Tuesday, December 28, 2010

Aqueducts and bullet trains

In another move to consolidate their economic power, China is cutting rare earth exports by 10% and will impose a higher export tariff on raw materials. And in order to end interference from the dominate power from the last century they are moving ahead with military hardware programs years ahead of outside estimates.

According to Admiral Robert Willard, the top US commander in the Pacific, the Dongfeng 21 D missile is now operational. This land-based missile system is designed to track and target aircraft carrier groups with the help of satellites, unmanned aerial vehicles and over-the-horizon radar. Aircraft carriers and their accompanying ships are completely defenseless against this type of hypersonic attack.

The missile itself is not a huge leap forward but it is the super computers that direct them that make them so deadly. It’s no coincidence that China now has the most powerful computers in the world. This kind of system is able to input high volumes of data from multiple sources making any attempt to silence the system fruitless.

To further frustrate aggressors this level of computing power renders stealth aircraft obsolete as it is not necessary to paint the target with radar but simply observe the hole in background EM radiation that the stealth technology creates.

To project their power still further into the world, China is now building its own aircraft carriers to add to a mushrooming fleet of ships and submarines. This allows China to provide military protection to its trading partners like perhaps Venezuela and Iran who have been getting nominal protection from Russia.

Rather than just strip mining the third world China has been building infrastructure and improving the economies of their trading partners like no empire since the Romans. The Romans built aqueducts and roads in conquered lands, China is building steel mills and high-speed rail lines in countries like Brazil.

 As America fades away under the weight of Reaganomics, the world has a new dominate force and it’s time to learn to adapt. Practice saying, “wǒ búhuì shuō zhōngwén” which means, “I can’t speak Chinese“.  www.prairie2.com

Monday, December 27, 2010

Black Friday, Black Monday, Black Crude or Black Thursday (1929)

A lot of noise is being made about how retail sales will set a new record or at least match the last year before the collapse. They point to empty shelves for some items as if this were proof while not mentioning that retailers slashed inventory drastically for this season from past years to avoid doing any real discounting. Saying something is half off from a price that was doubled to begin with, well you know how this works but most people never really catch on.

Some electronics are down sharply but this has to do with what is considered normal reduction in prices by manufactures as new product innovations “mature” into yesterday’s old hat. There is also an over supply of flat screens as production facilities that began construction right before the collapse are coming up to full speed.

While retailers were building consumer confidence early in the fall by announcing how many thousands of temps they were hiring for the Christmas season the November jobs report showed retail sector jobs actually declined by 26,000. This fits into the current corporate practice of firing staff and replacing them with low paid temps. This is what keeps the weekly jobless claims high despite total employment numbers remaining fairly steady or even gaining a few thousand jobs each month.

The retail sales numbers trumpeted in the news not only reflect higher prices but are also getting a boost from rising gasoline prices. The higher prices are being driven by speculators using the free money they are getting from the Federal Reserve. It’s the increase in the money supply and not any decline in supply or increase in demand. We actually have always produced more gasoline in the US then we can use and export billions of barrels to Africa. If the oil refineries didn’t have that market they would need to burn it. 40 to 50% of a barrel of oil is gasoline depending on the source, refineries could be built to convert gasoline into other products but this type of refining isn’t cheap.

We are actually more dependent on the other elements in oil like diesel and jet fuel as well as heating oil and trace chemicals. Even the Obama stimulus for shovel ready projects had to scaled back because of a shortage of asphalt. Ending our dependence on oil is more complicated than plugging in a bunch of electric cars, that would just mean we would export or really re-export more gasoline. This would likely make oil more expensive and not cheaper, not that we shouldn‘t move ahead, but it requires a much broader changes (this revamping might even create some jobs).

So what will the New Year bring? Higher profits for large retailers most certainly. They are keeping prices up and wages down, a capitalist success story. Very soon a lot of temps will be out of work again and probably not eligible for unemployment. The number of retail units sold wasn’t up all that much so there will be no real boost for manufacturing jobs, not in China where most retail goods are made but especially not here. Expect higher prices for food and fuel thanks to the Federal Reserve. There will also be continuing pressure to cut wages and at best a flat jobs market.

The new talking point from the Republicans is to change Federal law to allow the states to go bankrupt as well as local governments. The purpose of this would be to void all union contracts and renege on pension plans all in the name of austerity. There are about a dozen conservative Democratic Senators so this is a real possibility if enough panic can be generated over deficits. Cutting wages in half was how President Hoover solved his economic crisis. Everything would have been rosy if FDR hadn’t plunged us into the Great Depression by spending too much money and by imposing his protectionist trade policies. (No really, ask any Republican)   www.prairie2.com

Thursday, December 16, 2010

The real Armageddon

New consumer price index numbers are out and core inflation continues to drop, now getting precariously close to zero. This is the most troubling of economic news in a world largely consumed with troubling news. The Fed is printing money like they got a 2 for 1 deal at the copy shop. However investors and corporations continue to behave like we are entering a deflationary slump with bond prices continuing to fall and the Fed’s QE2 having no apparent effect.

The average consumer isn’t concerned that prices are falling, he just likes the deal he got on the new flat screen for Christmas. Never mind that his wages are continuing to fall and that he may lose his job tomorrow. Once we tip over into a deflationary spiral it becomes nearly impossible to stop. Consider that two years ago when things were really falling apart we weren’t experiencing actual deflation but rather what economists call disinflation or a lessening of inflation. We are really in far worse condition now, in case you wondering why there are no new jobs.

Obama had the captains of industry over to the White House this week to find out how to get them to spend the 1.7 trillion in cash they are sitting on. Obama would like them to create a few million jobs but they are barely operating a 80% capacity and inventories are high. Contrary to Reagonomics, supply side simply doesn’t work.

We don’t know if they asked Obama for a tax holiday on repatriating foreign profits as Bush did for them but you can bet it’s on their Christmas wish list. You see over a trillion of this corporate cash is overseas and they don’t want to pay taxes on it to bring it back. On the other hand maybe they would rather keep there.

You see in reality American corporations are not in good shape at all. They have trillions in junk bonds on the books that they were able to sell at a fraction of percent interest thanks to the Federal Reserve lending money at nearly zero interest rates. So this cash is really just borrowed money, they haven’t paid their taxes on the profits they did make and instead they spent the money on executive compensation.

Really these companies, like the big banks are just zombies. GM wasn’t the only big company bailed out the last time because of all this Federal Reserve money. If deflation strangles demand and slashes corporate revenue then a lot of these companies will collapse in a matter of weeks once the panic starts.

This could be all unraveled by strong government intervention but you have a perfect storm brewing for inactivity. The Obama administration is still plagued with a lack of leadership by having hundreds of his appointments being held up by the Republicans in the Senate. Congress is now going to be hamstrung by tea baggers who believe there should be no government. If things start to unravel then the collapse of the USD as an international currency is a very real possibility and we are completely dependent on imports that we will have no way to pay for.

No wonder they are talking about “duck and cover”, they don’t want to talk about the real Armageddon that’s coming. www.prairie2.com

Tuesday, December 14, 2010

Get accustomed to the new normal

The Federal Reserve has again confirmed its intention buy nearly a trillion dollars in privately held US Treasury bonds. The stated intent is to drive down interest rates but exactly the opposite has happened with bond rates hitting a seven month high. This includes 10 year notes and it’s this interest rate that is used as the basis for home mortgage rates so they are shooting up again.

There is a huge budget problem if bond rates were to continue to rise as a large portion of the 14 trillion the government owes is in short term bonds that need to be constantly recycled. The Treasury must also sell more trillions to finance the Republican plan of spend and not tax fiscal policy. If bond rates were to spike to the high teens as they did in the 1980s, the amount paid in interest alone would break the Federal budget.

Even with much of the debt sold in the last couple of years paying very little interest and at times bonds sold at a negative rate (the Treasury actually made money),  the annual outlay for interest has still has been over 200 billion. At the historical normal interest of 5% interest rate for bonds the outlay should be running close to 700 billion right now. Triple or quadruple that and you can see where we would be.

The question is what would happen first, would annual interest outlays pass the trillion dollar mark, equal to the Pentagon budget (including hidden items) or would it become impossible to sell bonds and the US begin have its checks bounce. Obama seems to be leaning toward the Republican answer for this eventuality, not taxing the people who have been looting the Treasury over the past thirty years or rebuilding our economy but the adoption of  bone crushing austerity.

The tea baggers that demanded that Obama keep his hands off their Medicare will see it evaporate faster than Constitutional rights in a Bush torture camp. Obama could short circuit all of this with bold decisive leadership, that seems increasingly unlikely (try not to laugh to keep from crying). The rich can ride the economy down for years if not decades to a final state of corporate feudalism.

