Friday, October 30, 2009

We can trade pork for everything we need

The US GDP was up sharply last quarter. Consumer spending which used to make up almost 70% of the economy continues to decline and there was no growth in personal income. New home sales were down sharply in September. What is wrong with that equation? Any measure of the real economy is down but the GDP is up 3.5 %. The missing variable is financial services, trillions of Dollars created out of thin air sloshing back and forth across the economy.

This phony economic activity is pumping up the GDP but produces nothing and in fact when one of these tsunami waves hits your segment of the economy you can be washed away. The price of oil is up again and sucking money out of the real economy to fill the money bin at Goldman Sachs. But hey, it makes the GDP look better (the music is playing, everybody get up and dance now).

The number of unemployed continues to increase, the jobs continue to leave the country and the trade deficit continues to grow. China continues to dump Dollars anywhere in the world that they can to build up their commodity reserves. At some point the people getting those Dollars will want to spend them and nobody will take them. Then dance music will stop.

China has lifted the ban on US pork, one of the few things we have to sell. Of course China is modernizing its agriculture as well as sponsoring projects in South America and Africa to dramatically increase their ability to produce food. They can grow food for China far cheaper than we can. At some point we won’t be able to make the minimum payment on our Bank of China credit card and we’ll be cut off. Anything that you use that says on it "made in China", if you can’t do with out it, you should buy it ahead of time and store with your canned goods. (pssst, just between you and me, that "made in China" stuff is just about everything)

Tuesday, October 27, 2009

Too big to fail but not for the chopping block, Barney Frank sharpens the cleaver

The USD continues to strengthen against the Euro for no apparent reason. News reports claimed this was from the report of the new Consumer Confidence Index being down unexpectedly. This just seems odd, somebody with a lot of muscle is pushing the market. China, that has a bin full of Dollars that would make Scrooge McDuck faint, has been saying that they would like to reduce their Dollar holdings but how much they actually hold is a closely guarded secret. Opinions vary but a trillion plus in Dollars is likely with that much or more in other currencies, mostly Euros with significant holdings of Sterling and Yen.

Meanwhile in the too big to fail department, Congressman Barney Frank is getting close to producing a new set of rules for seizing and craving up these too big to fail banks and non bank financial institutions like AIG. The Republicans will have fits about this but it really is no different than what the FDIC does to the Third National Bank down on the corner when it fails.

According to the reports, "the legislation will make it easier for government to seize control of troubled financial institutions, remove management, change terms and conditions of existing loans, and wipe out shareholders".

This would circumvent Bankruptcy Court and most importantly, bond holders would not be treated as a special class and be wiped out as well. This would hit the rich elite where they live.

Class warfare could be taking an entirely new turn or maybe not. The Federal Reserve seems to be deeply involved in this new proposal and that should send a chill up your spine. We’ll have to see what is in the final bill but even then we really won’t know what is going on until these broad new powers are actually used. Since all of the too big to fail institutions have all actually failed and the bailout really didn’t change that, we will find out soon enough.

Monday, October 26, 2009

Would you like fries with that or eat your Kronas

You know you are in trouble when your economy is so bad that McDonalds packs up and leaves. Iceland, that was until recently the darling of the Chicago School of economics; a philosophy where anything goes if some rich guys want to do it. They were among the first to have their banking system completely collapse leaving the country with a debt so big that its entire GDP could not keep up the interest payments.

This time last year the island was within thirty days of running out of food since they couldn’t import anything and the still of the night was regularly interrupted by the explosion of burning SUVs. Today Iceland is struggling to recreate a real economy again after the fairy land of international banking has evaporated. The McDonalds restaurants will stay open with a new name and with locally grown food on the menu.
Iceland has negotiated its debt from the banking scandal down to about 9 billion Dollars, this for a country of 320,000 people. The US equivalent would be 9,000,000,000,000 (9 trillion). What are they whining about? That’s much less than we owe. Of course the American frog was brought to boil slowly, Iceland thought they were rich a little more than a year ago and now find themselves in the frying pan.

Iceland doesn’t have much of a real economy, fishing doesn’t have much future with the oceans dying, but they hope to be a shipping hub in a couple of years with unrestricted passage across the arctic ocean thanks to global warming. Oh, and so far, no rich guys have gone to prison for the massive fraud and it doesn’t really look like they will. They apparently imported our justice system as well as our ponzi schemes.

Our own dead economy continues to lurch along looking for brains to eat. The USD spiked up unexpectedly today pushing down oil and gold or maybe it was the other way round. It’s hard to keep the market manipulation straight from the plain old fashioned panic. Either way this pushed the DOW industrials further below 10,000. A stronger Dollar means the stuff at Walmart will be cheaper, at least until the Dollar goes the way of the Krona.