Friday, July 30, 2010

Obama owns the car companies and business is booming

The second quarter GDP numbers are in or rather a preliminary guess at the numbers is being widely reported. It was not a good number and worse than economists had predicted. There was growth but only from increased imports and from business buying more equipment and software. Consumer spending continues to sag with declining wages and increased job losses.

Increased business investment sounds good but they have no intention of hiring but rather they are intent on squeezing more out of their employees and they need new and different equipment to handle the increased level of imports. The only bright spot in employment is from Detroit where they have skipped the usual summer layoffs and are hiring, in fact the last time they had a year this good Bill Clinton was President. Indeed the unemployment numbers would be dismal if they didn’t have these people working to rebuild inventory.

The Republicans are still claiming Obama’s rescue of Detroit was a huge mistake since taxpayers will never see their money. The truth is that GM and even Chrysler are on track to pay back Obama’s $60B loan package provided the Republicans don’t sink the economy completely. There is a small portion of truth in the conservatives otherwise disingenuous claims as the automakers have no intention of repaying the $17 billion, no strings attached “gift” that Bush made to them on his way out the door and Obama doesn’t intend to require it of them.

Obama could in theory, as their largest stockholder, compel them to repay the gift from Bush, but Obama was forced to agree not to interfere in the car companies management by the same Republicans that will tell anybody stupid enough to listen that under Obama socialism that he “owns” the car companies.

Indeed most US companies are doing well and most are hiring but most of that hiring is going on overseas. The fact that they are doing so well has much to do with the fact that a large portion of the trade deficit is US companies doing business with their own off shore divisions and thereby off-shoring their profits and dodging US taxes.

The Republicans have the fix for that however and that’s to eliminate all corporate taxes and on the rich too (to stimulate investment don‘t you know). Of course there would still be no incentive for them to return jobs to the US since no matter how low they drive down wages here, they can do the same work cheaper overseas. Besides with Americans’ wages heading toward the floor there will be no market in the US anyway.

Thursday, July 29, 2010

Scratching behind your ear

Initial unemployment claims were down by 11,000 last week but continuing claims were up 81000. This has become the new normal for jobs to continue  disappearing as the middle class is replaced by the working poor.

More people over 65 are in the workforce than teenagers for the first time since statistics have been kept. It’s not that the baby boomers are swelling the Walmart greeter ranks and causing this phenomenon as the boomer demographic are still under 65 and have yet to enter the ranks of the working elderly. It’s the loss of middle class wealth that is driving this, service jobs that are normally entry level jobs for teens are now sustaining people with kids to feed.

Wages continue to fall and jobs that pay a living wage are becoming a thing of the past, but even if this satisfies some conservative fantasy of a low wage America where their money will go farther, it can not last. Most of these service jobs are providing services to people who provide those same services. As Ross Perot sagely prophesized, “you can’t run an economy by giving each other haircuts”. We are reaping the whirlwind of the free trade economics he tried to warn us about.

The Federal Reserve’s beige book report on the economy just came out and painted a very lackluster picture for America. A voting member of the Board has come out in public with a warning of looming deflation. The “solution” he is advocating for is to have the Fed to begin buying government debt to keep investors from buying it thus forcing them to actually invest. There’s a concept for you.

This might sound to you like they would just be printing money because they would be, but that’s what the Federal Reserve does. You didn’t think they used their “reserves” did you? (psst, they aren’t “Federal” either). Fed Chairman Bernanke has said they are prepared to take action and this is about all they have left.

The problem is that the investor class has gotten to the point where they don’t care about Fed policy. They make the policy and they expect the Federal Reserve to reflect that. Back in the day, FDR told the Federal Reserve what monetary policy would be. It’s not clear what Obama’s relationship is the Fed, who is the tail and who is the dog. So far it’s the middle class who has gotten all the fleas.

Wednesday, July 28, 2010

Business is Good...

The Conference Board, a private group that tracks the economy, says its index of leading economic indicators fell two tenths percent last month but that wasn’t as bad as a survey of economists had predicted. The indicators had been rising every month for just over a year as the stimulus such as it was bolstered the economy. Economic modeling demonstrates in a new paper being presented by economists Alan Blinder and Mark Zandi where we would be today if nothing had been done. Not surprisingly that without the various things the government did current unemployment would be twice as high as it is now and the country would be in a full blown depression.

