Friday, August 13, 2010

Shake the Magic Eight-Ball harder

Economists had predicted retail sales would be up and they were, sort of, car sales were up with the bounce back from Detroit and gasoline was way up but that's really a negative. Take those two off and retail sales were really down, sales of building materials, furniture, clothing, appliances and general merchandise all declined.

Consumer prices were up 0.3% but don't take that to mean there won't be deflation. With an economy based entirely on debt, deflation is the that bridge collapse nobody saw coming. Never mind the rusted beams and the eroded concrete. Everything has been hollowed out by debt, for consumers a quarter of home mortgages are under water, car loans are upside down or the car are leased with no equity to begin with and credit card debt exceeds the value of the rest of their assets. No wonder so many people cling to their religion and guns, often that's the only things they own. 

To that end there is a move in Congress to reform the Federal Bankruptcy law. The Federal law is unusual in that it allows huge variations from state to state, for example in a handful of states you can keep a certain amount of equity in your home. In Texas there is no limit, if you're "rich" but broke, go to Texas and buy a 50 million dollar house then file bankruptcy and effectively rob your creditors. Is Congress going reform the law let more people to keep a modest home and make the rich pay their debts? Not hardly, they want to make all the states allow you to keep your guns when you complete bankruptcy. Don't say Congressional conservatives don't have your best interests at heart.

Thursday, August 12, 2010

Larry says 2 + 2 = 3

“U.S. Is Bankrupt and We Don't Even Know It“ according to Laurence Kotlikoff in a Bloomberg commentary.

“Let’s get real. The U.S. is bankrupt. Neither spending more nor taxing less will help the country pay its bills.” says Kotlikoff

He goes on, “What it can and must do is radically simplify its tax, health-care, retirement and financial systems, each of which is a complete mess. But this is the good news. It means they can each be redesigned to achieve their legitimate purposes at much lower cost and, in the process, revitalize the economy.”

He justifies his analysis by, “Last month, the International Monetary Fund released its annual review of U.S. economic policy. Its summary contained these bland words about U.S. fiscal policy: “Directors welcomed the authorities’ commitment to fiscal stabilization, but noted that a larger than budgeted adjustment would be required to stabilize debt-to-GDP.”

“But delve deeper, and you will find that the IMF has effectively pronounced the U.S. bankrupt. Section 6 of the July 2010 Selected Issues Paper says: “The U.S. fiscal gap associated with today’s federal fiscal policy is huge for plausible discount rates.” It adds that “closing the fiscal gap requires a permanent annual fiscal adjustment equal to about 14 percent of U.S. GDP.”

“The fiscal gap is the value today (the present value) of the difference between projected spending (including servicing official debt) and projected revenue in all future years.” and his solution?  “Double our taxes” and slash spending especially Social Security.

There is more that you can read from the link at but that really is it in a nutshell. The IMF takes the current deficit run up by the Republicans and continues it out forever at that rate assuming nothing is done about it.

The solution that the IMF always proposes for any country that they can get their claws into, is to eliminate of the middle class and the forbid the holding of the least bit of wealth by anybody but transnational corporations.

Doubling taxes across the board would accomplish that goal and you'll see calls for selling off the commons to eliminate "costs". They don't mention that you could dramatically increase GDP by increasing the income of the working poor, and the trade deficit is subtracted from the GDP and besides imports create a negative multiplier throughout the economy. Then there is the interest on the debt, Obama is budgeting 500 billion a year to pay that but if interest goes up that could easily balloon to a trillion or more.

The debt comes from the fact they have done away with production and they are buying the production from the transnational corporations on credit who use that system to dodge trillions in taxes. The only reason anybody has trillions of dollars to lend the US is that the government has not been collecting the money in taxes. It's that nonsense that has to stop.

The 200 trillion dollar long term deficit is not a real number but a pointless extrapolation, but they are going to use it to get what they want, the end of the middle class. The money supply can be restructured to fix this problem but it has to be done hand in hand with rebuilding America and the elimination of these transnational monopoly corporations and the traitorous politicians that they own.

It's all just a paper game to hide the real damage from 30 years of Reaganomics. No manufacturing means no middle class but you can have a hell of an upper class. The people who run the IMF happen to be from the upper class.

And by the way, a Professor of Economics cannot possibly be so stupid as to not see this. It’s simple math and he has made 2 + 2 = 3.

Wednesday, August 11, 2010

Hungry? Buy your own cat food, no pension for you!

