International Forecaster Weekly

Legacies of deprivation, warnings of recession

GW Bush legacy is one of cuts to programs and cuts to taxes for the rich, staff shortages cause backlogs in receiving disability benefits, elitist hairbrained schemes to fix the dollar, The unfolding mortgage crisis hits Washington DC area, Morgan Stanley issues recession warnings.

Bob Chapman | December 16, 2007

President George W. Bush and his neocons over the past seven years have inflected grievous harm on important domestic programs in favor of tax cuts for the wealthy and his never ending Iraq War. For openers is our chronically under-funded Social Security administration. Due to staff shortages, hundreds of thousands disabled Americans are not getting timely receipt of their disability benefits. Those who are appealing an initial rejection now number 755,000 up from 311,000 in 2000. The average wait for an appeal is 500 days, twice as long as in 2000. Two-thirds usually win their appeal, but during the 17-month wait their conditions often deteriorate, some have their lives fall apart, some lose their homes and some declare bankruptcy. Some even die.

Part of the problem is there are only 1,025 administrative law judges and hardly enough support staff. This has been going on for a long time and both parties are to blame. The Democratic Congress wants to increase funding and the White House is again resisting.

Last month, Congress passed a $151 billion health, education and labor-spending bill that would have given the Social Security administration $275 million more than the president requested. The president, who will spend $2.4 trillion on wars vetoed the bill as profligate, and has told Congress he has no intention on compromising. We need an entirely new Congress and Ron Paul as President.

The Illuminists have just sent up a trial balloon in the Financial Times of London in an essay by former US Treasury official, Fred Bergston, on “How to Solve the Problem of the Dollar.”

This is another harebrained scheme by the elitists that would allow sovereign holders of huge dollar surpluses to exchange them for SDRs, Special Drawing Rights in an account at the IMF. Why would anyone want to exchange real money that can be spent for imaginary monetary units of measure? Worse yet, they will invest the SDRs in US Treasuries. The same US that caused the problem and the debt that never will be repaid.

Bergsten alludes to the IMF’s gold a potential backing for the SDRs. The IMF has no gold; only pledges from members to donate gold. This is the same gold the IMF wants to sell in order to cover its expenses. The insiders do not want these dollars spent. They want them taken out of circulation. What they should do is use the SDRs to buy CDOs and SIVs. The elitists want a return to monetary stability, but dollar holders will get screwed in the process. This is the same thing they did in 1978-80 and it was a colossal failure.

CompUSA will close all of its 103 stores. There will be store-closing sales to dump inventory. Mexican billionaire Carlos Slim Helu's Grupo Carso SA owns the privately held company.

Washington, DC's Prince Georges County, an area considered immune to the unfolding mortgage crisis, is suffering a surge of loans gone bad. These are the people with well-paid government contracting jobs. There were 79 foreclosures for every Washington area 10,000-houshold-area households, up from 11 yoy. Most were subprime or ALT-A loans, but they were in no way limited to low-income borrowers, many have $60,000 to $100,000 incomes. In Prince William and Loudoun County, 262 and 219 of every 10,000 households are in foreclosure.

The trade deficit increased to $57.8 billion in October, up from $57.1 billion in September.

Morgan Stanley has issued a full recession alert for the US economy, warning of a sharp slowdown in business investment and a perfect storm for consumers as the real estate and credit collapses spread with no end in sight. As delinquencies and defaults soar, lenders are tightening credit by 60 to 80 PBS. High yield spreads have widened even more significantly. The absolute cost of borrowing is higher than in June. They are puling back on credit card, commercial, auto lending, as well as for mortgages. The foreclosure rate on residential mortgages have hit a 19-year high of 5.59%, while the glut of unsold properties will lead to a 40% crash in housing production says, Morgan Stanley.

The last time around construction fell 60% and today the situation is far worse. We see 60% to 75%. Those companies and affiliated industries make up 25% of GDP. We have very serious problems caused by the Fed, Wall Street, and banks, corporate America and our corrupt elected leaders.