We appear to be entering a new, albeit weak economic bubble but it’s not likely to last into 2012. None of the fundamental problems with the economy are being addressed. The biggest problem (after a lack of tariffs) is of course the low tax rates for the rich and the insanely low capital gains tax. With a 15% tax on dividends the rich have no interest in “creating” jobs as they would if they paid a 70% tax penalty for drawing money from their businesses.

Reaganomics made the destruction of America the most profitable business you can engage in. With dwindling hard assets to sell to China and the refusal of most foreign investors to buy anymore securitized debt the only thing left is to rob the middle class of its remaining wealth.

There isn’t much middle class wealth left to steal however with 93% of wealth already in the hands of the top 20%. So the only thing left is to stop importing consumer goods or in other words austerity. This involves driving down wages and government spending that benefits the bottom 80%. If common people can only afford food and housing with no luxuries like heat you can bring in enough Yuan from strip mining the nation’s resources to take care of the rich in a style they are accustomed to. The rest of us will need to get accustomed to a life of uncertainty where offending your corporate masters or just bad luck is a literal death sentence.  www.prairie2.com

Wednesday, December 8, 2010

Meet the new Oligarch, same as the old Oligarch

I had thought only Republicans were capable of making truly cynical speeches devoid of any real truth. President Obama has proven me wrong. In his speech he said “Because you don't negotiate with hostage takers, [except] when there's a risk the hostage gets harmed. Key thing is that this is a temporary compromise“. By that definition you would always negotiate with hostage takers and give them exactly what they want since hostage takers always have hostages that will be harmed.

And, since when is two years temporary? Especially considering that the next President will be a corporate Republican or worse. His claim that he must help the unemployed is a hollow claim because despite the Republican talk of the unemployed receiving 3 years of benefits there is nothing in the proposal to help the 99ers. With over 2 million out of benefits and the number growing rapidly, Obama’s concern is little better than crocodile tears for the people in the most need.

Corporations now put it right in their ads that “only those with jobs or recently laid off” need apply. The talking point is their skills are stale and there are 3 million unfilled jobs for lack of these skills. I’ll bet you a bowl of curry that they know exactly where to get workers with those skills and they’ll work for a third the pay. They come with the added benefit of being indentured to the company that gets them a visa. No shopping around for a better job, no complaining about working conditions or it’s back to Bombay on the next plane.

Now Obama is threatening the Democrats in Congress that the economy will collapse if they don’t give the hostage takers what they want. Obama is not stalling while the SWAT team comes rather he truly has Stockholm syndrome. Picture Obama as a newspaper heiress in a wig wearing a mini-skirt while brandishing a machine gun in a bank.

Obama said today that the economists have crunched the numbers and paint a rosy picture if we give into the rich holding a gun at the heads of the poor. These are the same economists who are always wrong when any new numbers come out. He has proposed no fundamental reforms but rather he is plowing ahead with more “free” trade. Like freedom and lunch, trade isn’t free. The founding fathers understood this. They fought a bloody war and literally risked all to free us from “free trade”.

With Obama’s new friends in Congress he will add trillions to the debt and provide no significant stimulus for the economy that continues to spiral toward a corporate oligarchy befitting a banana republic. It’s possible Obama has simply given up on reform and is simply playing the political game or maybe he has given up all together. The Republicans will continue to spin the failure of the economy as Obama’s fault since they agreed to “his“ plan.

The founders warned us about all the things that corporations do that they fought against but history was a long time ago. Obama’s knowledge of that era seems limited to the fact that he could not have entered the WH through the front door. Sadly he will give the keys back to that same corporate tyranny as he leaves.  www.prairie2.com

Monday, December 6, 2010

Something to hold us until President Palin fixes everything

The corporate media is trumpeting the rumor that Obama was expecting at least 200,000 new jobs in November instead of 39,000 that were actually created. This is really an odd thing that the numbers could be so wildly wrong. The number of weekly jobless claims certainly didn’t suggest that we had turned any sort of corner on job creation. Rather the number would seem to be made up just to embarrass Obama and add pressure for Democrats to surrender to the Republicans holding unemployment benefits hostage.

The surrender being negotiated by Treasury Sec Tim Geithner would extend tax cuts for billionaires for another two years allowing the Republicans to run in 2012 on the continued bad economy as being Obama’s fault for the lack of “certainty” on the part of the job creating rich. Doubtless President Palin’s first priority will be to make the cuts bigger and permanent, assuming that she doesn’t launch the Armageddon first.

As a stimulus to the economy Obama is also going to accept a 2% cut in the payroll tax for one year. This approach to stimulus is only slightly better than giving the money to the rich. The poor who really need and would immediately spend the money will get little and this will be more than offset by the Republicans driving down wages. The middle class will typically get as much as a thousand dollars on average but again their wages are being driven down as well. The upper middle class and the rich however will each get 2140 dollars (twice that for a couple) on the maximum 107,000 that they are taxed on for Social Security and will not spend it.

The total cost of the proposed tax giveaways will cost more than the per year cost of Obama’s stimulus bill and that was one third tax cuts. The Republicans are guaranteeing that there will be no money for real stimulus programs while continuing to drive up the debt. Obama being desperate for the appearance of some success has finalized a truly stupid free trade deal with Korea further driving down the economy and cutting tariff revenue still further.

In a further giveaway to the really, really rich who can structure their income as capital gains, they will continue to pay an absolute maximum of 15% for the next two years. That is until President Palin reduces it to zero as Bush tried to do. While dynastic wealth will resume paying the “death tax” after a year off, the 35% rate on estates over the 10 million tax free exemption is the lowest since the start of the last Great Depression. President Palin will doubtless do away with the death tax and with all the rapture-ing and mass death going on, this will be very popular. www.prairie2.com

Friday, December 3, 2010

Fairy Dust works, if you still have a good paying job

Where are the jobs? Economists were predicting 90,000 new jobs had been created in October but the real number was only 39,000 and we need a 150,000 new jobs to keep up with population growth. In simple terms this 111,000 jobs short fall is in terms of economic impact similar to laying waste to a city of 250,000 with no plans to rebuild it. And, this was a good month.

The US stock markets ignored the news since they have nothing to do with the real world, free money from the Fed continues to feed irrational exuberance. The NYSE listed companies do more than half their business outside the US but the rest of the world (outside China) isn’t doing so hot largely from all the new USD being printed. But in fact the big companies are still doing well as they continue to drive down wages and borrowing money at a fraction of percent interest makes it hard not to make money as long as there are more wage cuts to make and smaller competitors to target.

Gold is on the rise again and the USD is down sharply compared to the Euro despite the ongoing bond crisis in the conservative countries know as the PIGS (I’m referring to their banking and economic practices) . (Portugal, Ireland, Greece and Spain) This appears to be changing to the PIIGS as Italy’s borrowing costs have shot up despite their relatively good economic health. It’s just that they happen to be small enough to be brought down by the Wall Street predators.

The crocodile only grabs an animal it thinks it can drag under and the thing about crocodiles is the more they eat the bigger and hungrier they get. Since the total decriminalization of Wall Street’s practices, the feeding has been good. The Republicans in Congress are those little birds that clean the teeth of the big Crocs while they sun themselves on the river bank and nary a tear is shed. It’s the victim’s fault you know.

About those economists that were wrong about the job numbers; they all seem genuinely shocked that the numbers weren’t better. These are the same economists who have spent the last 30 years telling us how good Reaganomics is, that trickle down will make you rich too, told us what a good deal tariff free imports are and that the earth is flat don’t you know. This requires a level of detachment from reality that requires a firm belief in fairy dust to make their economic models work. In fact they have gone completely over to slogans and don’t bother with those depressing models anymore. It works for them, they still have good paying jobs.

Thursday, December 2, 2010

Economic crash with a silver lining?

Initial unemployment claims surged by 26,000 last week to 436,000 wiping out the happy talk about the jobs picture. Tomorrow’s monthly report is expected to show at least 80,000 new jobs in October but that of course is still far short covering the increase in population each month let alone any recovery. The number of unemployed youth unable to move out of their parents basement continues to grow and to age. This of course continues to worsen the US economy’s potential as the workforce continues to fall behind in education and job experience. But hey, serfs don’t need to know that much, and it makes them good Republicans.

Initial reports on the limited audit of the Federal Reserve mandated by Congress shows that they loaned $3.3 trillion to banks and a variety of corporations during the financial crisis. Much of it at 0.0078% interest, is an effectively zero interest loan, really a loan? BofA tapped the Fed overnight window heavily and they pledged ½ trillion in junk bonds to cover their short term loans totaling nearly 3 trillion total. These were called overnight loans but really ran for 30 days.

