Tag, You're It

On Thursday, the European Central Bank joined the United States Federal Reserve and the United Kingdom and Japanese central banks in jumping on the Quantitative Easing (QE) bandwagon.

FRANKFURT—The European Central Bank ushered in a new era by launching an aggressive bond-buying program Thursday, shifting pressure to Europe’s political leaders to restore prosperity in one of the global economy’s biggest trouble spots. 

Investors cheered the ECB’s commitment to flood the eurozone with more than €1 trillion ($1.16 trillion) in newly created money, sparking a rally in stock and bond markets and sending the euro plunging.

The elites love it. Cheers were roused among the über rich and politically powerful in Davos, Switzerland at the World Economic Forum, a resort town where they lolled this week while beneficently charting our futures.

The reactions to the central bank’s move rippled widely through the world’s trading floors, corporate boardrooms and European capitals. “It’s one piece of getting Europe back to growth, and we should see an impact,” Joe Jimenez, chief executive of drug giant Novartis said in an interview in Davos, Switzerland, where the political and economic elite are gathered for meetings of the World Economic Forum.

Also in Switzerland, Larry Summers, former White House economist under Obama and Treasury Secretary under Bill Clinton, spoke up, issuing the always at the ready progressive endorsement.

Former U.S. Treasury Secretary Larry Summers described the ECB’s move as a “broadly responsible central bank action,” but said governments still need to make policy reforms. 

Policy reforms in Summers/Obama speak means higher taxes, more government spending and larger, more intrusive government. Sweet.

Producing money and incurring debt to stimulate the economy is like sowing dandelion seeds and laying manure to stimulate your lawn. For sure you will get a spurt of growth, but at the end of the day, you cheapen the result, develop deeply rooted problems, foul the runoff, and choke out the good in the favor of the bad. 

QE is a debt and inflation enabling mechanism. QE increases the money supply by creating money out of thin air to effect purchases of government bonds. Since the amount of money in circulation is increased without actually producing anything, QE, aside from enabling deficit spending, inflates prices. 

Donald Trump, "People like me will benefit from this."

For those who own and live off of financial assets (i.e., the rich), general price inflation is a good thing since throwing more money at their assets increases the monetary (as opposed to real economic) value of their wealth. But for ordinary working stiffs, inflation is bad because it creates artificial price floors and/or drives up the prices on things workers buy and consume in order to support themselves and their families. Also, QE squashes interest earnings on payroll savings. Ultimately as well, taxes will have to go up to pay for the enabled debt. 

The ECB president is Mario Draghi. You and I have a different world view. We like paying less as opposed to more to heat our homes, drive our cars, to eat, and to transport goods and services. But the bankers, and the big government progressives (including all Democrats in the US), want to reflate prices. They don't like it when we live less expensively, such as currently with declining gasoline prices.

Consumers and businesses are welcoming the fall in oil prices and lower inflation but today low inflation is seen as a trigger by central bankers including Draghi, the ex Goldman Sachs banker, to print money to buy government bonds.

We are not the only ones who are on to this game.  

Economist Anthony Randazzo of the Reason Foundation wrote that QE “is fundamentally a regressive redistribution program that has been boosting wealth for those already engaged in the financial sector or those who already own homes, but passing little along to the rest of the economy. It is a primary driver of income inequality.”

Donald Trump – not usually one for distributional analyses of monetary policy – said on CNBC yesterday that “People like me will benefit from this.”

We may be right, but we are in the minority in openly scoffing the absurd money printing policies. 

Read, reason and learn.

Have a great day!

Democrats Confiscate Your Savings

For those of you foolish enough to believe Dear President's exercise of executive power on the immigration question is a good thing, always remember and never forget, Democrats have used that lever to confiscate the citizenry's precious and hard earned savings.

It was 1933. socialist thug Franklin Delano Roosevelt issued Executive Order No. 6202, confiscating the gold holdings of the American people.

34 - Executive Order 6102 - Requiring Gold Coin, Gold Bullion and Gold Certificates to Be Delivered to the Government April 5, 1933

I, Franklin D. Roosevelt, President of the United States of America, do declare that said national emergency still continues to exist and pursuant to said section do hereby prohibit the hoarding of gold coin, gold bullion, and gold certificates within the continental United States by individuals, partnerships, associations and corporations and hereby prescribe the following regulations for carrying out the purposes of this order:

Section 1: For the purposes of this regulation, the term "hoarding" means the withdrawal and withholding of gold coin, gold bullion or gold certificates from the recognized and customary channels of trade. The term "person" means any individual, partnership, association or corporation.

