Wednesday, September 22, 2010

Turn on Fox Business Channel and cut out the middleman

The stock markets were down today as gold set another new record approaching 1300/oz.  Treasury bills are also trading higher pushing interest rates down further. The wisdom coming from the pundits is that the Fed expects deflation to take hold and this is putting a chill into the air. Perversely the specter of deflation is being used to inflate the price of gold. Gold is not a hedge against deflation, gold is a commodity and will go down in a deflationary environment. Treasuries are denominated in dollars and deflation would make them worth more.

Gold is a hedge against hyper-inflation but with 95% of the money in circulation tied directly to debt instruments and most of those are on the verge of default, so the likelihood of inflation is next to impossible. Many trillions of debt are already in default but are being propped up by unrealistic accounting rules and a “aren’t the Kings new robes wonderful” attitude adopted by the Treasury Dept, the Federal Reserve and the 13 biggest Wall Street banks who control 2/3 of banking assets.

Of course there is the real possibility that USD could become completely worthless but this is not a high percentage bet and dollars are not going to be replaced with gold. Wild fluctuations in prices are the real concern but trading gold for canned goods is not a realistic plan. If you expect things to get that bad you had better have your canned goods and ammunition already on hand.
pictured above and on the left (but not really): Larry Summers
on the right (far right) Jeffery Immlet
The corporate media is circulating a supposed list of nine candidates to replace Larry Summers that is topped by the heads of major corporations and rounded off with Clinton deregulation proponents that all have ties to Goldman Sachs. At the head of the list is Jeffery Immelt who has been Chairman and CEO of General Electric since 2001. Immelt is also a member of The Business Council and is on the board of the New York Federal Reserve Bank. Jeffery Immelt is the same idiot that was whining that China wasn’t letting GE have its way and threatened to leave China for someplace more friendly and he didn‘t mean he would bring the jobs back to the US. GE immediately disavowed his statements. Obama could just turn on Fox Business Channel and get the talking points directly.

A possible candidate that isn’t on the corporate list is somebody Obama seems to personally like in the person of VP Joe Biden’s chief economist Jared Bernstein. In White House meetings about the economy he is often the only progressive in the room. Bernstein was instrumental in the forming the aspects of the Obama economic policy that have actually worked, Larry Summers was not. There are also other progressives on the edges of Obama’s administration that he could choose to elevate if he is serious about re-booting the economy and his Presidency.

Tuesday, September 21, 2010

Circulating money, or not

The stock markets ended mixed today after the Federal Reserve announced they will keep the interest rate they charge the big banks at zero. This is intended to reassure investors that deflation will be held at bay but there was talk that the Fed would take other actions to stimulate the economy and they said they would pass on that.

The only other thing the Fed could do is buy paper off the market to reduce supply and inflate the value of existing holdings. Sweet if you don’t mind that they would just be printing money and passing it out to rich people. The same people that call Obama a wealth redistributing socialist want billions in free money printed for them because they can‘t drive the price up on their own. Surprisingly the Fed said no, this time.

So for now Wall Street is languishing in the doldrums just like Main Street. You see besides a money supply an economy needs to actually circulate the money or the economy can start to slow down and grind to a halt. On Main Street, the workers make things, get paid, go buy other things and the people selling those things hire more workers; you get the idea. Wall Street works by convincing people the products that they sell (things don’t really represent anything tangible) that these things will continue to go up in “value” and do that endlessly; you get the problem with that idea. If you don’t, you’re a Republican.

Banks aren’t loaning money because they can make more money doing high speed stock trading. Corporations are sitting on a trillion in cash because they are sure the stock market will crash and they can buy their own stock back for 10 cents on the dollar and make a killing when it rebounds. Assuming there is a rebound. The Fed refusing to bail them out may force them to consider making loans and building factories, maybe, unless they come up with a better scheme.

To end on a bit of good news; Obama is giving Larry Summers the boot (the economic adviser that was a prominent player in the Clinton Administration’s decriminalization (I mean deregulation) of Wall Street) , okay he’s quitting to spend more time in academia. Elizabeth Warren in, Larry Summers out.

Sounds good if the rumor the corporate media is circulating isn’t true that Obama is looking for a corporate hack to replace him. Likely it’s something corporate America is wishing for and not something they know for a fact. Elizabeth Warren was a surprise, maybe there will be more.

Monday, September 20, 2010

Let go of that limb and pull on your bootstraps

In case you weren’t having fun yet, you’ll be glad to know the longest recession since the last time the Republicans broke the economy in 1929 ended more than a year ago. It lasted just 18 months (two more than the Reagan recession) but we’re out of the official recession mostly on strength of a stock market propped up by Wall Street banks who in turn have been using free Federal Reserve money to fund their very profitable trading divisions. By the way: those profits come out of your retirement accounts, it will look like everybody is making money until the next flash crash, then only Wall Street will have money.

To give Obama credit, keeping the auto industry from going the way of the US steel, textile, electronics, appliance (the list goes on), keeping autos from going extinct like those industries did help. That and his stimulus measures did give the economy a branch to grab but we’re still hanging over the bottomless gorge.

Today we have 4 million Americans added to the poverty rolls and another 3 million avoiding poverty only on the strength extended unemployment benefits and a record 49 million Americans living in multi-generational homes to make ends meet with 44% of that number that would be in poverty if measured as sub-family units. Sub family units are like the grandparents as a unit, each child with their children a unit, the thirty something guy listening to the radio while polishing his gun counts a unit, and so on.

We now have 14% of adults 25 to 34 living with their parents and as single individuals their poverty rate would be 43%.  That means 57% make more than $10,830 but likely not much more. Minimum wage for full time workers at 7.25 for year is slightly more than 14,000 if you can find it. The 25 cents an hour minimum wage established in 1938 would translate into between 12 and 14 dollars an hour in today‘s economy.

So instead of 44 million Americans in poverty the real number is more like 70 million. You can say these people are getting by so they really aren’t poor, just like tens of millions more who make enough to not be classified as poor at the arbitrary cutoff point. So you have a real big chunk of the country living in poverty or in conditions that aren’t that much better.

The right-winger says, “let them pull themselves up by their bootstraps, get a job”. A job? Perhaps in the steel industry, electronics, textiles or appliance manufacturing? They could go into the small business the family has owned for generations, oh wait, there’s a Walmart in town now. We won’t even talk about the family farm. How about a good union job down at the slaughter house, that’s a place to start. Your chances there aren’t that much better than the animals in the yard.

No, the recession hasn’t ended anywhere but on paper. The stimulus money is working through the system but it’s just draining away to China. The unemployment extension is already running out and those millions have already used up their savings and assets. If they are lucky they can join a multi-family household along with the 1.5 million young adults that come of age every year and find no work in the jobless recovery.

But don’t worry, the Republicans have all the answers, they say they’ll just do more of what they did when they were in charge before and that worked so well.