To define some jargon, “Junk bonds” are called that because they have no real assets behind them but are just a gamble that the company will be able to rob somebody else to pay you back before they go under. Trillions in junk bonds left over from the heyday of mergers and acquisitions will start coming due in 2012 as well as trillions in bad real estate loans. Just in case you were trying to time the big crash. The Mayans had it right.

This 3.3 trillion disclosed today doesn’t cover the entirety of Fed activity just the so called emergency loans. There was also the two trillion in QE that involved buying toxic assets for far more than they were worth, nor does it include trillions in what they call normal lending. The Fed and the Treasury made loans and guarantees totaling 23 trillion according to the Inspector General for the TARP program.

China has increased its imports of gold dramatically up 5 fold over last year and passing 209 tons in just 10 months, they are also the world’s largest producer of gold. India is still the largest consumer of gold at 600 tons per year but China is expected to pass them by as China seeks to protect itself from currency fluctuations and inflation. Gold is still far short of the inflation adjusted high price of 2300/oz set in 1980.

There is a viral internet rumor that JP Morgan is short selling 3.3 billion oz of silver. Short selling is betting it will go down in price and if it doesn’t you make up the difference to the people who actually own it. The Guardian of the UK is giving this rumor some credibility but I doubt that it’s so straight forward.

The scam is that the people pushing the rumor want everybody to buy silver driving up the price bankrupting JPM and forcing everybody onto hard metal “money” instead of fiat currency. A happy thought to be sure but JPM has probably hedged their bet with derivatives so I wouldn’t count on it working out the way we would like. In other words, I wouldn’t rush out and buy any silver unless you have no more room for canned goods. In these “interesting times” this could be the bubble that sets off the crash of the mega-banks and the economy in general or maybe it will just be a big fizzle.  www.prairie2.com

Tuesday, November 30, 2010

It's Midnight for America, Reagan was wrong

Midnight is traditionally portrayed as the hour of doom and gloom when large scale disasters happen. Tonight 600,000 Americans will lose their last life line  as their Federal unemployment extensions run out. The number will be at least 2 million by Christmas and 3 million by the end of January and it doesn’t stop there. This doesn’t include the growing millions of 99ers who have reached the end of tier five benefits and even Democrats aren’t fighting for them.

It appears that Republicans might be willing to extend Federal unemployment benefits on the condition that the rich get their 700 billion tax giveaway. The negotiations are being led by Sen John Kyl R-AZ who is indicating a deal could be made but he is holding out for more concessions. The top 1% will get an average $83,347 a year for life and the unemployed will get an average 300/week for another year, that is unless they’ve used up their 99 weeks and then they can just die.

Food banks and homeless shelters have been gearing up for the onslaught of the newly desperate poor but are finding they are being overwhelmed by the people already running out of benefits without the millions that will come pouring in now that the Republi-scrooges have cancelled Christmas.

A new phenomenon is growing with an unknown number of neo-migrant workers traveling America. Some say there are already hundreds of thousands of formally middle class Americans that now live in the RVs, often with kids in 400 square feet or less. They travel from city to city across the United States doing seasonal work for companies like Amazon.com and others who pay wages that when adjusted to today’s dollars are little better than the 25 cent minimum wage established in 1938. The are provided free camping spaces for their RVs at the better jobsites. I guess it beats traveling by box car from jobsite to jobsite and living behind barbwire, but the century is young.

Despite all the hype over Black Friday, retail sales were only up 0.5% over the previous week. Same store sales were reported to be up 3.5% over the previous year largely on the deep discounting of big ticket items. This likely does not translate into higher profits, the “Black” in Black Friday is supposed to be black ink. Although it’s always been little more than Madison Ave hype, it does send signals about who will have a good year and who will be the next store to be boarded up. With Obama siding with the idiots pushing for austerity, the signal maybe that the business that provides window board up service maybe the only winner.

The DNC has made the bizarre move of asking people on its email list to write letters in support of the freeze in Federal worker wages (with inflation this is really a cut in pay) saying that “Cutting costs and spending responsibly has been a cornerstone of this administration’s record” Paul Krugman has pointed out that amounts to “Obama (saying he) has always been at war with East Asia”. Hope and change are out the window, cutting wages for the middle class is the new normal, scratch that, cutting wages for the middle class has always been the normal.

WikiLeaks expects that the documents that it plans to release in the new year will take down one or more major US banks as they reveal corruption and systemic wrong doing on a scale similar to Enron, this is according to Julian Assange in an interview with Forbes. He has previously said he has internal documents from Bank of America. This latest revelation explains the new calls from Republicans for his assassination, they weren‘t nearly as concerned about any alleged national security breach but don‘t mess with their benefactors.   www.prairie2.com

Monday, November 29, 2010

Anybody know a good Borsch recipe?

The newspapers all had stories today about how on this day in history President Hoover foolishly froze government salaries as private sector wages were falling during the recession that followed the burst of real estate bubble of the 1920s. This drove the country into the Great Depression, but they screwed up the headline and put Obama’s name in place of Hoover. Obama would never do anything that stupid, it made Hoover a one term President. Sigh…

People always excused Hoover (he really seemed to be a nice guy) they excused him for not understanding economics. I’m not so sure, he was an engineer so he should have been able to do the math. Obama is a lawyer so maybe he can’t do the math but he has all kinds of people working for him who can, of course their advice seems to favor the billionaires they all plan to work for in the private sector making seven figure salaries. (after all they need to make up for the hardship of having Obama freeze their government salaries)

It’s common sense that when times are hard that you cut back. Just as it’s common sense that the earth is flat and unmoving, we couldn‘t possibly be revolving at a 1000 mph, that‘s just crazy. In simple terms it is wages that create demand for goods and services and this makes the economy run like a well oiled machine. Cutting wages is like draining oil from the crankcase, the machine will slow and stop. Reagan also de-criminalized the practice of stealing the gears from the machine and selling them to China.

Ireland is the latest victim of the Wall Street bankers as it is having its economy wrecked in the name of saving it. Portugal is next in line and there is little they can do about it. But the very same tactics the World Bank and IMF use to reduce vulnerable third world countries to corporate serfdom are playing out here. When the rightwing says that we are the next Greece they happen to be right, just for all the wrong reasons.

The right constantly tells us that Kenyan/socialist/ fascist Obama is taking us the way of the Soviet Union. They are right, he is. The Soviet Union was really organized with huge state owned corporations and the country was run by the managerial class. Socialism was a way to keep the workers content with low wages. The same process has been on going here for the last thirty years as wages have declined while the corporate domination of the state has grown.

Gorbachev ended the “socialism” but the same few people still owned the former soviet state. The same thing is about to happen here as the corporate state owned by the few will simply stop providing the “socialism“ that Americans take for granted as their birthright. The tea baggers believe they are going to end “socialism” for everybody else but them. They don’t grasp that most of that “socialism” goes to them and they are the real target. The teabaggers will to need to grow their own cabbage and potatoes and learn a good recipe for Borscht.  www.prairie2.com

Wednesday, November 24, 2010

A Hammer Blow for Freedom

While the Federal Reserve is predicting the economy to continue in the doldrums for the next two years or longer, there was a bit of good news late today. Tom Delay (know as The Hammer) is facing 5 to 99 years for money laundering and another 2 to 20 years for conspiracy. Will the hammer come down on The Hammer? Does the State of Texas take treason as seriously as stealing a loaf of bread from the Stop & Rob?

The Fed is painting a pretty gloomy picture for the economy despite its plan to hand out a trillion dollars to the rich. Don't fall for the talking point that the Fed shouldn't be doing this because it benefits the rich, they really don't have any choice. The economy is on the edge of collapse and that is something to be avoided as long as possible. If you think anarchy would bring a new dawn with daisies and puppies for everybody you are mistaken. Take this little test: when you read a disaster novel do you picture yourself as the hero that leads the handful of survivors to safety or do you see yourself being tossed into the mass grave? Self confidence is great but the numbers aren't in your favor.

Make no mistake, trickle down economics doesn't work, in fact anybody who can do simple math can figure out that the opposite is true. However this isn't a quite the same thing. The money the Fed is passing out will not stimulate the economy the way doing real stimulus would but it will keep deflation at bay for a time and that is a good thing. A trillion dollars is 1/14 of the GDP so it has to have some positive effect especially if they can convince the investor class that inflation will result so that they decide to stop sitting on their money. Clearly it will affect the commodities market, so expect higher food and fuel prices. It's not the solution, it just buys time.