Section 2. All persons are hereby required to deliver on or before May 1, 1933, to a Federal Reserve Bank or a branch or agency thereof or to any member bank of the Federal Reserve System all gold coin, gold bullion and gold certificates now owned by them or coming into their ownership on or before April 28, 1933.

.... Whoever willfully violates any provision of this Executive Order or of these regulations or of any rule, regulation or license issued thereunder may be fined not more than $10,000, or, if a natural person, may be imprisoned for not more than ten years, or both; and any officer, director, or agent of any corporation who knowingly participates in any such violation may be punished by a like fine, imprisonment, or both.

The gold grab was at an arbitrary, low ball, non market price of $20.67 per ounce. The COMEX spot gold price at the November 21, 2014 closing was $1197.70 per ounce. That's 5,700 percent appreciation in the pockets of the welfare state, purloined from the pockets of the American people. Any wonder why you can't get ahead and provide for your future?

Have a great day and good luck to all!

So, You Think QE Is Done? Guffaw!

Here is the asset side of the Fed's balance sheet as of July 30, 2014. The numbers would be slightly larger today. 

Item	Current July 30, 2014	Change from April 30, 2014	Change from July 31, 2013
Total assets	4,407	+111	+835
Selected assets
Securities held outright	4,137	+110	+841
U.S. Treasury securities 1	2,420	+70	+438
Federal agency debt securities1	42	-3	-24
Mortgage-backed securities 2	1,674	+42	+427
Memo: Overnight securities lending 3	8	-4	+*
Memo: Net commitments to purchase mortgage-backed securities 4	62	+12	-27

Source: http://www.federalreserve.gov/monetarypolicy/bsd-overview-201408.htm

Here is how the Fed's balance sheet has grown by leaps and bounds in the world of Obama and his big government, big banker friends.

Source: http://www.businessweek.com/articles/2014-10-29/the-feds-quantitative-easing-is-not-really-ending

Of today's approximately $4.5 trillion in assets, approximately $3.5 trillion is in long term government and mortgage backed securities that was purchased by the Fed as a result of QE I, QE II, QEII and Operation Twist. These assets, indeed all the Fed's assets, are purchased by the Fed printing/digitizing money out of thin air, money that is intended to and which actually does to some extent filter through the banking system, with the hope that it will make its way to you the individual consumer. 

QE is true trickle-down economics that benefits the upper middle class and the rich, while devaluing hard earned dollars that ordinary folk work for as well as the labor itself.

Now that QE is purportedly ended, the funny money is still out there, goosing the system for the upper crust. Let me borrow from Bloomberg Businessweek, because I see they have already written up the guts of what I want to say.

But quantitative easing is the gift that keeps on giving. Even after the purchases end, its effects will persist. How could that be? The Fed will still own all those bonds it bought, and according to the agency itself, it’s the level of its holdings that affects the bond market, not the rate of addition to those holdings. Having reduced the supply of bonds available on the market, the Fed has raised their price. Yields (i.e. market interest rates) go down when prices go up. So the effect of quantitative easing is to lower interest rates for things Americans actually care about, such as 30-year fixed-rate mortgages.

Imagine that the Federal Reserve wants to increase the price of suntan lotion. There are 10 bottles of Hawaiian Tropic for sale at the cabana. The Fed buys one per hour until it owns nine. Each time it acquires one, the price for the remaining bottles rises because people who don’t want to get sunburned are competing for the dwindling supply. Now that just one bottle is left, the Fed stops buying. Would you expect the price of the last bottle to fall suddenly? No—there’s still lots of demand and constricted supply. Same with bonds. The price of bonds should stay high—and yields stay low—as long as the Fed hangs onto its huge inventory.

To mix metaphors, ending QE isn’t putting on the brakes. It’s just easing off the accelerator. The Fed’s bond holdings will naturally shrink as bonds come due; as new debt comes onto the market, the Fed’s portfolio will have less impact. For now, the Fed will continue to reinvest the proceeds back into other bonds. It says it won’t allow the portfolio to start shrinking until after it starts raising the short-term interest rate it controls, the federal funds rate. That’s likely to happen sometime in 2015, most economists expect.

QE has ended? Don't believe it, not for one second. The wealth divide continues to grow. Party on!

Pathetic Job Numbers

The print, borrow and spend economy is not real; it's not working sheeple. We are living a lie and running an abject failure.

Today's job numbers were south of pathetic. New payroll jobs numbered 74,000 (less than half the pace needed to keep up with population growth) and the unemployment rate "dropped" to 6.7 percent, not driven by employment but by people giving up on a life of work. We have not had this low of a labor participation rate since the halcyon days of Jimmy Carter. 

