The information reviewed at the August 9 meeting indicated that the pace of the economic recovery remained slow in recent months and that labor market conditions continued to be weak. In addition, revised data for 2008 through 2010 from the Bureau of Economic analysis indicated that the recent recession was deeper than previously thought and that the level of real gross domestic product (GDP) had not yet attained its pre-recession peak by the second quarter of 2011.

Karl Denninger: “Translation: Nothing we did was effective.”

Go ahead politicians, tell us how important “Wall Street” is to the economy and to you.  Let the thieves and liars continue to pollute the markets and screw everyone.  Volatility is as high as it is precisely because people are tired of getting buttraped and after a few instances of it they simply say “screw this”, take their money and go home.

They don’t need the markets, the markets need them, and they’re gone.

…Don’t even try to “invest” in this market folks, and if you decide to trade, realize that you’re playing in a rigged casino and the entire force of the government is not only behind rigging the casino but explicitly endorses and permits the rigging to go on and continue, despite being fully-aware of it.

Remember, “Wall Street is Main Street” to them – and if that means your retirement and investments get destroyed that’s just fine provided that big buildings in downtown Manhatten continue to be infested by the thieves guild that pumps tithes into campaign coffers.

The market is fixed. The SEC is in on it. It’s all part of the zombie system of finance. The dollar pretends to be real money. Debt pretends to be capital. And regulators pretend to be smarter than capitalists. Details to follow.

…If you’re one of the 15 million Americans who is underwater, it’s easy. If your house is worth less than the mortgage outstanding against it, simply walk away.

Meanwhile, a recent Opinion Research Corp. poll show that 48% of respondents thought it was either “very likely” or “somewhat likely” that the U.S. would face another depression in the next 12 months. And shockingly, Americans polled are concerned about the economy, prices, taxes, and our war campaigns in the Middle East, yet they care not a lick about the pet pc topic, gay marriage.

One bond strategist was quoted in Bloomberg as saying,  “It’s truly a shot across the bow and a message to Washington, which has been clowning around on this and playing politics when they should toss ideology aside and focus on achievement.” This statement was made with the belief that there is a depraved political-ideological government on one hand, and, on the other hand, we have this creature called ‘good’ government wherein some magical powder can be sprinkled on the politburo to purge its kingpins of their affinity for all things megalomaniacal. All government, by definition, is political-ideological, and all politics, by definition, is coercion. A ‘non-political’ political structure does not exist. Why is that so hard to understand? Politics is the act of using one’s position and power to execute acts of theft, redistribution, and the promotion of advantage to selected recipients. Are people – even really smart people – just desperate to believe in something “good,” even if it is pure fantasy?

Getting back to the Bloomberg piece, the author points out that this “negative” outlook on the government’s long-term credit rating means the following:

The cost to protect against a default by the government and the nation’s banks jumped and stocks declined after the New York-based firm’s statement, which assigns a one-in-three chance that it will lower the U.S. rating in the next two years.

A 1-in-3 chance on a 2-year time horizon. Can you say ‘long shot?’ Or media showboating? Or is this perhaps a publicity stunt? Are all of the bears, reality hardliners, and independent thinkers being placated with this feeble concession? The Wall Street Journal reported this today: “Standard & Poor’s analysts are about to host a call explaining some of the rationale for their decision to keep the U.S. at a AAA rating, but move the outlook to “negative.”  Oh the drama. And this rather weak statement (“negative outlook”) took how long to come to fruition? Meanwhile, I am seeing an abundance of quotes from bureaucrats who point out that Fitch and Moody’s haven’t budged. That is their best defense for a country whose fiscal policy is the Titanic on steroids.

Martin Weiss of Weiss Ratings presented this challenge to the three rating agencies about a year ago.

Dear S&P, Moody’s, and Fitch,

 You are the world’s three dominant rating agencies, largely controlling the ratings of bonds and debts issued by thousands of corporations, municipalities, and sovereign governments.

