Saturday, October 2, 2010

Some thoughts

Gold has set yet another a new record. The gap between wealth of the top 1/10 and everybody else has set a new record.

The spread between inventory and sales continues to widen which isn't good news for the stock market going into October when bad things traditionally happen. Its not good news for the real economy either.

China continues to exceed its growth goals and is asserting its dominance as the only super power. NASA is laying off people big time as the space program winds down with barely a whimper. A third world nation really can't justify having a space program, China continues to develop one.

We had a failed coup in Ecuador that is generally assumed to be the work of the CIA or DOD operatives to try to squelch anti-NAFTA movements in South America. Is the Obama Administration as incompetent as the Bushies? Or was this the work of a rouge element in the government that failed because they didn't have the full resources of the government behind them? We will probably never know although the White House or the State Dept. didn't denounce the coup plotters like everybody else in the Americas (whether they meant it or not) so that doesn't look good.

Friday, October 1, 2010

A can of cat food put away for your retirement

The stock market was up again today on the news that consumer spending and personal income were both up, however if you deduct transfer payments from the total then personal income was at best flat for the second month in a row. Transfer payments are things like Social Security, pension payments, unemployment and welfare among others, you know what Republicans call wealth transfer or what sane people call money the middle class put away for a rainy day.

This indicates that there was no real recovery last month and this is born out by the continued high weekly unemployment claims. You can also add an extra 250,000 to the rolls of the unemployed this week although they probably won’t be counted as such. With the end of the Transitional Subsidized Employment program (TSE) these jobs have ended. Republicans in Congress succeeded in blocking the extension of funding for the federal stimulus program into the new fiscal year, so a quarter million people will be kicked to the curb.

Under the TSE, a government agency places someone currently on state assistance into a job and then pays that person’s wages for up to a year. This is the kind of program that produces the highest possible return for the stimulus dollar and so the Republicans were dead set against it. These people will be plunged back into poverty and will drastically curtail their spending. This will in turn kill other jobs in the economy besides increasing the demand for welfare and other public services. This ultimately leads to increased crime, imprisonment, urban blight and all the other social ills this sort of idiotic policy creates. “But hey, I don’t want any of my tax dollars going to that wealth transfer, it’s my money, I’d rather pay for more prisons and enjoy that higher crime rate… get mugged, murdered, have my property values go through the floor… it‘s my money damn it!”

Back to the stock market, the SEC and the Commodity Futures Trading Commission say that they have determined that the cause of the so-called "flash crash" that triggered a 1,000 point drop in the DOW in less than a half-hour on May 6.  A four billion dollar sell order issued by a trader in Kansas started a self reinforcing cascade of computerized trades that nearly took the entire stock market to zero.

Supposedly measures have been taken to correct this but they won’t really say how exactly what they’ve done has fixed it. They portray this as a sort of random occurrence that happened when the market was already “stressed” by the European debt crisis. The trades caused by the flash crash were all cancelled which brings into question the validity of the “self correcting markets” we’ve been told to rely on to control our very existence.

“Self correcting markets” belong on the same list with the tooth fairy, leprechauns and playing the lottery. None of these things will ever get you the American dream or even a can of cat food to put away for your retirement.

Thursday, September 30, 2010

The Tea baggers haven't heard about the new landlord

The House voted 348-79 on Wednesday to require the Dept. of Commerce to  calculate countervailing duties on imports from China and other countries (they just mean China) that manipulate their currency to the detriment of the US.

China wasn’t happy to hear anybody from one of their client states talking back and promised there would be repercussions if the measure was passed.  They needn’t have worried themselves, the Senate will not engage in such pre-election posturing as the House members who need to fool the peasants every two years. Chris Dodd came right out and said that the Senate won’t be voting on the measure, Dodd isn’t running for re-election, time to retire and cash in as a lobbyist for the big banks.

Just the same, little Timmy Geithner ran right out and made all sorts of declarative statements to reassure China that we know who is the boss, saying “It’s important to recognize that we’re not going to have a trade war, we’re not going to have a currency war,” and to placate the peasants in the US, he boldly lied by saying, “I would say that a substantial fraction of the Chinese leadership understands it is very important to them economically to let this exchange rate move,” and he went on saying that China realizes that to have access to global markets that it must play by the rules.

China made it clear that it has its own view of what the rules are and China’s view is the only one that matters. And China can back up their threats. It’s not just that they could dump a trillion dollars worth of US debt on the market and make our Treasury bonds worthless. We are a big enough country that we can just print money, in fact that’s what we’ve been doing for a couple of years now, the problem is that if China stops taking our money we are done.