The markets didn’t take well to the Federal Reserve’s announcement that they will be buying sizable amounts of Treasury debt and possibility other paper to keep everything afloat. Equities markets fell close to 3% wiping out most of this year‘s gains. Commodities also fell despite the Obama Administration’s decision to eliminate tariffs on imported raw materials with the intention of stimulating industry, or possibility this move caused the drop of commodity prices as it destabilized the domestic market as well as pointing out that the bottom is falling out.

The US trade deficit continues to worsen, reaching 50 billion for the month, its getting especially bad with China. The talking point is that retailers are buying extra consumer goods from China with anticipation of a big fall season but wholesalers are down so this seems unlikely, not to mention the increasing number of jobless and the spreading poverty from the depressed wages and less hours worked. US exports are down across the board as well making the deficit worse from the other end. Oil prices have been sagging or the deficit would be truly staggering.

China has taken the bold move of eliminating 2000 old factories, steel and cement mills with an eye toward energy efficiency and cutting pollution but likely they also see an excess of capacity. China has also cut imports of raw materials as well as imports of manufactured goods.

Back in the US, record low interest rates on home mortgages did nothing to stimulate a lackluster housing market. Jobs available last month were only one fifth of the total of officially unemployed plus there are millions who no longer go to register with Job Service so they aren’t counted. Then there is an even bigger number of people trying to subsist on part time work that are vying for available jobs. A large number of people have dropped out of the job market to go back to school but they are starting to emerge to find no jobs.

Millions of workers have retired creating a surge in the Social Security system but these people are burning through their savings and would go back to work if given a chance. Social Security benefits have not been increased because of an official lack inflation but the prices of things the elderly need to buy continue to rise.

Viral emails are being circulated to convince people that Obama has frozen their Social Security payments but of course the benefits are determined by a formula put into law by Ronald Reagan with a cost of living formula intended to slowly cut real dollar benefits. So the new retirees who have been paying double payroll taxes for the last 25 years find they can’t begin to live on the benefits that would be 70% higher if a realistic method had been used. The

Republicans have been telling them for three decades that “you can’t live on Social Security” but of course the money they put in their 401k’s has largely disappeared so they can‘t live on that either and god help anybody with a private pension plan who is getting pennies on the dollar if anything at all. The Republicans are also pressing hard to eliminate all publicly funded  pensions, painting retired government workers as greedy and lazy, they should be working at Walmart to pay for their cat food entrees like the other poor people.

Charitable organizations are crying foul over the move by Congress to eliminate 12 billion dollars from the Food Stamp program pointing out that is as much as charities provide in food bank and meal services in an entire year. Democrats did this to fund an emergency jobs bill as the tax loop hole they closed on outsourcing jobs wasn‘t enough money for Pay/Go requirements. Republicans are crying foul as the Democrats want to put the funding for Food Stamps back in the budget by closing still more tax loop holes. To add yet one more straw to the camel’s back, even if the Bush tax cuts for the rich are allowed to expire, the average person with a million dollar income will still pay 1500 dollars less taxes than in 2001. That would buy a lot of canned goods.

Tuesday, August 10, 2010

Raising the price of each other's haircut

The Federal Reserve announced today that they will again start buying longer term Treasury bonds. This move is intended to pump money into the market to keep the supply of bonds from growing and sending the markets into a steep decline. They say that they are buying “only” ten billion a month hoping this will head off runaway deflation. The Fed is also going to keep interest at near zero for the foreseeable future. Low interest rates are starting to create a burden on senior citizens who are receiving almost nothing on their savings while receiving no cost of living adjustment on Social Security either as there is technically no inflation.

The Commerce Department says that productivity is down almost 1% overall and while the that sounds like bad news for corporations, for main street it could be good news if it’s true. This would mean that wages are up or at least there could be more hiring going on and this is reflected as more payroll for the amount of goods and services produced hence lower productivity. That is if this isn’t  just a glitch in the numbers as the Commerce Department tries to revise all the inaccurate numbers left behind by the Bush Administration.

The bad news is that manufactures inventories continue to edge up at the time of year when products should be shipped in anticipation of the fall shopping season. Indeed the dollar volume of products sold by wholesale distributors is down 0.7%.

Retail sales are off as the overall savings rate has been going up and you might assume it’s the people with disposable income that aren’t spending it, the poor don‘t have much choice. The top 5% of American income earners account for 37% of consumer outlays and the bottom 80% of earners account for just 39%. Get that? The top 5% spend almost as much as the bottom 80%. Indeed the top tier has the money with the top 10% capturing 50% of all the income in the country. That ratio is from 2007 and it likely getting worse as incomes for the working poor decline.