I am the chairman of Weiss Ratings, an independent rating agency. (See Weiss Ratings’ press release on MarketWatch or “Weiss Is Returning to Ratings Business” in the Wall Street Journal.)

And today, I challenge you to promptly take the bold action that you have so far avoided — to downgrade the long-term credit rating of the U.S. government in order to help protect investors and prod Washington to fix its finances.

As a reminder of how incompetent (or, better described as non-independent) these agencies are, here is a link to the 1994 Government Accountability Office study that determined the three largest rating companies failed to downgrade the obvious: failing insurance companies.

As the interactive graph shows, the Fed’s balance sheet had remained fairly static until 2008 and the onset of the meltdown. I like this graph of the Fed’s balance sheet on the website of the Federal Reserve Bank of Cleveland because it produces an instant visual impact that is unsettling yet meaningful. In spite of the ominous qualities of this balance sheet, you have to love how the Fed boasts about its use of “new tools for conducting monetary policy and dealing with the financial crisis.” These tools, as Bernanke always likes to say, enables the Fed to “respond aggressively to the crisis.” The Fed states:

“The new tools make use of the Fed’s balance sheet, particularly the asset side, and involve ways of extending credit and purchasing securities. These actions can change both the absolute level of the balance sheet as well as the types of assets it contains. Bernanke has called the use of the balance sheet in this way “credit easing.”

Here are some visuals showing the effects of Bernanke’s credit easing policies that include loans to Banksters, pumping money into credit markets, and purchasing longer-term securities. On the 2nd graph, Maiden Lane I, II, and III refer to the three LLCs created by the Fed to facilitate the bailout for AIG and the JPMorgan Chase takeover of Bear Stearns (a big, fat loan to JP). The Fed actually refers to the Maiden Lane LLCs as the “esoteric components of its balance sheet.”

For a further comparison, here is a snapshot of the December 2007 Fed balance sheet.

A mental exercise for beginning to understand a bank, and its assets and liabilities, is found in a dated but relevant issue of Punch magazine from 1957. Every non-financial or non-banking person should read this amusing synopsis to help put things in perspective.

And then, finally, there are those in the mainstream who don’t understand gold and therefore call gold “the ponzi scheme.“

While most people are not interested in hearing mocking political commentary from the swindling Madoff who made-off with the wealth of his unenlightened investors, any slight tilt toward reasoned thought will surely lead one to assess how his abominations pale in comparison to the crimes of organized government.

A recent conversation about Madoff with my Austro-anarcho-actuary colleague at work led him to say this to me: “At least people had to choose to join his scam…”

As we veteran libertarians know, the voluntary action (or lack thereof) makes for a crucial distinction between the actions of Madoff and the exploits of government. As I always explain to libertarian wannabees and newbies – the one thing that separates government from all else is its monopoly on violence (force, coercion). If you dislike Wal-Mart, you can refuse to do business with the company. Hate McDonald’s? Go to Burger King or an abundance of other competitors. McDonald’s executives will not throw you in jail, garnish your wages, take away your children, ban you from preferred product choices, take your property in the name of “public service,” or close down your business.

Yet government monopolies (monetary, postal, infrastructure, military, etc.) force you to take or use what it tenders, and it arrests those who encroach upon its monopolistic territories or deny its edicts. You are either forced, drafted, or given no other alternatives but to use the monopoly services provided by the legalized gangsters who run the fuzz militia, own the courts, and turn down the sheets in the state gulags. The Federal Reserve’s monetary ponzi scheme is not an offering, it is not a choice, and you are not persuaded to participate in its product offering. You are exploited by the system that empowers a few while enslaving the many because you have no choice but to accept the status quo unless you opt out or enter the underground economy, both of which usually involve a sizable opportunity cost as well as risk of punishment or incarceration.

