Friday, October 15, 2010

Twelve zeros

The DOW was down again today on news of weak retail sales and a low core inflation number and that has Ben Bernanke worried. He was out beating the drum again for more Quantitative Easing (that’s “printing money” for you English speakers). The Fed Chairman has his hair on fire over the idea that we will drop over the edge into a deflationary spiral. His determination to do something about it is making him less than popular with some people on Wall Street.

Most investors want to see a lot more free money since that will drive up the market but the ones that are sitting on trillions in cash waiting for the market to crash so they can buy for literally pennies on the dollar are steaming. They are calling Bernanke clueless and they are giving dire warnings about hyper-inflation. They are predicting runaway government since Congress doesn’t need to pay its bills with Bernanke printing money.

These critics (who are really just shills for people holding USDs) point to Bernanke’s admission that he is really in uncharted territory when it comes to printing this much money (he didn‘t put in such plain English). Of course the Weimar Republic of Germany comes to mind, they added 12 zeros to the Mark in just three years.

As scary as hyper-inflation sounds the opposite or deflation is the wealth destroyer for us peasants. Deflation works great for the wealthy, especially if they are prepared for it in advance by accumulating trillions in cash. If you have a mortgage or other debt, making your payments after a round of deflation has devastated the economy then becomes impossible and you find out the difference between being a peasant and a serf.

If the Fed is successful in creating inflation then the corporations holding that 3 trillion in cash will have no choice but to spend it and that could be good thing if it doesn’t get out of hand. That is of course the 64,000,000,000,000,000 dollar question (64 quadrillion dollar question) that’s the 64 thousand dollar question after you add 12 zeros for inflation. I heard a little guy down at the beer hall who says he knows who is to blame and he gave me this great brown shirt.

Thursday, October 14, 2010

I remember when...

Unemployment claims were up again this week as the economy staggers along toward Depression. The stock market was down but it supposedly would have been much worse if not for the Federal Reserve’s decision to start printing money with a modest 32 billion to be pumped into long term Treasury bills over the next month. The trade in dollars did not react well to this with USDs down against all major currencies including the Chinese renminbi, Swiss franc and Australian dollar. Gold set another all time high and oil has been going up as well as the USD sags.

The trade deficit continues to soar rising by 9% in August to 46 billion for the month. Imports from China increased to 35 billion for August and with 7 billion in exports to China this caused a 28 billion dollar trade deficit with China alone. China doesn’t much care for the USD being inflated as it holds a lot of them so China is spending them as fast as possible. With the Fed buying Treasury bonds you can expect China will be somewhat mollified by unloading more of its US debt holding. With China now being allowed to buy hard assets inside the US instead of just worthless paper they are hedging against inflation with things like Texas oil fields, it also gives them knowledge of drilling technology that they find even more valuable.

However the USD is still the world’s reserve currency and the whole notion of letting all currencies float was supposed to be underwritten by the stable USD. But the old greenback is being abused by Wall Street bankers to maintain their 144 billion dollars in bonuses in ways that you would only expect from a banana republic. Singapore surprised the markets by allowing its currency to rise against the dollar. Other countries from India and Russia to Israel and Switzerland are all unhappy about the unstable dollar as it undermines their exports and their USD reserves.

Friday is the semi-annual deadline for the Treasury Department to name currency manipulators and you can expect that China will get a pass again. It seems that failing to get any cooperation on the Yuan, the Obama Administration is simply going to play chicken with a full blown currency war.

We could have a manufacturing and trade policy as we had from 1790 until 1980 but that would cut into the cash flow of billionaires. As they continue to sell off our manufacturing base and our economy spirals down it is very likely that 2011 will be the year that the US falls to second place for the first time since the 19th century. Practice this phrase to use with your grand children, hái jìdé nèitiān, it means “I remember when…” in standard Chinese.

Wednesday, October 13, 2010

We have a consensus, reality will go down the memory hole

The major stock indexes were all up today as the so called “news” circulates bout the Federal Reserve’s plan to do Quantitative Easing. Besides printing a bunch of money the Fed will set its inflation target higher to stimulate spending now rather than everybody waiting for prices to fall from deflation. This “two step” approach was put out in an Associated Press article late last night that has subsequently disappeared from the internet but this wisdom continues to be reflected in “legitimate” news stories.

Somebody is trying to get the Fed policy that they want by pushing the story in the media that the Fed is going to act a certain way and as the markets act on that “news” the pressure builds for the Fed Board to take this predicted action. A well worn phrase in the “news” lately is that the Fed is close to a “consensus” on implementing the QE2.

Analysis of the positions of the eleven voting Fed board members show that only two including Chairman Bernanke are in favor of it and three more are or less leaning that way. Let’s see, divide 11 by pi squared and factor the speed of neutrinos passing near a black hole and you get… oh yeah, six against which is the majority, are against it!

This is their new corporate media definition of “consensus”? Of course these are the same people who bought up the dictionary publishers and scrubbed the word “corporation” out of the definition of fascism. Ironically this was done in the mid 1980s, it went right down the memory hole. Today the right-wing think tanks employ large staffs to scrub the internet in a similar manner to keep Americans as ignorant as possible. They also employ economists that the media will quote as knowing what Fed policy is or rather what they want it to be. 

["The first truth is that the liberty of a democracy is not safe if the people tolerate the growth of private power to a point where it becomes stronger than their democratic state itself. That, in its essence, is fascism — ownership of government by an individual, by a group, or by any other controlling private power.”   — Franklin D. Roosevelt, "Message from the President of the United States Transmitting Recommendations Relative to the Strengthening and Enforcement of Anti-trust Laws]

Okay, back to the Fed, it seems it’s not the Grand Conspiracy that that we’ve been led to believe. It is really that the conspirators can’t come to a “consensus” on exactly how to loot and pillage the country. That’s okay though, the corporate media can come to a “consensus” on what to do and manipulate the markets until the Fed agrees.

This just came in after hours that the Fed will buy 32 billion in Treasurys over the next month. A disappointing amount for people who were predicting 500 billion but they are starting sooner than expected. Apparently we have a “consensus”.

Tuesday, October 12, 2010

Billions in profits equal millions of dead

The minutes of the September Federal Reserve meeting were released today and it’s being read by traders to mean the Fed will print a bunch of new money and this drove up the markets or rather pre-inflated them. This buying of worthless paper assets with worthless paper money is referred to by the FED as Quantitative Easing. This will be the second round of this and is known as QE2, you know, like the ocean liner, of course some people are re-christening it as the voyage of the Titanic. Start short selling ice.

Now the big discussion is exactly how much money will they print, half a trillion?  Two trillion?  Or will the Fed disappoint the market by not printing as much as they expect? Not enough money means deflation and not inflation, talk of a gold bubble is coming up again. There are people holding a lot of gold on speculation and you don’t need to have very much of any commodity changing hands to drive the price down. All you need is for buyers to think they will hold out until the price bottoms out. The problem is that speculators often need to raise cash for margin calls and such, if too many start selling then the price will drop like a rock.

The so-called foreclosure crisis may have nothing to do with problems in processing actual foreclosures but rather a massive paper fraud. It’s starting to look like a number of the mortgages used to create the trillions in securitized debt obligations don’t even exist. The stories of people being foreclosed on who didn’t have a mortgage or changing the locks on people who aren’t delinquent are hints that the really big scandal is yet to break. How much of the whole business was simply fraud? Securitizing a mortgage pays a small commission, securitizing a non existent mortgage pays 100%. Some 2.7 trillion dollars of this funny paper is still on the bank books with no one having any idea how much of it represents real assets or how much any of it is really worth.

Meanwhile our principle banker, China is feeling its oats with the Red Navy dominating the entire South China Sea. US Defense Secretary Bob Gates just took a trip to Vietnam to try and reassure our allies that we still have their back. (He went to People’s Republic of Vietnam to tell our allies that we will keep the People‘s Republic of China at bay? Strange days indeed.) China’s Defense Minister dropped in for the conference as well and he met with Gates for 30 minutes, that must have been an interesting conversation. China has launched dozens of new destroyers and submarines. It’s now building aircraft carriers as well as ballistic missile bases that can reach out and destroy US aircraft carriers 2000 miles away.

Corn continues to increase in price although we are still far short of the level that produced food riots across the third world in 2008, but the Wall Street speculators are just getting warmed up. The supply is much tighter this time with droughts and flooding nearly worldwide, not that there is any real shortage, just tight enough that Wall Street can jam up the works.

George Bush was still running things in 2008, Obama’s Secretary of Agriculture has come out and said there is no shortage. We’ll have to see if Obama wants to take on Wall Street or let a few million people starve to death as Bush did. You know how a Republican Congress will react if he does intervene, a capitalist system just isn‘t working if nobody is starving.

Monday, October 11, 2010

Don't forget the mint

The G-7 Finance Ministers (that’s the old money countries) met at the IMF-World Bank meeting on Saturday and could come up with nothing to solve the currency war and basically handed it off to the IMF to deal with. The IMF has already been intimidated by China over its manipulation of the Chinese Yuan and is ill equipped to do anything. The IMF prefers to bully small countries who have been put in a cash flow crisis as a result of predation by the big corporations. They impose austerity measures and eliminate the victim’s social safety net and then force that country into accepting even more predation by the same big corporations. China in fact treats the victims of the IMF much better and is building a broad based coalition in China’s favor.

The USD continues to fall as it is becoming seen as inevitable that the Federal Reserve will start printing money in a big way. The weak dollar is driving up the price of  grain in the US and on the Chicago Board of Trade corn futures  were up the limit again today. An awfully large chunk of the US economy runs on corn and this is going to create inflation pressure on the rest of the economy. That Christmas ham is going to cost a lot more with the wholesale price already nearly double from last year and inflation hasn’t really taken hold yet.

Officially there is no inflation with the Social Security Administration saying there will be no cost of living adjustment again this year. Indeed there is still talk of deflation as the day of reckoning looms on trillions in commercial loans that will come due over the next few years that are seriously underwater. Add to that trillions in corporate junk bonds left over from the last round of mergers and acquisitions that are also coming due and not likely to be paid.

Then of course there are millions of home foreclosures that may or may not be resolved and that could drag down some pretty big banks. The Federal Reserve holds a couple of trillion of the toxic assets based on those mortgages, but they can’t go bankrupt, it’s just that our money might not be worth much after that reckoning.

Gold is on the way up again but I wouldn’t run out and buy any unless you really have a lot of money to risk, you are likely to lose money. I would however recommend adding canned hams to your portfolio.