But the really bad news is that in an economy that is 70% consumer spending (remember we don’t make anything, we order fries with that) this new American Plutonomy (or economy of the rich) that the rich have in fact been spending their savings. Their saving rate (rich people’s) is down from 26% in 2008 to a negative 7% in the first quarter of this year and there are signs they are cutting back sharply and that‘s a problem.

If the productivity numbers are really down and income for the great unwashed masses is really going up this would offset the problem. But this is probably just a glitch in the numbers since unemployment is so high, wages continue to be driven down. It’s true some better paying jobs in the auto industry and stimulus created jobs in construction are on the increase. The emergency funding the Republicans failed to defeat in Congress will maintain 180,000 teachers as well as 180,000 police and fire department jobs but most of these people earning good pay are already currently working.

We need some good old fashioned wage inflation like Alan Greenspan spent his entire career fighting so that we aren’t dependent on the Plutonomy to provide the spending. Of course this isn’t going to work without jobs making something of value. It doesn’t really work any better to have the bottom 80% spending more on imports from China than it does having the top 2% buying more imports from China. The so-called service economy of giving each other haircuts does not make up for it in the end.

Monday, August 9, 2010

Would you like rice with your Cold War Special?

The USS George Washington (CVN-73) spent the weekend cruising 200 miles off shore from Danang, The Socialist Republic of Vietnam. What’s going on you say, does Nike need negotiating leverage for that new sneaker plant? Officially the “G-Dub” was there to commemorate the 15th anniversary of the normalization of relations between the US and SRV. It did however bring along 4 million pounds of bombs, seventy aircraft and 6000 men and women ready to go to war at the sound of the claxon.

Based in Japan the “G-Dub” is widely believed to carry a typical deployment of 100 nuclear warheads. Japan has revealed recently that they have always turned a blind eye to this despite official policy prohibiting nuclear weapons on their soil.

Were the Vietnamese upset with this show of force just outside their territorial waters? No, in fact they could not have been more pleased as they chose the location. This is the part of the South China Sea that they claim as their own that includes a number of small islands known as the Spratly and Paracel Islands. These islands are the reason Hanoi and Washington are getting so cozy militarily.

The super carrier task force arrived off Vietnam having just completed joint exercises with South Korea and during the entire trip from Japan they were shadowed by a number Chinese warships. You see Beijing claims absolute sovereignty over the entire South China Sea, its islands, fishing grounds, oil & gas reserves and the sea lanes themselves. They don’t care much for trespassers but so far have been out gunned by the USN.

Vietnam has tried very hard to cultivate relations with the US, especially after the collapse of their primary benefactor, the Soviet Union. Before, during and after the US-Vietnam War, the Vietnamese were at war with China and repelled several invasion attempts that killed large numbers on both sides. The third and final invasion took place in 1979 and China withdrew after taking heavy losses but looted and laid waste to the northern part of Vietnam on the way out.

China has made no secret of the fact that at some point they intend to throw the US out of its South China Sea. To press home that point they have recently announced the pending deployment of a new generation of hyper-sonic anti-ship missile called the Dong Feng 21D. With a large conventional or nuclear warhead and a 900 mile range they are reportedly capable of defeating any counter measures and intercepting a moving target. Of course at 6000 miles per hour it closes the 900 miles in 9 minutes, so even at flank speed a carrier would only move maybe five miles, not quite like shooting fish in a barrel but close. Some reports are that the new missile may have a much longer range on the order of 2000 miles.

There is a debate about when the weapon will be deployable, it could be ten years or maybe less than two. There is no question that China is capable of producing such a weapon thanks to technology sharing by American companies like Boeing and Lockheed. In order to get access to cheap manufacturing, US companies are required to turn over information that prior to the Bush Administration people went to prison for giving up.

In short, the greed of American corporations has made possible a new Cold War. Of course FOX News is making the most it can from the tensions by hyping fear of the yellow peril. This allows the same “defense” contractors that gave China the technology to be able to sell even more hardware to the US military to counter this “unexpected” threat. China will of course increase their military spending, they can afford it and they have the factories. The right-wing is probably kidding itself that we can out spend China and destroy it like Reagan did to the Soviets. That wasn’t what really happened of course, the USSR was on an irreversible downward spiral long before Reagan, kind of like the one we are on.