damaged the surface of the banknotes", says team member Ute Zschieschang from the Max Planck Institute for Solid State Research in Stuttgart, Germany.

The result is an undamaged banknote containing around 100 organic TFTs, each of which is less than 250 nanometres thick and can be operated with voltages of just 3V. Such small voltages could be transmitted wirelessly by an external reader, such as the kind that communicates with the RFID tags found on many products (Advanced Materials; DOI: 10.1002/adma.201003374).

The team's technique has been tested on US dollars, Swiss francs, Japanese yen and Euro notes. Although the researchers have yet to work out how the organic electronics could be harnessed as an anti-counterfeit measure, the circuits are able to perform simple computing operations.

America is storing up a second financial crisis by keeping interest rates at record low levels, according to David Einhorn, the hedge fund manager who first publicly warned about the financial catastrophe facing Lehman Brothers.

"The crisis that required zero interest rates has passed," said Mr Einhorn, who co-founded and runs Greenlight Capital, a $6.5bn (£4.2bn) fund. By not raising rates "it increases the chance that governments will over-borrow and fall into a debt trap".

The criticism of the Federal Reserve comes as it embarks on another $600bn (£380bn) of quantitative easing or printing money in an effort to fire up a stronger recovery next year.

Interest rates around the western world, including in Britain, have sat at or below 1pc since the near collapse of the financial system in 2008 triggered a global recession.

"If interest rates ever do go up again, you have another crisis," Mr Einhorn told The Sunday Telegraph.

Those in favor of very low interest rates point to the support it has given the real estate market in the US and that, as in the UK, it should encourage politicians to begin to tackle the $1.3 trillion budget deficit without fear of damaging the economy.

Greenlight, which Mr Einhorn founded in 1996 with about $1m, including an investment from his parents, has its single largest position in gold an asset that many investors have historically turned to during periods of economic uncertainty.

The gold price, which is closing in on a tenth straight year of gains, reached a record $1,432.50 an ounce earlier this month.

Mr Einhorn admits that he is having to pay far more attention to the broader economic picture when making decisions about which companies to invest in than he has ever done. He declined to say what he thought of either the UK or eurozone economies at the moment.

The 42 year-old, already well known within the hedge fund industry, shot to wider prominence in 2008 after using a lecture in May of that year to voice criticisms of how Lehman was valuing its assets. The lecture had echoes of one he gave six years earlier on Allied Capital, a lender which he accused of using misleading accounting practices.

That lecture sparked an almost decade-long battle with Allied, which is recorded in Mr. Einhorn's 2008 book Fooling Some of The People All of The Time. The financial crisis, he says, has done little to ensure that the regulators are any better at detecting either fraudulent or financially weak companies.

Both lectures drew stinging criticism from some investors and parts of the media, who accused the fund manager of stirring up concerns because it had short positions in both companies that would see Greenlight benefit if their share prices dropped.

Mr Einhorn has responded that he only holds short positions if he has serious worries about a company.

Though Mr Einhorn is best known as a short seller, Greenlight typically has more long positions than short positions.

Greenlight, which hasn't taken any new money from investors since the early part of this decade, has delivered an average annual return of 21pc since it was started.

Vodafone is currently one of his largest positions and he also owns shares in Apple.

So many Americans have been jobless for so long that the government is changing how it records long-term unemployment.

Citing what it calls "an unprecedented rise" in long-term unemployment, the federal Bureau of Labor Statistics (BLS), beginning Saturday, will raise from two years to five years the upper limit on how long someone can be listed as having been jobless.

The move could help economists better measure the severity of the nation's prolonged economic downturn.

The change is a sign that bureau officials "are afraid that a cap of two years may be 'understating the true average duration but they won't know by how much until they raise the upper limit," says Linda Barrington, an economist who directs the Institute for Compensation Studies at Cornell University's School of Industrial and Labor Relations.

Likening recessionary unemployment spikes in recent decades to a storm at sea, she says, "The waves are getting higher, and we want to understand the intricacies of how they're made up."

The change involves the form used for the bureau's Current Population Survey, based on interviews with thousands of the unemployed. Currently, no matter how much longer than two years someone has been out of work, the form allows interviewers to check off only "99 weeks or over." Starting next month, jobless stints of "260 weeks and over" can be selected on the response form

"The BLS doesn't make such changes lightly," Barrington says. Stacey Standish, a bureau assistant press officer, says the two-year limit has been used for 33 years.

A two-year limit hampers economists' ability to compare this recession's effect on the job market with another severe one in the early 1980s, Barrington says.

Although "this feels like something we've not experienced" since the Great Depression, she says, economists need more information to be sure.

The change will not affect how the unemployed are counted or the unemployment rate is computed nor how long those eligible for unemployment benefits receive them. Analysts call the move a sign of the times.

