Why a “Stress Test”?
Posted November 26, 2011on:
- In: American Crash 2011 | Barack Obama | Deficit Reduction Proposal | Economy/Money | Federal Reserve | Government Failure Series from Cato Institute | Know the enemies of America | Laws and Regulation--stupidities | national deficit, taxes, national budget | Obama admistration | Obama and ethics | Politics 2008 | Politics 2009 | Politics 2010 | Politics 2011 | Radical Left at War with America | Republican House of Representatives 2011 | Republican House of Representatives 2011 | Supercommittee 2011 | Taxes
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I wondered why the Federal Reserve would order banks to take a “stress test” that would determine how well they were able to withstand a sudden and severe drop in the stock market unless they were anticipating such a drop. Guess my wondering is in good company a contributor to Big Government blog had the same wonder but he put his into perspective as to what this would do to the country. Interesting post. I might advise you all to buckle up and hang on out there. At least that is what I am doing! BB
I warned last week that a recession and higher unemployment were about to hit the U.S. economy. On Tuesday, the Bureau of Economic Analysis cut their estimate of growth in the third quarter ending September from 2.5% to 2%. Then on Wednesday, the Federal Reserve rocked financial markets by forcing America’s 31 largest U.S. banks to “stress test” balance sheets to determine their capability to withstand an 8% drop in the economy; which would cause home prices to plunge by 21%, and unemployment rate to jump to 13%.
I illuminated in my report that U.S. Bureau of Labor Statistics has been under-counting unemployment by at least 2%. For a nation reporting 154.4 million workers; this means the 13.9 million reportedly unemployed should actually be 17 million. Given only 12.8 million were unemployed at the 1933 peak of the Great Depression, when the undercounting and the Fed’s stress test are added the total is 23.2 million unemployed; almost double the Great Depression.
(The only reason we are not seeing bread lines and homeless people flooding the streets is that now we have the federal government handing out up to 99 weeks of unemployment benefits as well as 47+ million people on food stamps. during the Great Depression these programs were not available.. Which certainly proves the statement I have been making for decades that the next depression would make the so-called “Great” one look like a Sunday picnic. Of course the unemployed as well as the employed and their great grandchildren are on the hook for all the money that is being borrowed to pay for these benefits! Which brings me to the second difference between now and then: big business was on the hook and were the ones going into deep debt and bankrupt rather than the people via our government, but during these intervening years Congress has undertaken to protect business and even banking by taking on the risk of doing business in America while not enforcing the rules that business “help” pay for these protective programs. One of the most egregious business protecting programs that Uncle Sam has taken from business is the promise to pay retirement benefits if a business is unable to do so. Companies are suppose to pay into a trust fund for these programs but they don’t and no one is watching the store to see that they do! Companies do not even have to go bankrupt in order for the government to step up to the plate with our wallets open! BB)
Formerly bullish top bank analyst Dick Bove in an Bloomberg interview commented on the Fed:
“By taking these draconian views of what could happen in the market, if they in fact force the banks to defense themselves against the outlook that they’ve put up, they’ll cause a recession,”
Consistent with my prediction that the booming production of capital goods would fall hard next year after the expiration of the 100% “bonus depreciation” tax credit; the bad news parade picked up steam this week with reports that U.S. durable goods orders fell 0.7 percent last month and initial jobless claims came in higher than Wall Street analyst’s predictions.
On the always dismal European front, interest rates on German “Bund” Treasury Bonds exceeded the interest rates on U.S. Treasury bonds for the first time as traders feared the financial turmoil of Portugal, Italy, Greece, and Spain (aka the “PIGS”) is causing a financial contagion that may implode solvency of German banks. Peter Cecchini, head of investment strategy at Cantor Fitzgerald in New York reporting on effects of the European financial crisis for the rest of the world: “Evidence is slowly mounting that containment is a pipe dream,”
In the delightful Middle East, the Aircraft Carrier George H.W. Bush left its traditional theater of operations watching Iran and the Persian Gulf, and moved to the closest point to Syria in preparation for implementing a “no-fly-zone” by American, European, and Arab League forces. CBS also just reported: “The U.S. Embassy in Damascus urged its citizens in Syria to depart “immediately,” and Turkey’s foreign ministry urged Turkish citizens on pilgrimages to “return home from Saudi Arabia to avoid traveling through Syria.”
During the month of November the equity shares of the 31 banks the Fed directed to begin their stress test have now fallen 13%; with Goldman Sachs and Bank of America trading at their lowest prices since the lows of the Great Recession in March of 2009. If the economy heads for a sharp recession and unemployment leaps, there will be hell to pay for politicians in November’s election.