Friday, July 16, 2010

Down at the ATM

The DOW dropped like a rock today as investors got a look at the earnings of closely watched companies. While they were in general making money, the profits could be largely chalked up to cost cutting. The thing about cost cutting, is it means they aren’t planning on the business they lost coming back and that goes for those pesky jobs people on main street whining about not having.

Wholesale prices fell last month for no good reason and that brings on that chill of deflation. Once that starts to be seen as inevitable it pushes all business decisions in one direction. Unload inventory, cut expenses, layoff everybody but the executive suite and hoard cash so as to make the big killing on the other side, that is if there is an other side this time.

The corporate media is talking up the “failure” of the Obama stimulus package, they are careful to not interview any legitimate economists as they would point out this is not true. The problem is that a third of the stimulus went for tax cuts. The best that will do is 1.10 return when it goes to low income people who will spend most of it.

But a large portion went to the upper middle class to offset the Alternative Minimum Tax created when LBJ cut the top marginal tax rate from 92% to 71%. The AMT was intended to make sure millionaires paid a decent amount of tax but has never been adjusted for inflation and today’s rich scoff at a 100,000 dollar income and a measly million in assets is nothing. You need to be a centi-millionaire to even get into the second tier country clubs. Never fixing the AMT allowed Republicans to claim every year that they were fighting for tax cuts. So most of the tax cut part of the “stimulus” only returned 60 cents on the dollar. Tax cuts to billionaires that the Republicans say will stimulate the economy only return 20 cents the dollar.

Another third went to save state and municipal jobs since local governments revenue collapsed and they are mostly unwilling to tax the rich or corporations for fear they leave and take the jobs with them. This was another of Reagan’s “reforms” that made job migration not only possible but a basic tenet of “competition” also known as the race to the bottom. The rest of the stimulus worked just fine, the numbers are out, imports from China are up 44% year to year.

Goldman Sachs dodged the bullet paying only 550 million for defrauding its own customers of a cool billion or more on a package of mortgage slices they knew would fail. Only 200 million will go to investors which doesn’t mean Goldman gets to make money on the deal. This is actually triple damages for Goldman‘s profit on the deal plus the fine to the government . The investor who made a billion on the fraud gets to keep the money since he was up front about what he was doing, it was Goldman who lied to its own investors but nobody goes to prison so it’s really is just a slap on the wrist.

So Goldman’s stock was up but that didn’t help the market much as bank stocks in general were down. If you are invested in Yen that did very well today as USD are becoming less palatable. Even the Euro was up with  Premier Wen Jiabao saying that China will be holding Euros in the future. China did say the other day they won’t be dumping all their US Treasury bonds, for now.

Skyline of Shanghai, Peoples Republic of China today, not where Captain Kirk lives. This area was mud flats before free trade.

Thursday, July 15, 2010

The Log Has Eyes

Weekly jobless claims were down 21,000 for last week but still far too high to indicate growth and the number is wrong anyway. Any week with a Monday holiday shows a drop like this. The number to look at is continuing claims which is up a full quarter million and this doesn’t allow for people falling off the back end of the compilation. The Bureau of Labor Statistics reduces the number of unemployed workers because they no longer count them as human beings simply because they have gone past 99 weeks without finding a job. They are forgotten ghosts and they should “keep going, there are no jobs for you here“.

Even if you have a job, things are probably not that good with the average worker only working 34 hours per week, your wages are falling and likely you are being “encouraged” to do work off the clock as well. The job growth touted last month was weighted heavily with service workers and more than half of those were temps.

Indeed factory output indicators are showing a serious slow down taking hold and capacity was only at 74% as it was, the up-tick in business over the past year was almost entirely the rebuilding of inventory depleted early in the crash. Cash flush companies have sought to reduce their cash holdings as having too much money can make you the target of a takeover bid by the bigger fish in the pond. But inventory expansion cannot continue and the market for goods will start contracting rapidly triggering more layoffs. What with millions of people suddenly running out of unemployment benefits and the certainty of massive state and local government layoffs then retail sales will certainly start to suffer eliminating retail jobs as well.

Signs are that retail sales are already starting to plummet even if the month was only down a half percent. While some big retailers showed gains last month this was mostly due to them eating their smaller competitors alive. If credit should tighten as it did in 2008 you will have a sudden spate of retailer bankruptcies.

Deflation is what is behind the eyes of the crocodile whose toothy head is just below the surface of the economy. Producers have lately been unable raise prices and manufacturing is becoming more and more sluggish so panic selling in a market with no buyers could take the economy for a death roll in the swamp of Great Depression. Don’t look behind you, that log is watching you…

Wednesday, July 14, 2010

Boot straps

The 690 small banks that took bailout money are even worse off today than when they took the money, according to a report from the Congressional Oversight Panel created to monitor TARP. This was the $700 billion financial bailout pushed through Congress by Bush under threat of martial law. One in every seven small banks has failed to pay a quarterly dividend when due to the Treasury Department. They simply can't afford the payments, which will nearly double in 2013.

"There is very little evidence to suggest that the (bailouts) led small banks to increase lending," the report says. Indeed they can’t find many commercial property borrowers who don’t already have loans that are under water by 50% or more.

“But the bailouts’ costs are troubling because of small banks’ crucial role in lending to small businesses and supporting economic recovery“, said Elizabeth Warren, who chairs the panel. She doesn’t quite get it, that without a demand in the market for goods and services there isn’t any need for bank loans and existing loans will fail, but trickle down has been the law for thirty years now so who can blame her.

The report concludes that the biggest banks will get even bigger, a large number of bailed-out banks could collapse or consolidate because they can't afford their obligations to taxpayers. That would leave the handful of biggest banks with an even larger share of the banking system. In fact the FDIC seizes banks every week and most are sold in sweet heart deals to larger banks. This will of course make the ‘too big to fail’ banks grow even bigger.

The ’too big’ banks have done just fine, “paying back” their TARP money since they have access to trillions of Fed money to fuel their proprietary trading operations and new accounting rules that value their assets in a manner that would make Enron executives blush. They are really just zombie banks that should be seized themselves but that might lead to questions about them continuing to pay dividends to all the rich Republicans who hold their bonds, let alone the hundreds of billions in executive compensation and millions in campaign contributions (you know, the really important stuff that makes the economy go, the economy for bank executives and the politicians they own).

The small banks in Gulf states were only starting to recover from hurricane losses and now face huge potential losses from the BP disaster as the cascade of business failures sets in. Normally disaster areas boom after a couple of years as Federal money stimulates the local economy in classic Keynesian fashion, this didn‘t happen after Katrina.

Conservatives say that locals will pull themselves up by their own boot straps if the Feds would just leave them alone. Bush did leave them alone by diverting most of the relief money to his rich cronies and the local economy paid the price (no boots, no bootstraps). The 20 billion dollar fund that Obama has secured for the BP disaster could have a real effect if distributed fast enough. The master of the fund says he will give everybody who can prove a loss six months worth of relief up front and if the rules are liberal enough this could work. The corporate media is now circulating the claim that if you take the money that you can’t sue, which is completely false.

But if the money falls short of what is needed it will just slow the death spiral of the economy for a short time and as the other stimulus money runs out things will start to collapse faster again. Tomorrow will bring some new jobs numbers and they aren’t likely to be good.

Tuesday, July 13, 2010

the efficiency of privatization or how to cook lamb

The trade deficit jumped up more than expected in May increasing by a full 5% and this signals a lack of real recovery in the US economy. The trade deficit should have eased with the drop in the price of oil and the opposite trend dovetails with the lack of job creation to indicate that economy is headed for the double dip at full speed.

