More Lies

More Lies

I have written on several occasions how the government has changed the CPI calculations to suit whatever administration is in power.  Rather than tell the truth about consumer based inflation, both Republican and Democrat controlled governments have chose to lie.
 
The tradition will go on. 
 
Rather than reading about something that happened in the past, we now get to see up close and personal just how both sides of the isle will attempt to change reality for their own benefit.  In this case the liars on the left and the right – pardon, esteemed representatives – want to once again rig the CPI so that it erroneously shows less inflation rather than deal with the reality of their own budget/deficit/debt mess.
 
From Dow Jones Wires:
WASHINGTON -(Dow Jones)- Lawmakers are considering changing how the Consumer Price Index is calculated, a move that could save perhaps $220 billion and represent significant progress in the ongoing federal debt ceiling and deficit reduction talks.

According to congressional aides familiar with the discussions, the proposal would shift how the Consumer Price Index is calculated to reflect how people tend to change spending patterns when prices increase. For example, consumers tend to drive less when gas prices increase dramatically. 
Such a move is widely seen by economists as resulting in a slower rise in inflation. That would impact an array of federal programs that are linked to CPI including the Social Security program and income tax brackets set by the federal government. 
The proposal could lower federal spending by around $220 billion over the next decade, based on calculations by last year's White House deficit commission, which recommended the change as part of its final report. 
According to two congressional aides familiar with the budget negotiations, the shift is being "seriously discussed" as part of the ongoing talks to strike a budget deal, that would be used to ease the passage of a required increase in the country's debt limit. 
Those talks involve Democratic and Republican lawmakers from both chambers and are led by Vice President Joe Biden. The group held its latest meeting Tuesday as they strive to reach the broad outlines of a compromise on federal spending by the end of the month. 
In a press conference that took place before the meeting, House Majority Leader Eric Cantor (R., Va.) declined to comment on the specific proposal, other than to say that "a lot of things are on the table." But asked whether the proposal would be interpreted as a tax increase and therefore a non-starter for Republicans, Cantor said it could be seen as both impacting tax rates and benefits paid out by the federal government. 
When asked about the idea after the meeting, Rep. Jim Clyburn (D., S.C.) said everything is being discussed. 

It is a rare proposal in that it would likely lead to both lower benefits paid to seniors and higher taxes paid by most people who pay federal income tax. As such, it could allow Republicans to argue they are tackling federal entitlement programs such as Social Security, and permit Democrats to say they are increasing taxes as part of any budget deal that is reached. 

It could be easier for both parties to agree on than a significant overhaul to the Medicare proposal or an increase of taxes on wealthier Americans. 
"It's certainly something that is going to be considered," said James Horney, director of federal fiscal policy at the Center for Budget and Policy Priorities, a liberal think tank. "There are questions whether it would be politically easy." 

Several senators that are not party to the Biden-led talks voiced support for the proposal including Budget Committee Chairman Kent Conrad (D., N.D.), while Sen. John Thune (R., S.D.), a member of the Republican leadership team, said it should be looked at as part of the negotiations. 
 
So instead of dealing with the actual problem, our so-called representatives are going to lie to you with yet another tortured CPI revision.  It’s right out of their How-Can-We-Fool-‘Em-Today handbook. 
 
Trade well and follow the trend, not the so-called “experts.”
 
Behold the age of infinite moral hazard! On April 2nd, 2009 CONgress forced FASB to suspend rule 157 in favor of deceitful accounting for the TBTF banksters.
 
  

 

   

larrylevin@tradingadvantage.com Trading Advantage (888) 755-3846__

Done Deal

Done Deal

The most anticipated default of all time has been avoided – again - for now.  Once again the politicians of Greece have given the middle finger to the Greek people, while receiving “atta boys” from the banking mafia.  
 
In a final vote of 155 to 143 the Greek Parliament decided to saddle its citizens with higher taxes and more austerity in the form of job and pension cuts (among others) to pay back banking loans that went bad when its economy tumbled in 2008.  Since then Greece has needed even more loans that are also going bad because, and this shouldn’t be a surprise, higher taxes and no wage growth lead to a lower GDP that leads to less money to pay back the old loans.  How is the solution more debt?  No matter what happens it won’t end well for the Greek people but I don’t think this is the right way.
 
Although this should be a done deal, there is one last thing that could gum-up the process: MTFS.  SocGen explains…
 
George Papandreou’s PASOK government survived the confidence vote on Tuesday night. As expected, Papandreou obtained a relatively narrow majority, with 155 votes to 143 in the 300 seat Parliament (and two abstentions). The focus now shifts to next Tuesday’s Parliamentary vote of the Medium-Term Fiscal Plan (MTFS). The MTFS includes €28bn of additional austerity measures for 2011-2012 as well as an accelerated privatisation plan.
 
