Much posturing is going on in Congress about deficit reduction. Arguing about $60 versus $100 billion (or $0 as the Dems posture) is ludicrous in the face of a $1.6+ trillion deficit. This piece points out the real problem, the cost of empire. This is what brings them all down when the empire’s business model breaks: (and it has broken):

Of the $1.4 trillion of “discretionary” spending (that which is not already committed for entitlement spending on things like Medicaid, Medicare and Social Security) that Congress is considering for 2011, $708.3 billion (or more than half) is slated for military purposes, including the Pentagon’s base budget, the wars in Iraq and Afghanistan, and the nuclear weapons-related activities in the Department of Energy.

An alleged victim’s (Allstate) lawsuit against J.P. Morgan/WaMu. Said victim has already sued B of A/Countrywide for essentially the same fraud.

Based on data compiled from third-party due diligence firms, the federal Financial Crisis Inquiry Commission (“FCIC”) noted in its January 2011 report:

The Commission concludes that firms securitizing mortgages failed to perform adequate due diligence on the mortgages they purchased and at times knowingly waived compliance with underwriting standards. Potential investors were not fully informed or were misled about the poor quality of the mortgages contained in some mortgage-related securities. These problems appear to be significant.

The linked piece provides details of the “significance” of the fraud. You will be astonished. Matt Tabibi of Rolling Stone asks the question – “Why Isn’t Wall Street In Jail?”

Nobody goes to jail. This is the mantra of the financial-crisis era, one that saw virtually every major bank and financial company on Wall Street embroiled in obscene criminal scandals that impoverished millions and collectively destroyed hundreds of billions, in fact, trillions of dollars of the world’s wealth — and nobody went to jail. Nobody, that is, except Bernie Madoff, a flamboyant and pathological celebrity con artist, whose victims happened to be other rich and famous people.

The rest of them, all of them, got off. Not a single executive who ran the companies that cooked up and cashed in on the phony financial boom — an industrywide scam that involved the mass sale of mismarked, fraudulent mortgage-backed securities — has ever been convicted.

Stock and commodity market action was pretty bullish again as the market quickly recovered (again) from the third pullback of the last few days. It is clear that we are now firmly in the midst of another bubble. Be careful out there, but probably a bearish stance on stocks or commodities is not going to be rewarded for some time.

Of course, this means stagflation. Rising prices and stagnant wages will reduce real consumption and prevent any gains in employment, while the sliding housing market squeezes household net worth. Thanks, Ben.

If you are feeling that you should be bottom-fishing in housing, maybe you should lie down until the feeling goes away. Recent data points show that the housing slide is accelerating, not bottoming. The NAHB index is stuck at a depressionary 16; this morning MBA mortgage applications fell again:

The Market Composite Index, a measure of mortgage loan application volume, decreased 9.5 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 7.9 percent compared with the previous week.

The Refinance Index decreased 11.4 percent from the previous week and is the lowest Refinance Index recorded in the survey since the week ending July 3, 2009. The seasonally adjusted Purchase Index decreased 5.9 percent from one week earlier. The unadjusted Purchase Index decreased 0.9 percent compared with the previous week and was 18.2 percent lower than the same week one year ago.

“Mortgage rates remained above 5 percent last week, up almost a full percentage point from their October lows, and refinance volume continued to drop,” said Michael Fratantoni, MBA’s Vice President of Research and Economics. “Applications for home purchases also declined on a seasonally adjusted basis. Buyers have not returned to the market as rising rates have reduced affordability, to some extent.”

Speculative buyers – bottom-fishers – are much of the market, never a good sign (DataQuick, discussing Southern California):

The total number of homes sold last month was the lowest for a January since 2008, when 9,983 sold, and the second-lowest since 1996. Last month’s sales fell 18.8 percent below the average January sales tally of 17,802.

January new-home sales were the lowest for any month in DataQuick’s records back to 1988. Builders have struggled to compete with prices on resale homes, especially distressed properties.

But what’s proven the bane of the building industry has fueled a boom among investors, who appeared to be as active as ever last month.

Absentee buyers – mostly investors and some second-home purchasers – bought a record 24.8 percent of the homes sold in January, paying a median $198,500. Over the last decade, absentee buyers purchased a monthly average of about 16 percent of all Southland homes.

Buyers who appeared to have paid all cash – meaning there was no indication that a corresponding purchase loan was recorded – accounted for a near-record 29.5 percent of January sales, paying a median $190,000. So far, the peak for cash sales was 30.1 percent last February. The 10-year monthly average for Southland homes purchased with cash is about 13 percent. [Emphasis mine]

Even cities that seemed to have a charmed life, such as Seattle and Minneapolis, are now feeling the brunt of the decline:

The rolling real estate crash that ravaged Florida and the Southwest is delivering a new wave of distress to communities once thought to be immune — economically diversified cities where the boom was relatively restrained.

In the last year, home prices in Seattle had a bigger decline than in Las Vegas. Minneapolis dropped more than Miami, and Atlanta fared worse than Phoenix

And let’s not forget at whose feet this problem should be laid – Chairman Bernanke’s.

Bernanke’s ruling ideology is the culmination of a 30-year economic war that has forged together Reaganomics for the super rich, former Fed chairman Alan Greenspan’s toxic allegiance to Wall Street, the extreme Ayn Rand’s capitalist dogma, culminating in the toxic bailouts of Treasury Secretaries Hank Paulson and Tim Geithner, two Wall Street Trojan Horses corrupting government from within.

Since 1981 this monetary dictatorship has caused enormous collateral damage, systematically sabotaging democracy, capitalism and the American dream while fueling the rise of our most dangerous new enemy, China.

What can I say? The HFT pumping on dismal volume goes on. And on. And on. Meanwhile:

• Gallup unemployment is back over 10%, and underemployment just short of 20%. Both are rising.
• House prices continue their decline, now spreading to cities such as Seattle that have so far been relatively immune. People are claiming there’s only another 10% to go on the downside. They have no idea.
• Food and energy price increases are causing economic (and political) pain around the world. Bernanke is driving inflation to discourage saving and encourage consumption. Instead, he is hurting real consumption because the labor surplus is inhibiting wage growth.
• The U.S government now cannot stand a true economic recovery, because the debt has grown so large as to consume virtually all tax revenues in interest payments if the economy “normalizes.”
• The Obama administration has produced a new budget based on 50% growth in government revenues over the next two years. UFB.

Ron Paul: