Tuesday, June 1, 2010

The tide is coming, not turning

Tax collections to date are down 6% compared to last year which means wages are going down. Any increase in economic activity can be attributed to inventory restocking and not to growth over last year and we’re not even holding our own. Make no mistake US corporations have record cash on hand and are making big profits but have no interest in aiding the recovery from the disaster they caused. They are taking advantage of the situation to drive down wages and further starve government.

46% of Americans polled feel stress from household debt even though the amount of debt has decreased overall for the first time in decades. The Senate left town without taking up the unemployment extension that the House had passed by a one vote margin. This failure to act will shortly start adding hundreds of thousands of people a week to those no longer getting checks.

The NYSE went down today, oil stocks were down but the big banks went way down as action by international regulators is seeming more likely and is being pushed by the Bank of International Settlements (BIS). It was the BIS that pulled the plug in 2008 when they realized the banks couldn’t cover the quadrillion USD in derivatives they had created.

The Euro hit four year lows today and bets (more of those derivatives) against Euro bonds set new records. China has said they will continue to hold Euro bonds but don’t expect Germany’s efforts to ban naked short selling to have any effect without the countries like the US doing so. Republicans and enough complicit Democrats have made sure it’s piracy as usual by stripping out any reference to it in the financial reform bill.

Deflation is starting to be a concern in Europe as most countries are experiencing only very low inflation rates while Ireland had prices fall significantly in April. Ireland was the first of the PIGS countries to get into trouble after the banking collapse. After transnational corporations deserted the Celtic lion for cheap labor in eastern Europe the financial services lifestyle the Irish had come to embrace ate them alive. Abandoned real-estate projects, falling prices, wide spread defaults created a new exodus of the Irish people. The better educated found jobs in Poland for the same companies at a fraction of their former wages.

Deflation is considered by most pundits to not be a concern in the US but the build up of inventories since the last dip sets up the potential of rapid price drops if corporate credit was to freeze up again. Indexes that measure how confident banks and corporations are about lending to each other by keeping track of the points spread they must pay to borrow money are trending to the bad again as they did in 2008.

While it’s impossible to predict when the double dip will come, just like the oil tide, it’s coming. www.prairie2.com

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