The formal Parliamentary approval of the MTFS is a necessary condition for the IMF’s quarterly disbursements, with the next €12bn tranche due in July.
 
The IMF will only disburse if the EU does
 
The IMF made it clear that the July tranche to Greece can only be disbursed if the EU provides concrete assurances that it will continue to provide funding to Greece as stipulated under the EU/IMF adjustment program.
 
Because of this conditionality, next Tuesday's Parliamentary passage of the MTFS remains a critical roadblock to provide Greece with a medium-term funding solution from the EU/IMF. Although not the most likely outcome, a failure to approve the MTFS could pave the way to anticipated elections.
 
Only the approval of the MTFS will remove the policy deadlock
 
Only after the MTFS is approved can the EU officially put forward a medium-term funding plan for Greece, through to 2014. And only once Greece is funded for at least the next twelve months will the IMF give its official consent to its share of the quarterly disbursement (€3.3bn).
 
Assuming a parliamentary majority is reached on the MTFS, a decision from the EU on Greece’s medium-term funding – at least in principle -- could be reached at the EU Meeting on 3 July, rather than 11 July as initially suggested by EU Commissioner Olli Rehn. That would then clear the way for the IMF to authorise its share of the quarterly disbursements, too.
 
The latest bailout hasn’t had much of an affect on the markets overnight.  One wonders what the day session will bring. 
 
Trade well and follow the trend, not the so-called “experts.”
 
Behold the age of infinite moral hazard! On April 2nd, 2009 CONgress forced FASB to suspend rule 157 in favor of deceitful accounting for the TBTF banksters.
  

 

   

larrylevin@tradingadvantage.com Trading Advantage (888) 755-3846__

Transitory

Transitory

 

During Chairman Bernanke’s recent speech the word “transitory” was used often.  Mr. Bernanke was trying to bamboozle us into believing that rising commodity inflation was “transitory”…and not his fault, of course.  
 
Sadly, Mr. Bernanke did not give us a potential time frame of this so-called temporary inflation and that was probably by design.  Since we know without question that this “transitory” inflation is DIRECTLY CORRELATED to his QE programs (read: free money for the TBTF banks) he may be signaling to us that inflation will slow quickly when QE2 ends, but so will the economy.  Will it end on time and be no QE3 in the future?  Doubtful. 
 
What is clearly “transitory” and can be measured in just days, if not hours, are the Primary Dealer’s interests in holding US Treasuries.  With each passing so-called successful auction, the Primary Dealers (PD) sell back the IOUs to the Fed in a multi-billion dollar game of hot potato.  The length of time the PD community wants to play the monetization game is getting shorter and shorter.  Monetization of debt is getting quicker.
 
ZeroHedge gives more detail here http://www.zerohedge.com/article/dealers-scramble-offload-treasury-exposure-ahead-qe2-end-flip-record-75-just-issued-7-year-a
 
For those who care what is happening behind the scenes even as everyone continues to predict there will be no snags associated with the transition from a QE2 to a non-QE2 world should look at this brief analysis. On May 26 the Treasury issued $29 billion in 7 Year bonds (Cusip QQ6)- the auction was considered a smashing success by all with the Bid To Cover coming at a record high 3.24 Bid To Cover, and pricing 2 bps inside of the When Issued: an indication of massive demand. Dealers were allocated $11.4 billion and as Stone McCarthy reported: "The $62.3 billion Dealer bid was up from $54.7 billion last month and it was the largest Dealer bid since February 2010." 
 
So far so good right? Here is what happened next. On June 1, barely a day after the bonds had settled, Dealers shipped $5.393 billion right back to the Fed (making who knows how much in "fees" in the process) in that day's POMO. And today, just a week after the last 7 year targeting POMO, Dealers sold another $3.168 billion to Brian Sack (of the FRBNY).
 
Total tally: $8.561 billion monetized by the New York Fed in less than two weeks following the auction. Simply stated: the Dealers' unprecedented interest in the auction... was transitory. Just two weeks later, the Dealers have flipped back 75% of their entire position in the latest 7 Year On The Run bond. And this is the kind of sleight of hand that allows the Treasury to represent success after success in bond auctions, only to allow the Fed to do the backdoor switcheroo literally hours later, and compensate the conning Dealers for fooling the marks: in this case US taxpayers, naive believers that there is actual interest in US Paper, and of course China and other foreign investors who bought $13.8 billion of the same auction. 
 
What happens when Dealers are unable to flip up to 75% of any given bond back to the Fed in under two weeks: stay tuned and find out in precisely 3 weeks.
 
Yes indeed, it should be interesting.
 
Trade well and follow the trend, not the so-called “experts.”
 
Behold the age of infinite moral hazard! On April 2nd, 2009 CONgress forced FASB to suspend rule 157 in favor of deceitful accounting for the TBTF banksters.

 

   

larrylevin@tradingadvantage.com Trading Advantage (888) 755-3846__