Corporations are flush with cash having a cool trillion laying around with nothing to spend it on but they have little incentive to invest. “See, Obama is keeping jobs from being created because he is anti-business”. While it’s true the multi-national companies can pump unlimited pollution into the air and water in third world countries and pay slave wages, (you know Libertarian paradise), these countries don‘t have much market for goods either so the goods come to the US and create a trade deficit. Europe’s standards for pollution are much stricter than in US and the pay and benefits for workers are much better and yet their manufacturing hasn’t disappeared.

Contrary to the propaganda coming from the right neither the Obama Administration nor the US in general is hostile to business, nor is it true they are being taxed to death (remember they aren‘t short of cash and CEO pay isn‘t suffering either). The right likes to claim there is a “high” corporate tax rate in the US but of the forty industrialized countries, the United States collects the least corporate taxes and in fact 2/3 of corporations operating in the US pay zero taxes. The corporations share of  Federal tax collections have gone from 45% in the fifties to down around 6% today.

Many corporations also gain windfalls from various levels of government for “creating” jobs (government doesn’t create jobs you know) or they get money for things like oil “depletion” (where we pay them for having used up our resources) and that makes corporations negative tax payers, but don’t call this “welfare”, that’s what poor people get.

That would be the people who work for these corporations but still need Medicaid, all sorts of other government aid and strain the food banks. Homeless shelters are seeing wintertime numbers in July this year and more than half of the homeless are families. Many of them are working but cannot make ends meet. Plus you have forty people per minute (yes, per minute) that are running out of unemployment benefits and could be looking for a cot in an already full shelter in the very near future.

The corporate wage slaves lucky enough to still have a job pay plenty of taxes though with Reagan having doubled the payroll tax and all Federal excise taxes (many of which are not disclosed but are concealed by law when you buy something). Sales taxes have doubled or even tripled since Reagan began his war on America. So have user fees and fines as cities seek to balance their budgets with red light cameras and reduced public services.

Then you have the looting of the commons as all manner of public works are being sold off for pennies on the dollar to balance local budgets (you can‘t tax the rich or they‘ll leave and take all the jobs with them). Formally public property is then leased back at ever increasing rates so the public pays to use the government infrastructure they have already paid for and they keep paying for it over and over again. The geniuses in charge of Arizona have sold the state office buildings including the capitol and then rent them from a trans-national corporation and this is going on everywhere (conservatives call this the efficiency of privatization, it makes money efficiently for the rich).

The wealth of the middle-class is evaporating too, and their children will not be better off than their parents were for the first time in American history. This is not a natural occurrence or the even the failure of the capitalist system. It is the result of the capture of the entire economic and political system by a relative handful of very rich people. The average American has fallen for the lie that capitalism is a natural system that doesn’t need rules or that the very rich should run things because they have our interests at heart. Americans are a flock of sheep who have turned their pasture over to a pack of wolves in pin stripe suits sporting flag pins.

Sunday, July 11, 2010

Heck of a job Brownie!

The Bush crony in charge of the Social Security Commission Michael J. Astrue, who still has 3½ years left on his term and is difficult to fire, is trying to pressure the chief actuary Stephen C. Goss a career civil servant. The Republicans want him to produce numbers favoring their efforts in Congress to cripple Social Security with the intention of doing away with it or at least funneling the money to Wall Street where it will never be seen again.

Republicans are trying to paint Goss as over reaching his authority because he is speaking publicly about the condition of the Social Security system since it runs counter to their propaganda campaign to convince people the system is broken. Astrue’s attempts to gag Goss for the past two years have met with resistance and Democrats are now mounting an effort to see to it that Goss is not fired or demoted.

This is a repeat of the Republicans’ gagging the actuary for the Medicare system when they engineered the trillion dollar giveaway to the drug companies in 2004. The Bush crime family had threatened to fire him and worse if he responded to Democrats’ requests to know what that boon doggle would cost. His estimates proved to be far lower than the reality as big pharma moved to drastically raise prices since it was enshrined in law that Medicare could not negotiate prices.

This is just one of the innumerable efforts of imbedded Republicans to sabotage the government and rob the treasury in any way that they can. "Heck of a job Brownie!"