Friday, December 4, 2009

Controling the "real" economy with the "not real" economy

The cheap Dollar policy has started to pay off for the Obama Adm. with job losses way down for November. Cheap Dollars make sending jobs out less attractive but also good deal of the reluctance to move jobs comes from a crack down by China on factory expansions after Obama slapped their wrists with a 99% tariff on steel pipe to curb below cost dumping into the US market. This has brought out-sourcing to a stand still for now but the very real risk of total market collapse is rearing its ugly head.

The markets reversed early gains today on fears that the Fed will raise interest rates as they did under Greenspan to control wage inflation. This caused the Dollar to strengthen dramatically as investors became fearful of the over inflated markets worldwide. Gold dropped almost 5% today priced in USD and the Dollar gained dramatically against the Euro. If this panic continues Monday it could cause a worldwide sell off as investors try to move into cash and force margin calls on huge blocks of traded... well, stuff (they’ve been driving up the price of everything across all markets with cheap Dollars) A selling panic could easily bring about the mother of all market crashes.

It’s difficult to know what is really going on in the markets as an ever increasing amount of trading is being done in Dark Pools. This is where the large banks run their own private exchanges for the big market players and none of this becomes public. The small investor is left in the dark until it’s much too late for him to do anything but take the loss.

Even if the market bubble does not burst this time we are by no means out of the woods since we need at least 150,000 new jobs every month just to keep up with population growth. The new year will bring a new crop of commercial loan defaults with this type of loan on a five year cycle at least 20% are due and deep underwater. Add to this an ever increasing number home foreclosures. With declining wages and no credit available, a lack of consumer demand will continue to drag down the economy.

Six more banks were seized today at a cost of 2.4 billion not counting at least 3 billion in bank assets the FDIC couldn’t sell and probably never will. This does not include the shareholder and bond holder losses or any depositors in excess of the insurance limit.

Obama has declared himself a deficit hawk saying the 1.5 trillion that the budget is already in the red precludes any new stimulus. Any sort of crisis is likely to dramatically drive up the interest the government must pay on its debt. Currently we are paying only 200 billion on a 12 trillion Dollar debt by putting most of it on 30 day notes at zero or even negative interest rates as bond holders look for security rather than return on investment. Just a return to "normal" bond interest rates would make interest the single biggest item in the budget and interest would probably not stop going up at "normal".

The stupid thing is that none of this is the real economy, it’s just paper. But they hold the rest of us hostage and determine whether we have a job, what our house is worth, the price we must pay for everything or if we even have anything to eat. Feudal serfs had more security.


Ed Encho said...

Offshoring jobs is like crack cocaine to corporate America. The wonderful jobs numbers that are being spun by the propagandists in the pocket media are must more of the same accounting chicanery. It is never mentioned that perhaps job losses are falling because there is nothing left to cut and the rapacious profit obsessed parasites will now continue to exact more 'productivity' (which translated means Soviet gulag style oppression to wring the most from the remaining slaves) or it's out the door with legions of still unemployed out on the streets to replace anyone who complains.

Obama is nothing other than a tool of Wall Street but there is one big jobs program that remains for the dispossessed - after this week's Afghanistan escalation speech and his playing footstool to the Generals there is always the draft. I am sure that all of the armchair patriot Republicans will be honored to go and fight in the wars that they cheer for to feed the oligarchy that they so cluelessly protect.