People are discouraged from looking for work and cannot find decent jobs when they do. And Dear President announced this will be the year of tackling income inequality, while at the same time doing everything in his power to control, regulate and undercut the real economy and to subsidize sloth.  

President Barack Obama has appointed Janet Yellen (center) to continue four more years the money printing regime that robs the real economy of vitality and drives enormous increases in income and wealth inequality. 

We uncorked the lid on Obama's pious absurdity last April.

There is a fool born every minute. Obama thanks God for that.

It is shocking how foolish the American people are. They support Barack Obama and his policies because he supposedly promotes middle class values and has the interests of the 99 percent at heart. The reality is totally different. I am befuddled, perplexed, dumbfounded and dismayed by the ignorance and the gullibility of the average American.

The Pew Research Center released a new study this week which reveals the obvious – that Obama’s print (money), borrow (money) and spend (money) policy triad favors people with money -- the uppercrust. Obama is a money lever guy, not an economic leader. The money changer in chief doesn't understand or promote a value driven economy. Real exchanges of actual goods and genuine services drive value and build a strong, broad based and resilient economy and sustainable economic growth. The demand and production led economy that we should be building has attributes that reach into every household.

I said,

In the world of Obama wealth disparity has not merely skyrocketed among economic groups, disparities have also soared to record highs levels between whites and blacks, and whites and Hispanics.  And those poor old seniors, the folks on whose behalf that AARP incessantly whines, they are gaining dramatically compared to the young people who actually work, and incomprehensibly vote for and support Obama.

The right overarching strategy is the real economy, yes, and the Federal Reserve Board and banking system paper-based (in the modern era, digital currency) economy, no. Strategy execution requires a federal bureaucracy that thousands of times a day in dozens of different ways makes every small step that works in the right direction, when Obama's regulatory administrative behemoth does exactly the opposite.

You have gotten what you voted for.  Good luck to us all.

To Invest in a Bank

We write occasional posts concerning investments largely because the wife and kids ask how to invest.  We don't have magic metrics that stand out from the rest. We don't have a mathematical or statistical model -- nor an intuitive secret. We do, however, have plenty of stories. They are stories of firms and markets and trends (up and down), misguided (usually) and ill-administered (commonly) government supports that burst markets followed by further government intervention to save the people from the very mess the government created. Finance, economics and politics all play a role (we are pretty thorough in our investing as well as our politics). 

Investing is as much about selling as buying. The timing of each is elusive but critically important. Consider this as a case study. 

As for why the present post, we glanced at our stock portfolio Friday, October 25, and noticed a favorite stock, Glacier Bancorp (GBCI) closed at an all time high. Glacier is a bank holding company headquartered up the Flathead Valley in Kalispell Montana, the western gateway to Glacier National Park (hence the bank name). Unlike most bank holding companies which are corporate umbrellas established primarily to address legal and regulatory requirements and constraints, Glacier Bancorp actually houses a collection of separately identified community banks. These are traditional banks performing standard commercial banking functions.

Glacier Bancorp, Inc. operates as holding company for Glacier Bank, which provides commercial banking services to individuals, small to medium-sized businesses, community organizations, and public entities in Montana, Idaho, Wyoming, Colorado, Utah, and Washington. The company’s deposit products include non-interest bearing demand accounts, interest bearing checking accounts, regular statement savings accounts, money market deposit accounts, fixed rate certificates of deposit, negotiated-rate jumbo certificates, individual retirement accounts, and reciprocal deposits. Its loan products comprise construction and permanent loans on residential real estate; consumer land and lot acquisition loans; unimproved land and land development loans; residential builder guidance lines comprising pre-sold and spec-home construction loans; commercial real estate loans to purchase, construct, and finance commercial real estate properties; commercial and industrial loans; consumer loans secured by real estate, automobiles, and other assets; second mortgage and home equity loans; and agriculture loans. In addition, the company offers mortgage origination and retail brokerage services. 

The separately named and branded banks are located in the Mountain West. Bank operating 

divisions are Glacier Bank of Kalispell, First Security Bank of Missoula, Valley Bank of Helena, Big Sky Western Bank of Bozeman, Western Security Bank of Billings, First Bank of Montana, Lewistown; Mountain West Bank in Idaho, Utah and Washington; 1st Bank in Wyoming and Utah; Citizens Community Bank of Idaho, Bank of the San Juans in Colorado, First Bank of Wyoming, First State Bank in Wyoming and North Cascades Bank in Washington.

Going back more than 20 years we have been a fan of small bank stocks. With the exception of the 2007-08 interruption that we all know well, financial services diversification and growing credit markets drove continuous growth in the sector. Well managed small banks in growing markets experienced strong organic growth. Further driving growth, the Federal Deposit Insurance Corporation (FDIC) frequently arranges for sound banks to take over and assume 

the accounts of failing institutions. In the 1990's and through 2007, many strong local banks also were bought out by major regional or large national banks looking to increase their market footprint. Every step of the way stock prices appreciated. 

Greenspan Misses A Bubble He Blew and Watches Another Grow

This is a dorky post but it may be one of the most important I publish.

Alan Greenspan honored with
Presidential Medal of Freedom

Alan Greenspan is coming out with a revealing new book about what he thought and what he knew -- and didn't know -- in his years as Chairman of the Fed. As I suspected, we had our differences. One difference is that I learned long before him (along the way I had job titles like Manager of Demand Research and Manager Financial Forecasting, so I had reason to understand) that the usefulness of econometric models is quite limited and their abuse, as arbiters of the truth, is widespread. 

Mathematical and statistically determined equations are not the economy. They are useful to some degree in formalizing a high level understanding of past behavior, but the models do not and cannot predict profound change, long-run policy impacts or important turning points. They never will.

Referring to the econometric models,

Macroeconomic Model US Economy

"I've always considered myself more of a mathematician than a psychologist," says Mr. Greenspan. But after the Fed's model failed to predict the financial crisis, he realized that there is more to forecasting than numbers. "It all fell apart, in the sense that not a single major forecaster of note or institution caught it," he says. "The Federal Reserve has got the most elaborate econometric model, which incorporates all the newfangled models of how the world works—and it missed it completely."

Wow! Not a psychologist, but how about being an economist? You are old school Mr. Chairman. You know how to do that.

During the financial crisis, I nailed it by putting two and two together, observing that household debt had risen to historically unprecedented levels at the same time home prices surged to previously unheard of highs in relation to incomes. Massive debt growth, much of it improvident, was unsustainably driving up home prices. Something had to break. When I saw that consumer savings rates effectively hit zero, implying that the credit bubble had no more room to grow, and I learned that that the first large wave of adjustable rate mortgages was resetting and high risk, subprime mortgages were beginning to default, I concluded that a historically immense de-leveraging process had begun --  in the spring of 2007. At the time I said we were going to have "the largest economic dislocation of our lifetimes." I knew from studying previous financial breakdowns and economic collapses that it would be profound. People laughed at me, mocked me or asserted that they weren't so pessimistic. They cited Ben Bernanke's (Greeenspan's successor and protege) repeated claims that the housing correction was "contained." They were incredibly wrong.

Now that Greenspan isn't working for the politicians and the bankers anymore, he is back to playing economist (a very good thing) and putting two and two together again, using insights and understanding on economic behaviors rather than being blindly dictated to by sum of the squared error calculations and goodness of fit measures.

In the book, he also ponders why the Fed failed to predict the financial crisis, where he himself went wrong and how that discovery has completely changed his worldview.

Mr. Greenspan's biggest revelation came one day about a year ago when he was playing with gross domestic savings numbers. What he found, to his surprise and initial skepticism, was that an increase in entitlements has closely corresponded to a decline in the country's savings. "We had this extraordinary increase in benefits, with each party trying to outbid the other," he says. "That practice has been eroding the country's flow of savings that's so critical in financing our capital investment." The decline in savings has been partly offset by borrowing from abroad, which brings us to our current foreign debt: "$5 trillion and counting," he says.

Growth in Entitlement Spending.

It's another bubble building and that will ultimately collapse. The entitlement society weakens the savings society, which weakens the (productive) capital investment society that generates the income and taxes that support the entitlements. Massive entitlement growth is cannibalizing the host that it depends on for sustenance. 

The bubble is being fed by the Fed printing a trillion dollars a year. Therein lies the next financial and economic crisis, and I daresay it will not be an econonometric model that tells us when it begins to implode, particularly since the first response will be to attempt to inflate the bubble all the more.  Without a rapid and firm reversal, this is how the U.S. becomes Greece.

A Return to Sanity

I always wondered how Dylan Ratigan could live with himself, transitioning from being the height of sobriety and logic on CNBC to the insane LaLa Land of MSNBC.  I see now, he has come back to his senses.

Post by World Observer.

China Agrees

Unlike yours truly, China buys U.S. Treasury bonds by the bushel, so Chinese opinion counts for more than its logic and insight. With the "resolution" Wednesday of the U.S. budget and debt ceiling "crisis," over in Beijing some Chinese financiers are saying, whoa, wait a minute.

The Beijing-based Dagong agency, one of the few notable non-US based credit rating agencies, has downgraded America to an ‘A -‘rating from ‘A’.

Ben is losing popularity and is viewed
as less secure over in Mao's land.

The move came shortly after Congress and President Obama narrowly averted a technical default. Fear [that] the world’s largest economy may default on its widely dispersed Treasury Bonds is making investors re-evaluate political and financial stability in the US.

The agency concluded.

"The fundamental situation that the debt growth rate significantly outpaces that of fiscal income and gross domestic product remains unchanged," Dagong said in the statement, adding Washington's solvency was vulnerable as old debts were still repaid through raising new debts.

"Hence the government is still approaching the verge of default crisis, a situation that cannot be substantially alleviated in the foreseeable future," it said.

The American people and its mainstream politicians have no self-control, they have no will. They are unwilling and unable to pay for their politics.

In late 2007 and into 2008 yours truly sold virtually all his stock before the U.S. ratings agencies downgraded securitized mortgage debt and bonds that funded failing firms such as Bear Stearns and Lehman. We understood well before official Washington and the major ratings agencies acted where it was headed then. While we are going along with the monetary reflation game now and holding on to our stock (as we rode the government induced consumer credit bubble in the years leading up to the Great Recession), we know where this is headed as well. There will come a time when we pull out.

Alan Greenspan knows where this is headed. Dagong knows where this is headed. So do Ted Cruz and Rand Paul and even Mitch McConnell.  So once did Dear President.

President Barack Obama, calling current deficit spending “unsustainable,” warned of skyrocketing interest rates for consumers if the U.S. continues to finance government by borrowing from other countries.

“We can’t keep on just borrowing from China,” Obama said at a town-hall meeting in Rio Rancho, New Mexico, outside Albuquerque. “We have to pay interest on that debt, and that means we are mortgaging our children’s future with more and more debt.”

Our toes are getting torn and bloody from kicking the can day after day, month after month and year after year. Each and every day now the drip, drip, drip of fiscal deterioration and monetary destruction and real irreparable crisis builds. There is no easy way out, not any more.

The Myth of Financial and Economic Armageddon

Don't believe the fairy tale stories reported in the media of financial and economic free fall resulting from the tussle between the House of Representatives and the President, and the resulting so-called gridlock and dysfunctional government.  There are always short term fluctuations to be sure, but the dollar has actually strengthened since the Republican House was elected in November 2010 and has been fighting to reduce deficits and slow the growth of the federal government debt bomb. Here are the data.

A Few Words From Alan Greenspan

Mr. I can go along, get along and do the bidding of whomever is in the Oval Office has no political magic, but he is a solid economist and financial analyst when he gives himself a chance. In his forthcoming book Greenspan says, 

Robert Rubin, Alan Greenspan and Larry Summers

"financial crisis lurks should we fail to resolve our deeply disruptive fiscal imbalance. And that imbalance is far greater than the official data portray [because of contingent liabilities to the U.S. government from possible rescues of large financial firms and iconic nonfinancial firms] … At risk is the status the American economy has held as the preeminent world economic power for more than a century. … … The bias toward unconstrained deficit spending is our top domestic economic problem.” 

Which in view of my agreement is why I endorse virtually all across the board or broad based spending cuts (which are mostly constraints on spending growth) and why I have supported positive economic measures (they generate tax revenue rather than consuming it) and the very few broad based tax increase measures that have been put forward. But never trust the gifts that Greenspan and his fellow travelers (pictured above with Democratic Treasury Secretaries Robert Rubin and Larry Summers, his compatriots in wrecking the banking system) bring you in the political sphere -- never, ever.

Rising Median Incomes

The undeniable truth is median incomes are down most everywhere you look. But in the incubus of federal government inside and surrounding the Washington DC Beltway it is distinctly different. In our review of county by county median incomes, we blogged last spring,

[n]ot so in the Washington DC area.  Huge surges in federal expenditures made the National Capitol Region recession proof and enriched hundreds of thousands of federal employees and contract personnel.   Households throughout the region, despite in many cases being deeply in debt and highly leveraged, never felt the pain.

Now this week the Wall Street Journal has come out with a report that confirms our analysis. And more accurately and comprehensive, there are millions of federal government amped beneficiaries spanning the entire DC Metro area.

American incomes have tumbled over the last decade. But for many people in Washington, D.C., it’s been something of a party.

The income of the typical D.C. household rose 23.3% between 2000 and 2012 to an inflation-adjusted $66,583, according to the Census Bureau’s American Community Survey, its most comprehensive snapshot of America’s demographic, social and economic trends. During this period, median household incomes for the nation as a whole dropped 6.6% — from $55,030 to $51,371. The state of Mississippi, which had one of the biggest declines, dropped 15% to $37,095: Nearly one in three people there have an income that is near the poverty line. 