The problem is getting a enough people elected that are actual progressives. Not an easy task, but not impossible either. We went through the same exact thing a century ago. Unfortunately the rich pay people at think tanks to study history and refine the strategies for eliminating the middle class and democracy for once and for all. We have only a little time to educate and organize and we must not waste it.

Monday, November 22, 2010

Shaking the money tree Or The knowledge of Leprechauns

I’ve been getting a lot of email about printing money so I thought I would clear up a few things. You may remember this phrase from the Constitution under the powers of Congress, (Congress shall have the power)“To coin Money, regulate the Value thereof, and of foreign Coin”.  This does not mean as your libertarian friends claim that all money must be in gold coins. Congress wouldn’t really have a need to “regulate the value thereof” if that were true. The US has always issued script that amounted to issuing an IOU payable at a “regulated value”.

The founders didn’t like bankers issuing money or regulating the Value thereof so they kept that power to themselves. They had a good understanding of inflation and deflation and how bankers used this manipulation of the money supply to enrich themselves. That knowledge hasn’t kept bankers from doing just that as much as they could get away with ever since.

Currently our entire money supply is debt based on the fractional reserve system where the banks can in effect create 10 dollars in new Federal Reserve notes for every dollar on deposit or held as assets by its member banks. In theory our newly created money all has a tangible asset somewhere that in effect backs our currency. Of course much of our money is now based on those toxic assets you may have heard of.

The new QE2 or quantitative easing second edition, is supposedly backed by the debt instruments the Federal Reserve purchased two years ago. Never mind that those used to be called toxic assets and they already printed money to buy create them originally (before they were toxic) and again when the Fed bought them as worthless toxic assets.

There also seems to be some confusion about the stock market being a creator of money. It is not. When the market goes up it gives its so called “investors” an excuse to sucker money out of other people who think it will keep going up forever but not one dollar is created.

Where does money go when it disappears during deflation? Since it never really existed that isn’t a problem. When debt instruments default the money they created simply evaporates when it is taken off the balance sheet of the bank holding it. Of course now we have those toxic assets to consider again and much of the consumer debt is “securitized” so it exists entirely in the ether with no real accounting for its disappearance.

Inflation and deflation also used refer to prices and this makes it confusing as there isn’t really the direct link that you would suppose. Prices tend to go up and down with the money supply but it’s not the law or anything. A lack of money in circulation tends to drive down prices as business activity contracts and too much money in circulation tends to inflate prices but only if the money is actually spent. Here’s where the savings rate comes in to play as well as the willingness of banks to lend and big monopoly corporations to spend the cash in their money bins.

So we do have a lot of money in circulation yet we are standing on the edge of the deflation abyss because we really don’t have a first world economy anymore. With forty percent of corporate profits coming from “financial services” what you really have is that the feudal lords have contrived a way to “tax” the peasants without doing it out in the open. In the old days giving up a cow, a pig or a virgin child to the local baron was fairly straight forward.

The tea baggers think the government is taxing the crap out of them but much of what the government takes in comes right back to them again so it’s really a wash. It’s the corporate barons who steal their wealth by taking their cow so they have to buy milk on credit and before they know it they are landless serfs required to submit to austerity programs to maintain their feudal lord’s lifestyle. But hey, the dragon would get us without the nobility to protect us. Right?   www.prairie2.com    PS to quote Allan Greenspan, “if you thought you understood that, you didn’t read it carefully enough”.

Friday, November 19, 2010

God's own check cashing store

Where are the jobs? This was the reverberating chant from Republicans during the campaign, but now that they can set the agenda the answer is no where. Conservative Republicans upset that the Fed is injecting cash into the economy are putting forward a bill to change the existing mandate of the Fed. Since 1977 the Federal Reserve has been required to keep down unemployment and simultaneously control price inflation. The Republicans like high unemployment and the collapsing economy doesn’t have any inflation.

During Alan Greenspan’s reign as Fed Chairman he put the two mandates into a blender and came up with the “mandate to control wage inflation“. His mission as the representative the billionaire class was to eliminate the middle class in favor of creating more working poor. He was very successful, as George Bush noted when ambushed by a middle-aged women who stated that she had three jobs he responded, “Three jobs? Well idn’t that just the American way…”.  And you thought George didn’t pay attention in briefing sessions.

In reality there isn’t much the Fed can do to create jobs with the economy in shambles but they could make things a lot worse, especially now that the Republicans can stop the government from doing anything meaningful and they want to make sure the Fed isn’t tempted to do anything constructive either.

It’s hard to say what effect this latest printing of money is intended to do. They are only buying longer term Treasury bonds with stated goal of lowering interest rates but interest rates already range from cheap to free now. Perhaps one could glean something from who they are buying them from? The best source for Treasury bonds is from the Treasury Department auction, they sell a lot of them every week.

The Fed is instead buying them on the open market with the intention of paying more than the current price to “lower“ interest. The interest rate is the inverse of the price since the interest was included in the original price of the bond. To pay “lower interest” the Fed has in effect give a gift to who ever sells them their bonds.

We don’t know yet who is selling their bonds. Someone cynical might assume the big Wall Street banks are the beneficiaries. How about rich people? The Bush family has much of its fortune in Treasury bonds. Then there’s China with 900 billion (they have been quietly selling for sometime) Japan has a similar amount as do the Arab sovereign wealth funds.

It’s possible the Fed is simply doing its job to protect the money supply by heading off a massive dumping of US debt that would put us a Greek like condition of soaring interest rates. You can bet what they’re not trying to do is create jobs. They are trying to keep the investor class from finding out they are holding a lot of worthless paper.

With US having been turned into a third world country that produces nothing and sells its resources to maintain the lavish lifestyle of the 1% at the top, the “full faith and credit” of the United States of America isn’t worth what it used to be. “In God we Trust” on the money is now a poignant reminder that should read, “your reward will be in heaven” because they won’t cash your check here.  


Thursday, November 18, 2010

Today's color code is Blue, very Blue

Unemployment claims were up again last week. The Republicans had claimed that business would go on a hiring spree as soon as Nancy Pelosi’s reign of terror was ended in the House. The Republicans did keep one of their campaign promises today as they killed the Federal extensions to unemployment compensation.

Some four million people will lose benefits at the end of November and many will likely be homeless in time for Christmas. Who would Jesus kick to the curb? The poor and the sick according to the GOP, that would be God’s Own Party to the likes of you. The bill the Democrats put forward to extend coverage for another three months would have cost 12.5 billion but the Republicans blocked the bill as being unpaid for.  The Democrats call this an emergency that doesn’t require an offset of other spending. The Republicans see crushing unemployment as normal, funding tax cuts for billionaires is an emergency that doesn’t need to be paid for, ever.

In order to get the needed 67 votes to ratify the new START treaty with the Russians, President Obama has offered to spend $80 billion on upgrading nuclear warheads. Senator Kyl of AZ is holding up the treaty as he would like to earmark another 8 billion for his cronies and none of this needs to be paid for. This warhead budget of 88 billion would be enough to extend unemployment coverage for almost two years.

By the way this amount is just for the warheads and the labs that oversee the contractors who do the work at a huge profit. Obama’s proposal doesn’t include anything for delivery systems. Submarines, ICBMs, B1 bombers and things they don’t tell us about like suitcase bombs.

The new START treaty also allows for ICBMs to be converted to carry a variety of “conventional” warheads. This new class of warheads would reportedly include kinetic weapons. These would be super bunker busters that wouldn’t even carry explosives but would be like a giant anti tank shell slamming into its target. Traveling at such incredible speed that the kinetic energy released would cut through the target like a plasma laser.

The shock wave and EM pulse produced by such a high energy impact would in theory destroy targets at considerable depth. You wouldn’t want to be down wind of such a strike however as the plume of vaporized material would be quite deadly. Like a DU tank shell but on a much bigger scale.  

The Republicans will counter that this expenditure will “create” jobs (but, but the government doesn’t create jobs). In fact in this case the government won’t really be creating jobs as the work has little or no civilian application and is kept secret anyway. The warheads themselves will sit around for decades so a handful of security jobs will be created but the “product” itself will never produce anything of value.

Speaking of security jobs, Rep. John Mica (R-FL) the soon to be Chairman of the Transportation and Infrastructure Committee has sent a letter to 150 airports suggesting that this would be a good time to replace their TSA employees with private contractors. This has reportedly received wide acceptance since with out Congressional oversight there will be none of that big government intrusion into airport security. We will soon be able to go back to the good old days of 9-10. Or the morning of 9-11 to be more specific.