In the case of Madoff, he’ll spend the next 5,000 years in jail. Always, the government arrests its very minor competitors (the mafia or the Highwayman, etc.) for impeding on its plunderer turf. And then those thieves are “punished” by the state in the name of “doing time” for the good of the “public,” while your restitution is actually never of concern. The victims of Madoff’s fraud don’t benefit one smidgen from Madoff’s time in stripes. Meanwhile, the real criminal – the US government – continues to operate its ponzi schemes that enable and inspire further ponzi schemes down the line. No Madoffian scheme could have ever transpired without the perfect storm created by the Federal Reserve’s financial manipulation and ensuing bubble.

Which brings to mind the bumper sticker found in the office of congressman Ron Paul: “Don’t steal. The government hates competition.”

As I wrote, the notion of approving business defaults while flogging one’s neighbor for walking away from his mortgage is entirely irrational. A corporate Chapter 11 is a strategic default, and these business decisions are never questioned by the same masses of folks who are enraged over specious charges of moral failure on the part of homeowners who walk away from homes that are collapsing their financial condition. This is because people who are financially ignorant think that households do not have to make strategic financial plans – only businesses do. It is a temperamental response triggered by ignorance and emotional blame.

One of my favorite companies, ever, is preparing to strategically default: Borders Group, Inc. I knew this three years ago when analysts still thought the bookseller’s problems could be solved by short-term marketing gimmicks. The company’s financial condition was troubled early in 2008, and its business model had already been taking a plunge. Liquidation seems likely, but Borders, a Michigan company, leaves behind many great memories as the first mega-bookstore with greats service, selection, and a striking physical ambience. Unfortunately, after a few years of struggling to reinvent itself as a top contender in a field with little room for competitors (brick-and-mortar bookstores), Borders Group has to default and turn the keys over to the bankruptcy court.

Here is a recent chart from USA Today where it is said that “at least half of homeowners with a mortgage owe more than their homes are worth in 17 of 386 U.S. counties.”

HuffPo ran an article this week titled, “Learning to Walk: Fear, Shame and Your Underwater Mortgage.” First, let me point out an issue with this original article. You will see the article was published on 2/3 with an update on 2/4. The first sentence of the article reads, “Nearly 1 in every 4 U.S. homeowners with mortgages owe more on their home than it’s worth.” While that is true, the original posting that I read stated, “Nearly 1 in every 4 U.S. homeowners across the country owe more on their home than it’s worth.” Since not every home has a mortgage, this was a dreadful mistake that was corrected, and fairly quickly. Still, the overall article offers an excellent picture of the “walk” option.

Additionally, the Wall Street Journal recently ran a piece where this paragraph stands out:

The problem also is concentrated in several states. Arizona, California, Florida, Michigan and Nevada had about 31% of mortgaged homes but 53% of underwater ones.

This story also puts a dust-bunny spin on homes that are ‘barely underwater,’ ignoring the still-sinking housing market; a busting economy as government stimulus money runs dry; and the negative psychological impact – that can be devastating for some folks – of trying to keep a financially sinking ship afloat. A paragraph from the article:

“At least as important” as the number of underwater homes, says housing economist Tom Lawler, “is the percent that are materially underwater. Would you seriously consider wasting your credit because you owe $5,000 more than you think your home is worth?”

This simplistic and childish statement, from an economist, completely ignores the larger, objective financial picture, including an individual’s cash flow situation. Each person has a distinct financial picture that can be objectively assessed, with various qualitative factors influencing their decision. Walking away from an underwater home – even “barely” underwater – also includes walking away from the associated taxes, potentially overwhelming maintenance costs, and the personal burden (money and time) of maintaining a home that, from your perspective, is a sinking ship. The mental stress, for some people, can have a huge effect on peoples’ lives and happiness and health. There is also the ‘own a sinking ship that drains resources’ vs ‘worry-free rent option’ analysis that determines a person’s (or family’s) optimum financial course of action. The decision to walk away is not so simple as subtracting two numbers to see “how close you are.”