The Washington, D.C. metro area — which includes the surrounding suburbs in Maryland, Virginia and West Virginia — has it even better, with a median household income of $88,233 that ranks highest among the U.S.’s 25 most populous metro areas. Tampa, Florida’s median income, by contrast, is under $45,000.

The lineup is changing a bit as the incumbent administration's A team moves along to make big bucks in the private sector while Obama struggles to play with his B and C teams, but the results are the same.  It pays to live where Obama spends, Jack Lew (previously Tim Geithner) borrows and Ben Bernanke (soon to be Janet Yellen) prints the money (real or inflation adjusted incomes are going down because this process devalues the dollar).  

DC Metro Area incomes surged ahead
 of the tech sector heavy Silicon Valley.

As for the rest of you who live throughout the U.S., you can forget it. Listen to and worship the leftist and big government rhetoric but live the reality. Declining incomes are a very real tax that is being paid to support massive deficit spending.  Good luck to all.

Millionaires Rally for Barack

Barack Obama's appointees on the Federal Reserve Board exceeded the expectations of the moneyed class, voting 9 to 1 to continue printing a trillion dollars a year to boost the asset values of the rich.

Wall Street workerss keeping
 up with the Feds' flow of funds.

U.S. stocks rallied 1% across the board after the Federal Reserve announced it will not reduce its $85 billion monthly asset purchasing program. The unexpected decision propelled the Dow Jones Industrial Average (^DJI) and the S&P 500 (^GSPC) to close at fresh record highs, topping the previous records of 15,658 and 1,709, respectively; both set on August 2nd. The Nasdaq (^IXIC) rose 1% to close at a 13-year high of 3,783. And gold prices saw even greater gains than stocks rising over 4% to $1,360 an ounce in after hours trading.

The Fed's decision came as a big surprise to many on Wall Street who were expecting a $10 billion to $20 billion reduction in monthly stimulus.

In the Obama economy it takes money to make money. It seems like a record is set almost every day. In the meantime, ordinary workers and savers are earning fractional interest rates and paying banks to maintain their accounts. Way to go Barack!

Al Qaeda's Economy

To grow the economy, defend the dollar, boost exports and stop unnecessary nonproductive expenditures. Or the opposite to contract. Ayman al-Zawahiri understands finance and the economy better than the U.S. President.

Thank You Chairman Jon Tester

The banking system and banks are creatures of the federal government, regulated, funded and chartered by Congress, the Federal Reserve System (the Fed), the Office of the Controller of the Currency (OOC, in the Treasury Department), and the Federal Deposit Insurance Corporation (FDIC), with the agencies subject to Congressional oversight.

Senator Jon Tester, D - Mont., is member of the Senate Banking, Housing and Urban Affairs Committee who earlier this year issued a press release proudly announcing,  

Senator Jon Tester today was named Chairman of the powerful Senate Banking Subcommittee on Economic Policy.

The subcommittee is responsible for overseeing Congress’ role in monetary policy, economic growth, small business lending and flood insurance as well as oversight responsibility for the recently created Financial Stability Oversight Council charged with addressing systemic risk to the financial system.

Tester a member of the Senate Banking Committee since he took office in 2007, said he looks forward to using his chairmanship to strengthening the role of Montana’s community banks and small businesses.

“Montana’s community banks are the driving force behind strong small businesses and a job-friendly economy,” Tester said. “This leadership role guarantees Montana and rural America have a voice at the table as we work together to rebuild our economy by creating jobs, cutting spending and cutting our debt.”

Tester tells us he "brings a rural perspective to this committee to make sure that laws and policies work for small banks, credit unions, small businesses and consumers in rural America." Let's see how that's working out for us.

Well, we can congratulate Chairman Jon Tester for returning big banks and the central banking system to a state of prosperity, grandeur and influence greater than at any time since the Great Depression. The Fed's balance sheet has grown to $3.6 trillion.  Big banks have grown from $7.81 trillion in to $10.97 trillion in assets.  

Bigger banks and a more concentrated, more indebted and highly leveraged and centralized banking system -- way to go Jon and friends in reining in debt and reducing systemic risk.  These banks are not only too big to fail -- they are too big to hiccup. 

Senator Tester, thank you and your colleagues for doing your campaign donors' bidding well. With your track record, I think you can understand Mr. Senator why I am befuddled how it is that you want to tell me how to manage my money. More importantly, why don't you answer your email?

Our Job Denier in Chief

Energy is the elixir of a strong and growing economy, a key driver of employment growth, a generator and multiplier of good jobs and economic security. It is to the economy as a whole, what water is to the American West.