My color code alternates between a depressed blue and boiling mad red.  www.prairie2.com

Wednesday, November 17, 2010

Why didn't I think of that?

Consumer prices excluding food and fuel were flat for the third straight month. And on a yearly basis this so-called core inflation fell to 0.6% and this the lowest rate since records began in 1957. Indeed it would be safe to say we haven’t seen anything like this since at least 1937. That was the last year that the Republicans really screwed up the economy by intimidating FDR into briefly curtailing New Deal spending.

The New Deal was so successful that it has taken them until now to cripple the economy to the point that we are again on the edge of complete collapse.
Republicans have always portrayed FDR’s programs as just a welfare state giveaway, counting on the fact that few Americans are concerned with history.
In fact there was so much infrastructure built, so much development done and so many reforms put in place that you can’t find a place to stand in the US where you can’t see its effects.

Everything that Americans take for granted as their birthright comes directly from the work done then. Roads, dams, airports, bridges, electricity, safe water, forests, parks, on and on. Even things that have been rebuilt are still built on the foundations laid then and it would be safe to say would not exist now. The very soil that feeds us was saved by New Deal programs.

The Dust Bowl was Republican policy writ large. Desertification of most of the heartland of the US could easily have come to pass without “big government” intervention. Congress was finally moved to pass the required legislation when the noon day sun was obscured by a dust cloud over Washington DC.

The Republicans are at it again with Sarah Palin twittering about monetary policy. The talking point is that gas and food are “way up” so the government is lying about inflation. In fact gas is not up compared to the recent past and food is up only modestly. They have a lot of nerve anyway since gas and food are hard for the tea baggers to afford as a result of policies Republicans have been pushing for thirty years.

The truth is that what the Fed is doing is not good economic policy but it’s the only oar we have in the water. And they may only be postponing the inevitable by a short time. The reforms necessary are not even being talked about by any serious people. The serious people are all talking about austerity, that would be austerity for you and not for them.

Erskine Bowles, the nominal Democrat on the deficit commission stated today that we must cut spending as we can’t balance the budget just by raising taxes. Erskine said in a tv interview, that “We’d have to raise the top marginal tax rate to 80%” .  BINGO! Roll back the Reagan tax cuts. Why didn’t I think of that? I guess because I’m not a rich guy working for really rich guys. Oh wait, he said we can't do that. Bummer.

Rand Paul said something out loud that should clue you in on the new normal. “We all either work for rich people, or we sell stuff to rich people. So just punishing rich people is as bad for the economy as punishing anyone.” Lately he’s claimed there are no rich people or poor people that we are all interconnected and are just the same. I think that last one proves he hasn’t given up smoking from the “aqua Buddha” pipe.  www.prairie2.com

Tuesday, November 16, 2010

They grow 'em big in Texas

The Dow was down for the seventh straight day losing a month of gains and is flirting with 11,000 again. This comes as Asian countries are signaling that they will deal with the Fed’s policy of printing money by throttling back on growth to control inflation. Markets continue to fall including non food commodities such as gold which has lost $80 from its high and the USD continues to strengthen. All of this exactly the opposite of what should happen with the Fed printing new money now expected to exceed one trillion by mid-summer.

The main reason the USD is up on the Euro again today is that the debt woes in Ireland and Greece are again in the news. It turns out Greece has a lot more debt than they have been letting on, so bailing them out is becoming problematic and Germany and Austria are starting to balk. Ireland got in this predicament by bailing out three large banks at taxpayer expense and it too may not be able to survive without Europe’s (largely Germany’s) help even though they continue to deny needing help.

The rightwing trolls like to claim Europe’s debt crisis is a failure of socialism and the US is going down the same path. In fact the similarities come not from socialist parts of Europe that are doing very well thank you, but come from the US in the form of crony capitalism with Wall Street banks in the thick of it. The US could go down the same path but only if we allow ourselves to be led down the that garden path by the neo-feudalists.

We are bombarded constantly with everything but the truth about what is happening, how it came to be and why. Alternately we are told it’s the nature of economics to cycle up and down or we’re told that it’s the fault of some scapegoat or another. Even when the Wall Street bankers are mentioned it’s just that they are a little bit greedy and not that they are completely to blame for the mess we are in and why we stay here. More accurately it’s not the bankers but the handful of billionaires that give them their marching orders.

None of what they have done would have been possible without the decriminalization these activities by the Republicans and a smattering of Democrats who all were corrupted by money. People who act independently end up like Bernie Madoff. If you want to retire to a beach house you only commit the crimes approved of by your superiors in the crime family.

Paul Krugman brought up a bit of history in his blog that I had forgotten. Half of the S&L bailout taxpayer costs from back during Bush the elder’s reign came just from the state of Texas. They grow their crony capitalists big in Texas. www.prairie2.com

Monday, November 15, 2010

Time to move to high ground

There must be some real possibility that the new round of Quantitative Easing by the Federal Reserve will in fact achieve a resounding success. The proof of this is the open letter to Ben Bernanke from Republican luminaries demanding that he cease and desist immediately. Signers include such scholars of economics like Bill Krystal and Sarah Palin, Krystal has never been right on any question of importance in his entire career and Palin has never met a question of importance that she understood.

They also trotted out a few conservatives with real economics degrees to sign the letter as well. The small problem there is that until the minute they signed this manifesto they had built there entire professional careers on premise that the Fed should print money and give it to rich people.  My opinion of regulating an economy by using monetary policy alone is like steering your ship by firing broadsides. It can make things happen but the neighbors don’t like it.

The Obama Administration wasn’t happy with former Fed Chairman Alan Greenspan announcing to the press during the G-20 meeting that the US was devaluing its currency by printing money. Greenspan did during his career regularly fire all guns at once but only when they were aimed at the middle class and the poor. He bragged that the most important aspect of his job was to “maintain a high enough level of worker insecurity to discourage employees from demanding pay raises and benefit increases." He saw this as controlling “wage inflation”.

What he really accomplished was to create a new normal where the middle class holds no wealth but have become corporate serfs with ever increasing debt burdens. The bottom eighty percent holds only 7% of US wealth. Of course a big slice of US wealth isn’t even held by anyone in the US anymore as selling off American assets has been a cash cow for Republican luminaries like Mitt Romney. This gutting of American infrastructure also created trillions in worthless corporate junk bonds that will start coming due in a big way in 2012. (there’s a glyph for this in the Mayan language)

So the problem is that despite what Alan Greenspan and most of the conservative economists have been saying for the last thirty years, you simply can’t have a healthy economy while declining wages reduce the demand for goods to less than the supply of goods. Their solution for this was to replace low wages with debt to increase demand and use up the surplus supply that way.

It’s impossible to continue to do this of course and now consumer debt is shrinking rapidly. If the demand is not replaced by the injection of money into circulation than the whole system collapses. But the way the Fed is putting money into circulation is by giving it to the people at the top. These people do provide a disproportionate percentage of demand, but they don’t really need the money. They aren’t as likely to spend it as say the four million people about to lose unemployment benefits or the 44 million people who could lose food stamps under Speaker Boner. Nor are they going to expand given more money as supply side economics would predict since they are already operating at less than 80% of capacity and are increasing profits by cutting wages (and hence demand so there is even less need to expand).

So why are the Republicans opposing the Fed action? Because all Government is bad and trying to fix problems is bad, let the natural rule. Of course Republicans have never lived by the natural order, they always make sure there are rules that favor them over us common folk, (that’s just the natural order of Republicans).  Here comes new monetary policy, time to move inland. Always store your canned goods on high ground.   www.prairie2.com

Friday, November 12, 2010

The mold speaks

Treasury bonds fell like a rock today despite the Fed buying $7.3B in bonds and in fact investors were selling everything in all markets and prices fell as the dollar strengthened against the Euro. This is reported in scary terms like the Fed is ineffectual but its too early to tell. The whole purpose is to shake money loose that is sitting in corporate money bins but the sell off today did just the opposite as investors were selling and staying in cash.

If selling continues the risk increases that deflation will set in and panic selling would drive down prices of everything. Deflation makes repaying debt impossible and is what made the last Great Depression so difficult to overcome. Lower prices sound great but deflation drives income down even faster than prices. People with cash assume they can make a killing like the people who are buying McMansions for 30 cents on the dollar. But if prices don’t rebound your investment becomes just as worthless as it was for the guy who paid the original price and lost it when his income dried up.

The Wall Street bankers and corporate predators however will buy assets that make money in themselves. This works especially well if you can create yourself a monopoly and then you don’t have to compete on price anymore. That’s why anybody who thinks deflation is going to be a good deal is kidding themselves. You’ll find your income is down but the cost of essentials will continue to go up driving down your standard of living, assuming you still have a job.

