Saturday, October 23, 2010

Whew! that was close!

"GYEONGJU, South Korea (AP) -- Global finance leaders, under pressure to display unselfish policies, agreed Saturday to boost cooperation on rebalancing the world economy to help defuse tensions that had sparked fears of trade conflicts."

Wouldn't it be nice if they actually meant it or maybe they are scared enough to do something? No, probably not, they all live in gated compounds, already travel with armed security in armored limos and fly on private jets. The riots will need to get pretty bad before they will start to worry.

Friday, October 22, 2010

Fighting the fire is not a problem, we have plenty of gasoline

The G-20 get together in South Korea has produced an interesting letter circulated by US Treasury Secretary Tim Geithner where he proposes that 20 finance ministers should commit their nations to policies and actions that limit trade surpluses and trade deficits. The German representative reacted rather negatively implying that Germany wasn’t doing anything wrong, his argument is that Berlin’s surpluses were unrelated to the Euro to dollar disparity and were simply a sign of their trading strength. It was the US after all in the person of Richard Nixon who decided that currencies should float instead of being tied to a gold standard. He had that Vietnam War to pay for and inflation was just the ticket to reduce the debt.

In fact Germany has acquired a large chunk of the US over the last 40 years thanks to the “strong“ dollar policy (when they say strong, that‘s not what they really mean). Everything from US mining and manufacturing to publishing and insurance companies now belongs to the Reich land. In fact some of the best jobs left in America are at German firms. They treat Americans like crap compared to what they are required to do for workers in Germany but it’s a huge improvement over what the socio-paths in charge of US companies inflict on their workers.

In Korea, it’s assumed that Geithner is really talking about the Chinese renminbi and in fact China is eating everybody’s lunch. Japan’s finance minister Yoshihiko Noda, told reporters that numerical targets would be difficult to implement. Japan like Germany has benefited greatly from the Dollar/yen inequity, using it to great advantage to grab off huge swathes of the US economy and American hard assets.

Now however the Chinese Dragon has Japan by the leg and is chewing it off. Still Japan doesn’t want to offend China lest they cut off critical rare earth metals of which China controls 97% of the entire world’s supply. Japan is an isolated, over populated, under resourced string of islands and depends on its high tech manufacturing to survive. In a pinch the US could operate as an independent, self-sufficient, albeit 3rd world country, Japan would starve. No plan to oppose China will cross Japan’s lips lest the Dragon swallow them whole.

The central bankers like the Federal Reserve are also at the meetings in Korea and Bernanke’s threat or promise (depending on your point of view) to start printing money again has to weigh on everyone’s mind. It’s getting to the point where the US simply isn’t a major player in the world’s economy anymore but still controls the world’s reserve currency.

The M3 or total money supply (the Fed stopped publishing it in 2006) and it is now estimated to have fallen like a rock since 2008 despite the wanton printing of USDs but has again started to rise in recent months. The problem is that since the Masters of the Universe on Wall Street have been pumping out all manner of USD denominated garbage, the whole world is awash in dollars.

It was in fact these dollar based “products” and their derivatives that created the crash of ‘08 and not the small number of home loans given to jobless brown people; no matter what the right-wingers and the corporate media would have you believe. In fact according to the US Comptroller of the Currency: the top five US banks who account for almost all derivatives in the US banking system have sharply increased the amount they hold since the crash.

Now the US would like the rest of the developed nations to impose monetary policy to achieve balanced trade and/or the Fed will print another trillion dollars (still not clear if it‘s a threat or promise). This sort of thing used to be done with sensible tariffs and banking regulation. At least they’ve realized they have to do something, maybe after they’ve used up the gasoline they’ll try something else to fight the fire.

Thursday, October 21, 2010

Interesting to say the least

Last weeks unemployment claims were down and this caused Treasury Bond prices to drop and their interest rate to climb as if we were suddenly on the way to a booming economy. Unemployment is still at levels that would have been scandalous at anytime since the Great Depression but we live in a different century.