You see, the real threat is that they can shut off our economy like it was on a switch. We don’t make anything anymore and can’t live without China’s exports and without China’s rare earth metals we can’t make anything ourselves. With 97% of the world’s supply of essential metals, China can throw the switch on anybody in the world anytime they want to, so we can’t look to anybody else for help either. Japan found this out the hard way and it took less a week before they started seeing things China’s way.

The tea baggers can make all the noise they want about taking back their country. The Republicans and the corporate Democrats have sold it to China and China intends to keep it. If the tea baggers think they are “suffering” under the socialist Kenyan fascist that they think has taken their country from them, they are in for a rude awakening as the People’s Republic of China begins to assert its dominance over its tenants.

Wednesday, September 29, 2010

Japan surrenders, we're next

Japan surrendered unconditionally to China in the past day, effectively ceding all claims to the South China Sea and likely anything else that China wants. You can expect China to get its way anywhere in the world on every issue that it sees as important and it doesn’t matter how many aircraft carrier battle groups the US has, China still has the upper hand.

Why is China now the unquestioned and unchallengeable super-power in the world? Simply because there are 17 rare earth elements with names you can’t pronounce that are essential to all modern manufacturing. According to the U.S. Geological Survey, 124,000 tons of rare earth elements were extracted around the world in 2009, among which 120,000 tons, or 97 percent, were from China, 2,700 tons from India and 650 tons from Brazil.

Cerium, dysprosium, erbium, europium, gadolinium, holmium, lanthanum, lutetium, neodymium, praseodymium, promethium, samarium, scandium, terbium, thulium, ytterbium and yttrium in case you wanted to know.

Everyone of the things that make our lives different from the Amish require a variety of these elements and all those new green technologies require them in large amounts. China’s action has set off a sort of gold rush with companies that produce or might someday produce rare earths having their stock go through the roof. I wouldn’t rush out and buy any stock however with a minimum of 15 years lead time required to develop a new supply line as extracting these elements is a very involved series of processes.

China has raised a considerable amount of ire in the US Congress over the blatant manipulation of its currency that has increased their dominance over the US in trade. China has promised repeatedly to allow its currency to float but this has not happened. They issued the usual assurances again today ahead of a vote in the House to impose tariffs but this had little effect with the vote going against China 348-79.

There is believed to be little chance this bill will get to a vote in the Senate with the Republicans and a number of Democrats who put their personal fortunes above the national security of the United States (oath be damned).
In fact, thanks to the Supreme Court that the President rightfully chided in his State of the Union report, the Chinese can buy as many Senators and Congressmen as they need to see to it that everything goes their way.

Hundreds of millions are being dumped into the elections by corporations with complete anonymity. The biggest corporations are Chinese or beholding to them. Where do you think the tea baggers are getting their “grass roots” support?

Don’t expect anything to be done about this or if President Obama does take this on, the road will be a hard one. This makes all other things pale by comparison. War for oil? Child’s play. Terrorists? A mirror nuisance. It will take at least a generation to rebuild from this if people realize that it must be done and most Americans don’t even understand how their toaster works, very soon they probably won’t have one.

Tuesday, September 28, 2010

Once the machine shop to the world, now the leader in food stamps

It’s official, the disparity between the wealthy in the US and the poor has reached an all time high. The super rich have done very well since we entered the current Depression and the middle class continue to be converted to the working poor if they have a job at all. We are coming up to winter with a higher than ever number of Americans with no utility connection.

The former middle-class are using up their savings, wearing out their cars if the car hasn’t been repossessed. They are wearing out their clothes and neglecting medical needs so their bodies are wearing out too. It’s no surprise the consumer confidence is down again. Corporate CEO confidence is down as well but that’s just a reflection of their political talking points, they are doing very well at the top of the food chain.

Marriage has hit an all time low and people are putting off having kids as they did in the 1930s. The number of U.S. households receiving food stamps was up by 2 million last year to 11.7 million, a more than 20% increase. This is the highest level on record with 1 in 10 families was receiving government food aid. In all, 46 states and the District of Columbia had increases in food stamps, with the largest jumps in Nevada, Arizona, Florida and Wisconsin. Milwaukee used to be known as the machine shop to the world but that title would now go to Shanghai and Wisconsin goes on food stamps.

The percentage of old folks that are working is up again even though the number of people forced to retire is up sharply. People who were retired have no choice but to go back to work if they can, often taking service jobs that kids used to have, further increasing youth unemployment.