I’m personally hoping the Fed is able to make this work but I’m not confident. Guiding an economy with monetary policy is like steering a ship by firing broadsides. It can work but it raises hell with your port city.

The corporate media is painting Obama’s trip to the G-20 as a complete failure but Obama can’t do miracles. This same corporate media spread the lies that allowed the dismantling of  Alexander Hamilton’s manufacturing and trade policies after 200 years of incredible success. Now they are cheerleading for the dismantling of the New Deal on the pretense that it is a failure after 70 years of success.

The New Deal is only in trouble because we don’t make anything anymore and they all know this. That’s why they get seven figure salaries so they won’t be tempted to start telling the truth. They can afford their gated community, private schools, gold standard health care and so on. They are living the new American dream to be the mold living on the rotting corpse of democracy.

Thursday, November 11, 2010

Hold on to your rubber duckie

It was bad news for President Obama as he emerged from a personal meeting with the President of South Korea without the trade deal he had been touting all summer as a significant step toward economic recovery. The good news for the US is that he failed to get an update to the 2007 Bush agreement that has not been approved by Congress. The deal was supposed to increase exports of US cars and beef but even Ford Motor Company was running full page ads opposing it. The only people in favor of the deal described as the biggest trade deal since NAFTA is the US Chamber of Commerce and they don’t represent US businesses.

The corporate media is playing up Obama’s loss of power to the Republicans as the reason Korea wouldn’t make a deal. The reality is that Obama has little to offer them. The current arrangement allows Korea to sell as many cars in the US as they can make and basically keep US cars out and they can buy all the beef they want. The real problem for the Koreans is the weakening USD and the fact that China continues to tie the renminbi to the US currency. The falling Chinese Yuan is the big problem since they need to compete with them (the US doesn’t export anything)

This problem isn’t confined to Korea of course with countries that are major trading partners with China like Brazil find they are a huge disadvantage. The  renminbi has dropped 60% compared to the Brazilian real and it makes it very difficult for their manufactures to compete with China even in Brazil.

The World Bank is making no secret of their intention to create a new international currency backed by a large gold component. This would mean the end of the USD as the reserve currency of the world and this might be a good thing except that some people are pointing out that this could easily lead to the end of US sovereignty. The reason for this is that we are completely dependent on imports for our very existence and without the ability to create our own money we would become serfs to the people who do control the money. Currently we are at least peasants with some rights, serfs have none and without a sovereign currency we would only sink ever lower.

The folks in control of the Deficit Commission are the very people who have no problem with the loss of US sovereignty since they see themselves as potential feudal barons. It’s time for Obama to show some spine if he want’s to be anything but a novelty footnote in US history. Perhaps it was a deliberate strategy that he didn’t give Korea what they wanted (whatever that was). Obama has hinted ever since he created the Deficit Commission that he was calling the bluff of the so-called deficit hawks by doing so. This could explain loading the commission with all the right wing crazies who really believe in drowning government in the bath tub. The American people maybe forced to face reality before it’s too late to stop the Republicans after all.  www.prairie2.com

Wednesday, November 10, 2010

A good investment if you can keep from eating them

The first broadside came from the deficit commission came tearing through the aging bulwarks of the American dream. The expected cuts to Social Security and Medicare were there along with a number of other cuts to add window dressing like cuts to the defense budget. But the big guns are the cap on Federal revenue at 21% of GDP and slashing the top marginal tax rate to 23%.

Capping revenue is of course intended to be a self reinforcing death spiral as GDP will continue to shrink with the continuation of the insane rightwing  policies that already have us by the throat. The reason we have the deficits we have now is that GDP has not grown adequately in many years since we no longer produce anything, indeed a big chunk of the GDP comes from Wall Street shuffling tons of paper so that they can skim off the top instead of producing anything of value. They don’t create wealth, they merely steal it from those who do.

Of course the 4 trillion or so that Bush gave away to his rich cronies had something to do with it too. In fact for the top income bracket, who now average 16% in income tax, this group would find the 23% top rate proposed by the (increase the) deficit commission as an increase in taxes if they ever would actually pay that.  Thanks to Bush’s slashing of the tax on capital gains to 15% and loopholes that allow any rich guy to take his salary as capital gains without producing any real increase in capital. The Republicans including the tea baggers want to cut capital gains tax to zero.

The Masters of the Universe at the Wall Street banks have announced that for practical purposes they will simply ignore the new regulations prohibiting proprietary trading. This is the only division in these banks that “makes” money so there is no way they are giving that up. Their lending operations are hemorrhaging hundreds of billions from all the bad loans they created to provide a basis for securitized debt and derivative trading. They would all fold if they had to stand on that alone. They are really zombies, long dead but still staggering about and producing 144 billion in bonuses for their masters (that would be Masters of the Universe to you).

The Federal Reserve has already ratcheted up its money printing operation, originally slated to be 90 billion a month is now going to be 110 billion a month for the first two months. Billed as reducing credit costs for consumers and business to stimulate the economy. Mortgage rates are already at an all time low but try getting a loan as home price continue to fall and credit card companies are not likely to cut interest rates because they are monopolies and don’t need to.

Corporate bonds are already at less than one percent and they are just sitting on the 1.7 trillion they have now. Lending them more at an even lower rate is going to make them invest. They are operating at 80% capacity and have no incentive to expand as long as they can buy cheap from China.

Gold fell back yesterday but is back up over $1400 as the USD is alternately seen a safe haven compared to Euros and as a sucker bet with the Fed printing money. GDP is about 1.2 Trillion per month and the Fed will print 0.11 trillion a month so inflation of the money supply is not going to happen quickly. How ever the only place for the money to go is into commodities so expect your canned goods to appreciate dramatically. That is if you can just keep from eating them.  www.prairie2.com

Tuesday, November 9, 2010

Buy egg futures

The headless chickens are in charge; the Republican flock insists that Ben Bernanke is socialist liberal fascist and is really from Kenya like his boss (no matter that the Fed Chairman doesn’t answer to the President, the Fed isn’t Federal and has no reserves). They are predicting Weimar levels of inflation and they’ve got gold to sell you for your protection (ask them why they are selling). Gold set yet another new record today at about $1410.

The bond trading chickens are trying to create a panic over the Irish debt and this is driving up the USD which is exactly the opposite of what the Fed is trying to do. A weaker USD would make imports more expensive and give a boost to domestic manufacturing (it would be nice if we had some).

The grain trading chickens are squawking about the worldwide grain shortage, of course they’re making a lot of scratch from this panic. It’s hard to grow reliable crops with the wild swings in weather due to extra 15% of moisture in the atmosphere thanks to global warming. The new Congress will outlaw global warming so we have nothing to worry about. (the sky isn’t falling, that bird just won’t show his hatching certificate)

The banks that were responsible for the bad mortgages on all the chicken coops are “co-operating” with the state attorneys general, at least that’s what the fox’s PR spokes people are saying. Handcuffs and shackles would make them even more co-operative.

All the pundits are saying Obama really laid an egg in the election. Historically, he is in far better shape than Bill Clinton after 1994 when he lost both houses of Congress. Obama is much better shape than Harry Truman after the 1946 election when he not only lost both houses but the Republicans had 2/3 majorities. Truman called them the “do nothing” Congress and they set a record for sloth and passed more bad legislation than any Congress until the Bush Administration.

The economy however doesn’t compare in Obama’s favor. Basically it’s Chicken… errr, ahh,  feathers. Truman still had the New Deal reforms in place and the Republicans were all thrown out in the election of 1948 for their attempting to nuke them. Clinton managed to ride a series of bubbles created by the Fed but had to sign away the New Deal to keep things going his way.

Obama is trying to institute modest reforms that will probably be rolled back while doing nothing meaningful to rein in Wall Street. Truman called them out like FDR had and reversed the fortunes of Democrats for the next forty six years. While the elections of 46, 94 and 2010 all have many similarities, Obama doesn’t seem to learn from history. “Give’em Hell Barry” is probably not going to be the slogan for 2012.    www.prairie2.com

Monday, November 8, 2010

They voted away the dream

You know things are getting bad when the head of the World Bank wants the world to go back on the gold standard. Robert Zoellick, World Bank president, said “leading economies should look at a modified global gold standard to guide currency movements“. Gold broke $1400/oz today and spiked to 1000 euros/oz as Mr Zoellick also questioned Ireland’s ability to pay its debts.