While it’s good news that the stimulus worked as far as it went, the problem is that the stimulus is running out and austerity is becoming the conventional wisdom. It was the austerity programs of the then new Hoover Administration  that turned the credit bubble collapse of 1929 into the Great Depression of the 1930’s.

Weakness is worsening in the housing sector, consumer spending is down as well as are durable goods orders and continued high unemployment have raised fears about another big slowdown. Unfortunately fear itself is enough to cause the slowdown to become reality, even without the lack of reform to the underlying problems.

The other big problem is greed, the major corporations are flush with cash to the tune of a trillion dollars. They aren’t really interested in fixing the economy as they are sitting pretty. High unemployment allows them to further drive down wages and their profits are coming from offshore where they can dodge taxes. Instead of investing here the corporations  are starting to buy back their own stock to keep the share price up. After all they have stock options to exercise and so they need to keep the price up.

The right wing mantra is that government should just get out of the way. The problem is that the vast bulk of this countries assets have fallen into the hands of people who have no interest in the United States surviving, let alone that they care not a bit about the welfare of her people.

The wealth held by the small people is merely something to be harvested as fast as the wealthy can engineer schemes to do that, its what business in Reagan’s post industrial economy is all about. Taxes are something to be paid by those same small people and if oil is spilled on the small people that’s too bad, it just means a few more Congressman will need bigger bribes. It’s just another cost of doing business and business is good, at the top.

Monday, July 26, 2010

Let's count the reasons, 1, 2, 3... 180 billion

The Financial Crisis Inquiry Commission that was appointed by Congress is threatening to drain the swamp over at Goldman Sachs to find out how much of its business comes from derivatives trading. The creatures living in the slime nearly took down the entire world economy from the sheer size of the derivatives trade estimated to be between 600 and a 1000 trillion. It was these contracts starting to unwind in 2008 that nearly destroyed civilization as we know it.

When questioned by the panel, Goldman’s executives maintained they had no idea how much of their trading business came from derivatives. (derivatives, that would be the buying and selling of huge dollar amounts of “nothing” (should this be called Seinfelding?)) The recent settlement with SEC for over half a billion dollars involved Goldman creating a nearly worthless mortgage backed security or synthetic collateralized debt obligation (CDO) called ABACUS 2007-AC1 to sell to their ordinary clients.

Your pension plan or the manager of your 401k would be the likely victim. Then Paulson & Co, another client who was in on the scam and had hand picked the mortgages so that they were sure that CDO would fail. Paulson then bought derivatives betting against the same CDO and the people who took the other side of the derivatives bet (your investment manager again) lost a billion dollars (that would be a billion of your money).

Paulson & Co “earned” three billion dollars last year by Mr Paulson’s “smart” betting against Wall Street’s synthetic investments. The Wall Street banks like Goldman made hundreds of billions selling these instruments and then selling bets for and against them but really cleaned up when they “bet” for the house.

The FCIC has said they won’t back down and will send in auditors if necessary to uncover the extent of Goldman’s involvement in derivatives trading. This all started with rumors swirling around the collapse of AIG that had required a 180 billion dollar bailout from the Bush Administration to keep a couple of trillion dollars worth of insurance and annuities from disappearing in a flash. This money appears to have gone directly to cover derivative bets won by Goldman Sachs. The commission would like to know if Goldman was playing AIG for a sucker the same way they did the people who bought derivatives based on ABACUS 2007-AC1.

Goldman executives claim they only started to hedge their bets when AIG started missing margin calls. The thing is that margin calls only become necessary because of a wild swing in one direction by the market. The question is who was driving the market? Goldman says, who us? There is a 180 billion reasons to think that was exactly who was doing it.

Oh, by the way, back in 2008 the Wall Street banks owned more oil than the oil companies, remember $4.00 gas?  They also were driving up the price of food commodities and that put one billion human beings into chronic hunger and starvation. Republicans and conserva-Dems have fought and have been largely successful in blocking any regulation of these practices that had always been illegal until Reagan and his friends decriminalized them. One, two, three….

Sunday, July 25, 2010

The Flat Earth?


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