Meanwhile, reflecting ignorance and perverse priorities, Barack Obama has mocked, laughed and snidely dismissed claims that the Keystone XL would be a significant job creator. 

Obama recently told the New York Times,

Well, first of all, Michael, Republicans have said that this would be a big jobs generator. There is no evidence that that’s true. And my hope would be that any reporter who is looking at the facts would take the time to confirm that the most realistic estimates are this might create maybe 2,000 jobs during the construction of the pipeline -- which might take a year or two -- and then after that we’re talking about somewhere between 50 and 100 [chuckles] jobs in a economy of 150 million working people.

So I see, Republicans said it. Funny, very funny. Ha, Ha! This guy is a real clown, maybe when his gig runs out in 2017 he can start a new career appearing in rodeos since he is so good with the bull. But look at what his own experts and allies say, even with their inherent biases.

The State Department reported that the pipeline would directly create 3,900 jobs per year, and 42,100 jobs if indirect jobs are included. Even the Sierra Club, one of the leading groups campaigning against the pipeline cites the 3,900 jobs figure — higher than the president’s unsupported numbers.

Consider neighboring reality instead of Obama's political straw man. Sections of the country near the proposed route of the XL Pipeline are about the only parts of the country beyond the inside the Washington Beltway government debt and spending bomb, where anyone can get a job, a decent full time job at a decent salary, due to natural gas and oil development and transport.     

Take Williston, North Dakota for example. Even at the bottom of the economic ladder, the local Walmart has advertised starting pay of $17.00 per hour.  At times, a local McDonald's has restricted business to its drive up window because it can't keep its operation well enough staffed to serve the dine in crowd, despite paying well above minimum wage. Unskilled workers can earn $50K or more working in oil and gas, while skilled workers command from $70K or $100K or more. I have neighbors here in Bozeman who work the North Dakota oil patch, two weeks on, then two weeks off, earning big and salting it away. It's an economic boom -- something that Barack Obama has no understanding or comprehension of. 

Obama's low-balled job estimates are a joke. He is outlandish.  He is an extremist.  He is a denier.  

In the same interview, Obama highlighted his views about the role of the Fed in the economy.

And when unemployment is still too high, and long-term unemployment is still too high, and there’s still weak demand in a lot of industries, I want a Fed chairman that can step back and look at that objectively and say, let’s make sure that we’re growing the economy, but let’s also keep an eye on inflation, and if it starts heating up, if the markets start frothing up, let’s make sure that we’re not creating new bubbles.

So real economic activity doesn't count for anything. But yes, Barack Obama thinks the road to high employment is paved by the Fed's printing presses -- unfrigging believable.

We've blogged previously about the strong employment and high pay in the pipeline industry. We reported on the extraction and refining opportunities that would be opened by building the XL, big job and high pay generators as well. We blogged on the burgeoning oil reserves in North Dakota that have to get somewhere, somehow, and that the Keystone XL has an on ramp for that oil. It all fits together, but the addle minded ideologue you elected to the White House is lost in a fog of ignorance.

To get to a ground up example, yesterday, it came to my attention that I have a relation who is employed directly and substantially in the pipeline industry. The job is Pipeline Controller. Think of it something like being an Air Traffic Controller but for transport on the ground, someone who is constantly monitoring capacity, movements and flows, ready to intervene, redirect or initiate emergency action on a moment's notice.  

Pipeline controller in Williston, North Dakota
near the proposed route of the Keystone XL Pipeline

Just to mention a few, Chevron employs them, Shell has controllers on staff as does Praxair Inc.. Enterprise Products and Sunoco Logistics are in the pipeline controller space as are Williams Energy and Epic Energy Holdings, as is Phillips 66.  The much hated ExxonMobil and Koch Industries are dutiful employers as well. Then there are employers such as Enbridge, Conoco Phillips and Kinder Morgan -- you get the idea. 

Not surprisingly, if unlike the President you understand how business and industry work, you might also realize there are people who train Pipeline Controllers. Pipeline personnel training and development is big business. 

Then there are the software packages and systems that controllers use, the engineers, technicians and laborers on call to address problems as they arise, security staff and the folks who are involved in upgrading, improving and otherwise securing pipeline safety and performance. Preventive maintenance is a must. It is a pyramid of jobs, not the isolated employee or two that Obama in his world of distortion and denial would have you believe.  Don't believe a word that comes out of that man's mouth -- nothing at all.

I Agree With Elizabeth Warren

..... for perhaps the one and only time.  