President Nixon in the early 70’s took the USD off the international gold standard established near the end of WWII by the Bretton Woods Accord. He had a serious problem with the debt he had run up with the Vietnam disaster and in order to inflate his way out of it, the gold standard had to go.

If we were to actually go back on a gold standard, some experts claim that the amount of USDs in circulation would require gold to be in the range of  $6000 to $10,000/oz. This is of course a totally made up number and shouldn’t be seen as a reason to dump your canned goods and buy gold from Glenn Beck. The problem is that there are way too many USDs in circulation as Wall Street has been using them to try to dominate world markets and they don’t represent our real economic needs. This needs to be resolved and simply going a gold standard wouldn’t do that.

President Obama was out courting a new girl friend over the weekend telling India that she is pretty and really deserves to be on the student council, but Obama doesn’t seem to realize the high school girls all talk in the locker room. Pakistan wasn’t at all happy with him sweet talking India and the Prom Queen China has a veto on the council so it‘s not likely to happen. He also told Japan the same thing when he was over at her house so none of girls take him seriously anymore.

Some people think that Obama is courting India by endorsing their hopeless bid for a permanent seat on the UN Security Council as a thumb in the eye to China, signaling that he sees them as the enemy and not a partner. India definitely sees China as an enemy and many there see war as inevitable. India has a much larger nuclear arsenal than China but China has eclipsed them in technology thanks to the treasonous behavior of US corporations giving the Peoples Republic all manner of strategic information.

The few things Obama has to offer India include access to US technology and advanced weapons systems (India can’t buy them from China). India in return will give more open access to India by US corporations so they can sell the stuff they make in China in India. Other than fueling an arms race that could easily lead to WWIII there is very little Obama can do for US trade given the suicidal trade policies put in place over the last forty years by Republicans. This was of course made possible by spineless Democrats that saw big business as the future and labor unions, small business and the middle class as the obsolete past.    

You can’t really blame Democratic politicians given all Reagan Democrats who saw themselves as capitalists after decades of New Deal policies had put them in squarely the middle class and then they voted like they were millionaires. Some pundits say it was a high turn out of Reagan Democrats that caused the widespread bloodletting in this election.

After coming back to the Democratic party in the last two elections they were seduced by the Tea Party’s simplistic slogans this time and again voted like they were millionaires. They really want to believe in trickle down economics, they really want to believe that will get their kids and their grandchildren out of their basement and into the middle class dream they voted away in 1980.


Friday, November 5, 2010

You took a death pledge

New unemployment claims were up sharply and have not in three years to dropped to levels where you could think jobs were being created. Yet the government survey says 151,000 jobs were created October. The apparent contradiction is accounted for by where the jobs were created, almost entirely in temp services, retail and health care. Corporations continue to pad the bottom line by firing people and replacing them with cheaper workers.

Even though overall they are hiring more people, the high unemployment rate gives corporations the leverage they need to drive down wages. The latest scam, cutting nursing home workers from $10/hour to $8 because Obamacare cut Medicare payments, this is not true of course, nursing homes continue to be highly profitable and are a growth industry.

Temp workers accounted for 35,000 new jobs mostly in October with strong demand for professionals in accounting, IT and finance. All used to be good paying middle-class jobs but no longer. Retail is hiring on stronger sales but they are up on heavy discounting and those jobs are not likely exist after inventory is sold down again after Christmas. The fundamentals of the economy are getting worse and not better.

Sale contracts for existing homes dropped in September. Foreclosure malfeasance by the banks is being suggested as the cause but taking a couple of million houses off the market should be pushing up prices but it isn’t. Four million home owners are estimated to owe twice what their homes are currently worth. A banker would walk away from an investment that bad, but a banker will spit nails at the suggestion a home owner do that. In English the word mortgage means “death pledge”, bankers take that seriously, no matter that they created the housing bubble. In bankruptcy, a rich guy can have the mortgage on his vacation bungalow or yacht reduced to the market value, not so for the middle-class homeowner, pay or die.

You can expect to find bargains at Christmas if you still have money to spend, especially on Chinese made products (the renminbi is still tied to the USD) but your canned goods and such will be going up with the weak dollar and from Wall Street using its free money from the Federal Reserve to run up the commodity markets. Obama could force commodity traders to have higher margin reserves and that would drop oil prices back down close to the cost of production that is around $30 a barrel or less.

Gold set a new record, closing in on $1400/oz and oil is edging toward $90/barrel (3 times what it should be). But Wall Street has to make money somehow, you can’t expect rich people to go out and get jobs in this economy.

Thursday, November 4, 2010

When the President of the United States was the most powerful man in the world

It’s official: the most powerful man in the world is no longer the President of the United States, that would be Hu Jintao leader of the Peoples Republic of China. At least according to Forbes and they the self appointed experts about these things. The question is whether the premier magazine of the business world is acknowledging the damage done by forty years of Republicans dominating economic and trade policy or is it just a cheap shot at Obama as we begin the 2012 campaign.  

Obama has indicated that he will completely give in to anything and everything that corporate America wants. Maintaining the Bush tax giveaway to the rich is apparently no longer a problem as long as the middle class gets a few crumbs. The US Chamber of Commerce is circulating the news that they can now work with Obama with his change of heart over expanding free trade. There are at least three agreements leftover from Bush that have been languishing on Obama‘s desk that will soon become the law of the land.

That Consumer Protection agency that you were looking forward to will be nothing but an empty shell if Republicans have their way with funding and regulation reviews by Congressional Committees. The President does have broad powers to go ahead with all manner of regulation thanks to precedents put in place during the Unitary Executive Administration of co-Presidents Bush and Cheney. Although Obama may not want to ruffle the feathers of his new “friends” in the business community.

The Federal Reserve driven market bubble took off in earnest today with the DOW hitting a new post crash high by gaining 2% to close at 11,434. The price of gold also set an all time high as the USD continues to decline with the prospect of 600 billion in new cash being put into the system. The other shoe to drop is the 3 trillion the Fed had already printed up to stimulate the economy that has been sitting around in corporate money bins. Will this money come into play or not? Hyper-inflation anyone? More likely they will continue to sit on it, bringing it out only when a killing can be made.

Some economists think the FED is being far too timid if they really want to jump start a 15 trillion dollar economy and they need to set their inflation goal much higher or the money will continue to just sit there. The big Wall Street banks and corporations are getting this money for little or nothing and have no incentive to do anything productive with it. They are just sitting around waiting for deflation to set in and then they can use all this free money to buy up the remainder of the US economy for themselves.

In the mean time they can continue to churn the markets up and down taking a piece of the action every day. Wall Street will take a record 148 billion in bonuses this year for doing nothing. Keep in mind that since they do nothing that money has to come from somewhere. The economy is a closed system, you can’t just make money, somebody has to do something productive to create wealth.

Wall Street’s preferred method is to steal it from people who have done the work. That’s why Reagan’s people invented the 401(k). All of that 148 billion plus the cost of maintaining the Wall Street ponzi scheme comes from people who have worked for generations to build wealth and it’s just disappearing right in front of them. Ironically the more wealth an American has the more likely he will vote for the people that are stealing it from him.

If Hu Jintao caught any of his people doing the things that Wall Street does, they would be shot and their organs sold. China uses its wealth to build things, we used to do that, when the President of the United States was the most powerful man in the world.  www.prairie2.com

Wednesday, November 3, 2010

The outlook is bad or worse

The markets didn’t take well to the realization that the Republicans are now in a position to completely tank the economy but the markets did recover on the announcement from the Federal Reserve that they will indeed print 600 billion in new money and hand it out free to rich people. The idea being that it will encourage investors to buy something besides US Treasury bonds because with the Fed buying them it will make them more expensive and the interest that bonds pay lower. The problem is that the interest on bonds is already less than one percent, people aren’t buying them for the high return but because they will hold their value in the face of deflation.

So the Fed has to convince everybody that we will have inflation instead of deflation otherwise the big corporations and Wall Street banks will continue to sit on all this free money. Even if they can force investors out of bonds and into equities or commodities that does nothing for the economy. Even if the middle class see their 401(k)s increase in size they aren’t seeing any income rise and so they aren’t going to spend more. The reality is that rising commodity prices don’t stimulate business, they just make fuel costs go up.

The Fed is betting that this new money in the markets will trigger an inflationary spiral and business will be forced to invest in something that will generate income and this will boost GDP. Unfortunately big business has become accustomed to making money by devouring their weaker competitors and by pushing worthless paper around. So it’s becoming doubtful they are even capable of producing any real growth anymore, we‘ll need to import that from China.