The stock market has been up all through September and the crystal ball folks are predicting a new boom in the DOW with Stock Traders Almanac predicting the index will hit 38,820 by 2025. Don’t confuse that number with the title of the best selling book DOW 36,000. Don’t recall the book? It came out just before the Dot-com bubble burst.

Gold jumped sharply today going past 1300 as the global unease grows. The embargo by China of rare earth exports continues and is approaching its first full week. Japan who is at the center of the ban is not getting any response from diplomatic overtures.

Corporate junk bonds are selling briskly in the “retail” market, these are small non-institutional investors that are chasing higher yields and regulators are worrying that this will lead to a bubble burst that these investors won’t be able to handle. This will move still more middle class people down to the level of the working poor.

The median family income declined again last year and while it still has a ways to go to get down to the official poverty rate, it continues to move relentlessly in that direction. Half of families are already way below a level that would be considered the American dream by anybody especially if you take into account rising healthcare and education costs. The rich are getting richer and everybody else is getting poorer, less healthy, less educated and more desperate.

Monday, September 27, 2010

Are your flippers in the sand yet?

What if you went to Walmart and the all the shelves were empty? I’ve touched on this very real possibility occasionally but I don’t seem to get much feedback. I suspect that to convince the average American that this could happen is like convincing a whale that the ocean could go dry, but to a whale that’s on the beach the ocean is effectively a desert.

The fact that our pod of big fat American whales has been swimming circles in ever more shallow water is demonstrated by a survey done several years ago that showed 80% of non-food items at Walmart were in fact made in China. It’s doubtless gotten worse by now and don’t kid yourself, Walmart is not the only place where this is true. Even the remaining American manufactured products are heavily dependent on China for parts and materials.

Some time back I mentioned that China has a stranglehold on exotic metals known as rare earths that are essential to all manufacturing from the alloy used in steel to make magnets for motors and generators to a long list of metals needed to make computer chips. Really anything more advanced than blacksmithing absolutely requires one or more of these metals or nothing happens. The US government recently announced that they have found a couple of trillion dollars worth of these metals in Afghanistan. In fact they aren’t all that rare, we have several huge proven deposits in the US but no longer have any facilities to refine them from ore.

So why does China control 95% of the entire world’s production? The answer is pretty simple, they haven’t been allowing their country to be run by idiots for the past 30 years. It was their policy to simultaneously develop their own industry while using China’s immense economic clout to put their competition out of business. It’s not just a matter of reopening production elsewhere in the world, China’s systematic approach was to buy the factories and ship them to China.

This is suddenly coming to head with China’s move last week to cut Japan off from access to any rare earth metals and China is actually blocking the loading of ships. It was assumed they were doing this over the territorial dispute that has been on going between China and its neighbors in the South China Sea. (you see, China claims the whole thing) But, it turns out that China has something bigger in mind than simply getting concessions on some fishing rights. They aren’t just embargoing Japan who consumes 17% of the market (China uses 51%) but in fact China is cutting everybody off from the supply of rare earths and this includes the US.

This embargo doesn’t affect America that much since we don’t make much of anything here anymore but what output is left will go straight to zero right now. Those fancy new battery factories that Obama takes credit for are not going to be around very long. New green manufacturing jobs? Not on this continent. Soon there will be nothing more high-tech than blacksmithing, the days when the US was dominant in technology are gone, third world status is here right now.

So from now on everything high tech comes from China and China can name the price. The Obama Administration is scrambling to react to this national security threat but there are severe limits to what you can do with the remaining 5% of the world’s supply even if you can get your hands on it. It seems that gun sights for tanks, guided missiles and night vision equipment can’t be made by the Amish blacksmith. Say it in a whisper, “we’re screwed”, don’t say it out loud, it will frighten the children. They’ll learn soon enough.

There are a number of ways this could play out depending on what sort of hard ball the Chinese are playing. Maybe they are just throwing close to the batter make him step back from the plate or maybe they are throwing their best fast ball right at his head. Even if China (who denies they are doing anything), even if they were to relent, the damage is done. Invest anywhere in the world outside China at your own peril.

It takes fifteen years or more to develop a rare earth supply chain and this assumes you have the needed resources available to do it. We are either going to submit to draconian demands from China or have a flow blown trade war that will more closely resemble real war depravation than anything else. Want to know what this kind of trade war could look like? Cuba is a perfect example what living under the embargo of manufactured goods looks like or maybe more like Iraq in the nineties or we could become Somalia. Which example fits best depends on whether we allow the same idiots to be in charge that led us into shallow water in the first place. Are your flippers touching the sand yet?