"We realize more and more people are unemployed longer than 99 weeks, so we need to break it down further," Standish says.

Long-term unemployment has grown markedly over the past few years. The BLS says the average length of unemployment has increased from 29.4 weeks in November 2009 to 34.5 weeks last month. Nearly 10% of the USA's 15.1 million jobless have been looking for work for two years or more.

Rick Bartz, 59, of Cary, N.C., a purchase and supply expert, was laid off by Sony Ericsson's struggling North Carolina operation eight months ago.

"It puts a lot of stress on me and the wife," he says. "She gets tired of me not being able to find something." He says that lately he's been able to get just a few interviews.

Some workers despair. "I don't know when I'll work again," says Ricky Browner, 30, of Passaic, N.J., who lost his construction job two years ago. "This thing goes on and on."

Heidi Shierholz, a labor economist at the Economic Policy Institute, a Washington think tank, says most economists expect hiring to remain sluggish in 2011 before improving in 2012.

Confidence among U.S. consumers unexpectedly fell in December, restrained by concern that jobs will remain scarce in 2011.

The Conference Board’s confidence index unexpectedly fell to 52.5, lower than the most pessimistic forecast of economists surveyed by Bloomberg News, figures from the New York-based research group showed today. Another report showed home values dropped more than economists projected.

The loss of confidence is at odds with a report from the University of Michigan that showed sentiment improved to a six- month high in December, and with data showing holiday spending posted the biggest gain in five years. Federal Reserve policy makers this month said “depressed” housing and high unemployment remained constraints on consumer spending, supporting their plans to expand record monetary stimulus.

Home prices dropped more than forecast in October, a sign housing will remain a weak link as the U.S. recovery accelerates into the new year.

The S&P/Case-Shiller index of property values fell 0.8 percent from October 2009, the biggest year-over-year decline since December 2009, the group said today in New York. The decrease exceeded the 0.2 percent drop projected by the median forecast of economists surveyed by Bloomberg News.

A wave of foreclosures waiting to reach the market means home prices will remain under pressure in 2011, representing a risk to household finances. Federal Reserve policy makers this month said “depressed” housing and high unemployment remained constraints on consumer spending, reasons why they reiterated a plan to expand record monetary stimulus.

“We’ll remain in negative territory for several more months,” said Dean Maki, chief U.S. economist at Barclays Capital Inc. in New York, who forecast a year-on-year drop of 1.3 percent. “The housing market does remain weak and none of the recent data suggest a substantial pickup.”

The average price of U.S. gasoline rose above $3 a gallon over the past week, reaching its highest level since October 2008, the Energy Department said on Monday.

The national price for regular gasoline increased 7 cents from the previous week to an average of $3.05 per gallon, as rising crude oil prices bolstered fuel costs.

Crude oil settled down 51 cents at $91 a barrel on the New York Mercantile Exchange on Monday as a major blizzard in the U.S. Northeast cut down on already thin holiday trading volume.

Diesel fuel prices increased 4.6 cents to $3.29 a gallon, the department said in its weekly survey of service stations.

The Federal Reserve may expand its purchases of U.S. Treasuries, or quantitative easing, beyond its $600 billion target, said Vincent Reinhart, who was the Fed’s chief monetary-policy strategist from 2001 until September 2007.

“They do all of QE2 because they don’t want to be seen as succumbing to outside pressure,” Reinhart, now a scholar at the American Enterprise Institute in Washington, said in an interview on Bloomberg Television’s “Street Smart” with Carol Massar. “I think there is a chance there will be QE3 and it is going to be because the unemployment rate is above 9 percent,” he said, referring to a third round of purchases.


U.S. retailers’ 2010 holiday sales jumped 5.5 percent for the best performance in five years as shoppers snapped up clothing and jewelry at Macy’s Inc., Tiffany & Co. and other stores.

Retail sales, excluding autos, rose to $584 billion from Nov. 5 through Dec. 24, said MasterCard Advisors’ SpendingPulse, which measures retail sales by all payment forms. That compared with a 4.1 percent gain a year earlier. The numbers include sales made over the Web.


The cost of insuring Illinois’s bonds against default rose to the highest level in five months as the state headed for the new year without a plan to finance a $3.7 billion pension-fund contribution.

The cost of credit-default swap insurance on the lowest- rated state after California has risen 16 percent to $330,000 to protect $10 million of debt, from $285,000 on Dec. 3, according to data compiled by Bloomberg. That’s the most expensive since July 12, when it reached $335,000.

John Williams: New orders for automobiles declined for the fourth consecutive month, while the highly volatile new orders for non-defense aircraft plunged by 53.1%, down for the second month. Accordingly, the widely followed non-defense capital goods orders fell by 6.8% (down 6.6% before prior-pe