With Speaker Boner in charge of all government spending there will be no help from the government and if he doesn’t raise the debt ceiling as one of his first acts then there will be a government shut down to further cripple the economy. Of course the Republicans aren’t really concerned with deficits as they know the ignorant voters will blame Obama no matter what.

When President Clinton began running surpluses for the first time in US history, the 3/4 of Republicans polled believed Clinton was still increasing the deficit or at best holding even. Sadly, fully a third of Democrats at the time thought that too. The biggest talking points of yesterday’s election was the record 1.4 trillion deficit for budget year 2009 that they blamed on Obama not even considering the date. You see fiscal year 2009 started in October 2008 and Obama wasn’t even elected yet.

So we find ourselves in a position where the only thing between us and the depression to end all depressions and perhaps civilization itself is a bunch of rich bankers that are printing money and giving it to themselves. We either get inflation and no growth or we get deflation and a plunge off the cliff. The outlook is indeed bleak.     www.prairie2.com

Monday, November 1, 2010

Living and dying in the Company Town

If the Republicans prevail tomorrow we will see the solidification of an entirely different America. Quantitative Easing by the Federal Reserve (fancy talk for printing money and giving it free to rich people) will pump still more trillions of cash into corporate coffers and the vaults of Wall Street banks. And if you use Japan’s recent history as a model, that’s where it will sit and not fueling economic recovery.

Of course history rarely follows exactly the same path, so-called turning points are usually marked by great leadership, good or evil, FDR or Hitler. If Obama and the majority Democrats (oops) were to resurrect the New Deal then QE could work if coupled with trade and manufacturing policies to rebuild America. There is an incredible pent up demand, it could easily be boom times again.

Speaker Boner however will never allow any such thing to happen. Slashing the budget and demands for austerity for the middle-class will result in Obama accepting crusts of bread as the New Normal for America. Even if the Republicans were to give in on the Bush tax cuts for the rich it won’t begin to make up for the damage Reaganomics has done and the country will continue to decline.

2011 will be the year of municipal bankruptcies and the elimination of public sector unions and their pensions. This will push down local tax revenue and property values still further and put more retirees onto welfare even as public assistance programs are de-funded. This will also push the unemployment rate still higher even as the millions already unemployed will lose benefits under Speaker Boner and the Republicans.

There is one remaining revenue source that was created during the Bush Administration and this will be put into high gear in the new austere America, the wholesale privatization of the commons. Those trillions in QE that Wall Street is sitting on will be translated into budget windfalls for state and municipal governments.

In the long run of course the public works that are sold for pennies on the dollar will need to rented back again from the new slum lords at what ever rate the corporate monopoly deems appropriate. The concept of the company town is going to take on a whole new meaning.

Friday, October 29, 2010

Men in tights

New unemployment claims were down last week to one of the lowest numbers we’ve seen in three years and businesses added 64,000 new jobs in September. Unfortunately these new claims are still double what we should be seeing to  indicate growth as firms continue to fire full-time people to convert to low paid contract labor. And the new jobs total is half what we need to keep up just with population growth to say nothing of recovery.

The third quarter GDP grew by 2% which is anemic when you again consider population growth and the need to put millions of people back to work. This number is also subject to two revisions and maybe worse in the end. The growth is based largely on increased inventory and some added consumer spending as people rush to use the energy tax credit before it expires.

Inventory buildup is not a good thing by any measure since all the growth in the past year has been based on this and any significant downturn would be multiplied as businesses will layoff an even bigger number of employees than they would have ordinarily in order to shed inventory. This also sets the economy up for a deflation death spiral as inventory dumping drives down prices on top of skyrocketing unemployment.

The lack luster economic numbers have increased calls for the Federal Reserve to start printing money in order to inflate the markets.  Those already holding trillions in cash from the last Fed printing are crying foul since they were banking on deflation to make asset prices fall to pennies on the dollar. Their plan is to capture the last of the middle class wealth and put it in the hands of those who truly deserve it, you know the people who are already obscenely rich.

Japan and China are still going at it hammer and tongs over rare earth metals or rather it’s hammer and sickle and China has both. Japan can do little but pray for a miracle. China has 97% of the supply and Japan has only what they’ve stockpiled and there is no other source. The US of course has none but we don’t make anything anymore so that’s not such a big problem for us, except that we don’t make anything anymore so we were already sunk.

In England it’s the Sheriff of Nottingham 1, Robin’s merry men 0 with
Britain selling off half its forests by 2020. Maggie Thatcher invented privatization and of course before the Democrats took back Congress there were plans to sell off all of ours too. The commons isn’t for the commoners anymore. If the corporate media can create its desired reality, by Wednesday Speaker Boner will making plans to sell off our commons too. He will also be only two heart beats away from being President Boner, just saying accidents happen.

The US has fallen to tenth place in the prosperity index with the democratic socialist countries dominating the list. This measures prosperity across the entire population, if you only count the rich we’re right up there at the top with places like Singapore and Dubai in terms of “prosperity”. Of course you can always start wearing green tights and living off the deer in the Royal, I mean Corporate Forrest, at least until the Sheriff gets you.  www.prairie2.com

Saturday, October 23, 2010

Whew! that was close!

"GYEONGJU, South Korea (AP) -- Global finance leaders, under pressure to display unselfish policies, agreed Saturday to boost cooperation on rebalancing the world economy to help defuse tensions that had sparked fears of trade conflicts."

Wouldn't it be nice if they actually meant it or maybe they are scared enough to do something? No, probably not, they all live in gated compounds, already travel with armed security in armored limos and fly on private jets. The riots will need to get pretty bad before they will start to worry.

Friday, October 22, 2010

Fighting the fire is not a problem, we have plenty of gasoline

The G-20 get together in South Korea has produced an interesting letter circulated by US Treasury Secretary Tim Geithner where he proposes that 20 finance ministers should commit their nations to policies and actions that limit trade surpluses and trade deficits. The German representative reacted rather negatively implying that Germany wasn’t doing anything wrong, his argument is that Berlin’s surpluses were unrelated to the Euro to dollar disparity and were simply a sign of their trading strength. It was the US after all in the person of Richard Nixon who decided that currencies should float instead of being tied to a gold standard. He had that Vietnam War to pay for and inflation was just the ticket to reduce the debt.

In fact Germany has acquired a large chunk of the US over the last 40 years thanks to the “strong“ dollar policy (when they say strong, that‘s not what they really mean). Everything from US mining and manufacturing to publishing and insurance companies now belongs to the Reich land. In fact some of the best jobs left in America are at German firms. They treat Americans like crap compared to what they are required to do for workers in Germany but it’s a huge improvement over what the socio-paths in charge of US companies inflict on their workers.

In Korea, it’s assumed that Geithner is really talking about the Chinese renminbi and in fact China is eating everybody’s lunch. Japan’s finance minister Yoshihiko Noda, told reporters that numerical targets would be difficult to implement. Japan like Germany has benefited greatly from the Dollar/yen inequity, using it to great advantage to grab off huge swathes of the US economy and American hard assets.

Now however the Chinese Dragon has Japan by the leg and is chewing it off. Still Japan doesn’t want to offend China lest they cut off critical rare earth metals of which China controls 97% of the entire world’s supply. Japan is an isolated, over populated, under resourced string of islands and depends on its high tech manufacturing to survive. In a pinch the US could operate as an independent, self-sufficient, albeit 3rd world country, Japan would starve. No plan to oppose China will cross Japan’s lips lest the Dragon swallow them whole.

The central bankers like the Federal Reserve are also at the meetings in Korea and Bernanke’s threat or promise (depending on your point of view) to start printing money again has to weigh on everyone’s mind. It’s getting to the point where the US simply isn’t a major player in the world’s economy anymore but still controls the world’s reserve currency.

The M3 or total money supply (the Fed stopped publishing it in 2006) and it is now estimated to have fallen like a rock since 2008 despite the wanton printing of USDs but has again started to rise in recent months. The problem is that since the Masters of the Universe on Wall Street have been pumping out all manner of USD denominated garbage, the whole world is awash in dollars.

It was in fact these dollar based “products” and their derivatives that created the crash of ‘08 and not the small number of home loans given to jobless brown people; no matter what the right-wingers and the corporate media would have you believe. In fact according to the US Comptroller of the Currency: the top five US banks who account for almost all derivatives in the US banking system have sharply increased the amount they hold since the crash.

Now the US would like the rest of the developed nations to impose monetary policy to achieve balanced trade and/or the Fed will print another trillion dollars (still not clear if it‘s a threat or promise). This sort of thing used to be done with sensible tariffs and banking regulation. At least they’ve realized they have to do something, maybe after they’ve used up the gasoline they’ll try something else to fight the fire.  www.prairie2.com