Warren aims to reinstate the Glass-Steagall Act, repealed as a joint enterprise of former President Bill Clinton, former Fed Chairman Alan Greenspan, former Clinton Treasury Secretary and Obama economic adviser Lawrence Summers and former Senator Phil Gramm, Republican of Texas.  Chuck Shumer, a Senate Democrat from New York, was a huge repeal supporter. Bob Rubin, Clinton's former Treasury Secretary, represented the private sector. Timmy Geithner, Obama's former Treasury Secretary, was on the team.  The repeal effort was one of those collaborative enterprises that demonstrates why you are dumb to be a Republican and positively insane to be a Democrat.  You really don't want these hicks agreeing and compromising on anything important.

Sen. Elizabeth Warren (D-Mass.) is gearing up for some "financial rabble-rousing," said Kevin Roose at New York. Last week, she introduced a bill that would force big banks to split apart their commercial and investment banking operations. Dubbed the "21st Century Glass-Steagall Act" because it reinstates key provisions of the repealed 1933 Glass-Steagall Act, the bill aims to "make the entire banking system safer and less crisis-prone" by shrinking big banks and making it harder for those with federally insured deposits to engage in "risky stuff."

Warren proposes structural regulation. Glass-Steagall is the type of regulation that actually works over the long haul, because unlike other types of regulation, it doesn't rely on clueless drone bureaucrats to be brave, smart and insightful and doesn't require groveling political appointees to be public spirited. Structurally, you can do x and not do y or you can do y and not do x. Make your choice and go to it. But banks could not be commercial banks and investment banks in one big ball of wax. Glass-Steagall worked for 65 years. It's no wonder.

When I heard that Glass Steagall was repealed I said "Oh my God, now Wall Street will become a gigantic conflict of interest." It will become all about financial gaming instead of operating a financial system that tracks and supports a real economy. Looking back we all know now what gaming took place, and how when those games collapsed in on themselves, they brought the financial sector to its knees, and the real economy along with it.

For economic and financial systems to work well, the dominant form of enterprise has to be informed arms length transactions among people and firms reconciling their various interests. That doesn't happen when the financial chain of events are linked together under a single roof. Our economy needs the Wild, Wild West of Investment Banking. It needs also the safety, security and predictability of plain vanilla Commercial Banking. But we are poorly served, in the extreme, when these functions all occur under one roof.

I agree with Elizabeth. Now I need to go wash my hands.

Club Fed Cashes In: Special Favors for Federal Employees

We blogged last January on special interest rates for federal employees and retirees.   We said,

How would you like to have had a money market account in the zero interest rate environment of the last few years that paid better than 2 percent? How would you like to buy bonds that will adjust to higher interest rates with no decrease in principal value? If you are an ordinary person, saving and investing, planning to buy house, hoping to fund a college education or contemplating retirement, you don’t have these options because you are not a federal employee. You can stash your money in an interest bearing account that pays 0.01 percent. Or you can package a bundle of long term treasury bonds that yields 2-plus percent, but the package will lose value, and result likely in an overall net loss when the Federal Reserve Board reverts to standard monetary policy with higher interest rates a year or two down the road. 

The federal employee option that you don’t have is referred to as the G Fund in the Thrift Savings Plan (TSP).

The reversion has started. Driven by the Federal Reserve's aggressive money printing programs, referred to as QE's I, II and III, the yield (interest rate) on a ten-year treasury note bottomed at 1.62 percent on May 2nd. Ben Bernanke, Chairman of the Federal Reserve has since signalled that the Fed is contemplating a slow down and eventual shut down of QE III over the next year and one-half. The market has reacted. As of today's market close the 10-year yield had risen to 2.55 percent.

Ten year Treasury notes, yield history, 5/2/13 through 6/24/13

Similarly affected, over the same period the yield on 30 year treasury bonds has risen from 2.83 percent to 3.56 percent.

Thirty year Treasury bonds, yield history, 5/2/13 through 6/24/13

The price (or the value if you already own it) of treasury debt went the other way. Ten year note prices dropped from 133.67 to 126.13, a decline of 6.6 percent. Thirty year bond prices have dropped from 149.30 to 135.07, a decline of 9.5 percent. 

So someone who actually holds treasury bonds, which you most likely do as an average investor who has a bond fund or funds as part of your investment or 401(k) portfolio, has taken a big valuation hit. Not so us members of Club Fed. Your long-term government bond values have dropped, probably between 7 and 8 percent, which will be reflected in your monthly statements. Not me. You might as well have written me a check for $35,000, because as a member of Club Fed I have had the special privilege of ducking the market impact of the bond revaluation, while immediately earning the increased long-term interest rates. I, along with my federal employee and retiree brethren, we are special -- we are members of Club Fed.   Over a decade the cost of this Club Fed benefit is a $70 billion federal budget deficit hit. It's not just for the IRS. Party on federal employees, party on.