The wild swings in bond prices are not about the chances that you will have a job tomorrow but whether or not the Federal Reserve will print a lot of new money. Goldman Sachs has issued its opinion on the matter and they often get their way in the world. They would like to see the Fed print a 100 billion a month for six months or so. It’s being reported that others with influence on the Fed board want to see a trillion dollars produced all at once in a sort of “shock and awe” approach to quantitative easing (this is the buying up of various debt instruments, in this case Treasury bonds).

The Fed did this two years ago when they purchased 1.7 trillion in bonds and commercial debt. This doesn’t include the Fed making trillions in loans to the big banks at zero interest. All of this funny money was to re-inflate the money supply that was in danger of vanishing after the realization that all of Wall Street’s fancy new unregulated investment instruments were rotten to the core. The wealthy class nearly became the new poor, well not really since the Fed can just print more money and bail them out.

This new round of money creation has caught the attention of China who holds more cash than anybody. If you put it all their foreign currency one place in actual cash it would look like Scrooge McDuck’s money bin. So their reaction is now to “encourage” their people to go out into the world and expand their holdings. In terms of capitalization and profit’s the three biggest banks in the world are Industrial and Commercial Bank of China, China Construction Bank and Agricultural Bank of China.

The last time they tried this was in 2007 when they attempted large scale mergers and acquisitions and they lost money hand over fist with the plunge in asset prices in 2008. This time they are banking on inflation instead of deflation. I’m not sure they grasp how much bad debt that still exists on the books of American companies or maybe they don’t care. They might simply view dollars as purely expendable.

All of the trillions of junk bonds, trillions of bad commercial paper and trillions in bad mortgages still need to be dealt with before the USD is anything but a bad joke. The Chinese curse about wishing your enemy “to live in interesting times” comes to mind. How this all works out will be interesting to say the least.

Wednesday, October 20, 2010

Horse's hooves in the distance

Merry Olde England is launching itself down the path of austerity at all costs. Since they operate under a parliamentary form of government, once they decide to do something there are no checks or balances. Reports are that they are making draconian cuts to the poor and middle class that Maggie Thatcher could have only dreamed of. Thatcher was of course Ronald Reagan’s role model so it’s no wonder Great Britain is in similar straights as the US but with fewer resources they are getting panicky.

Ireland has already embarked down this path into the dark forest and it hasn’t worked out for them but this doesn’t deter Englishmen from going in search of this holy grail of prosperity through austerity. They might as well be banging coconuts together to make horse hoof sounds. The evidence is right in front of them, “Look at the bones man, look at the bones!”

It’s been proven over and over again that you can’t bring an economy out of recession by cutting spending. Soon enough we will likely start down this road as well. Even if the Dems hang onto the House there will be a report from Obama’s deficit commission coming out soon after the election. Obama has loaded the commission with conservatives who think the answer to everything is to create more poor people and privatize the public commons for the benefit of the very few.

The big mortgage banks are coming under increased scrutiny over the home securitization as well as their foreclosure fraud activity. The FBI is pursuing instigations that could well lead to charges against so-called robo-signers who processed the paper work without reading any further than to check if their name was below the signature line. In some sets of documents all carrying the same bank officials name had different hand writing on every signature.  The Sheriff of Cook County (Chicago, Illinois) has reviewed 400 foreclosure orders he has pending and found only 7 had the proper documents attached and he is refusing to serve them.

Bank of America has close to 50 billion in securitized mortgages that investors are demanding that they buy back, BoA says, who us? It isn’t just whining suckers like your pension fund manager that want their money back, this angry mob is being led by the Federal Reserve Bank. Talk about poking the bear. Among the charges is that they sold the same mortgage to two and even three different investors.

The banks involved in this multi-trillion dollar ponzi scheme are issuing various degrees of denial for their culpability. Anybody who is rating their stock as anything but SELL, SELL NOW AND RUN FOR THE DOOR, likely rated Bear Sterns as a excellent buy right up until the end. Do I hear horse’s hooves?

Tuesday, October 19, 2010

Yes! Yes, I am!

The New York stock markets were down between 1.5 and 1.8% today on news that China has raised domestic interest rates to cool inflation. They were also down from reports that Bank of American maybe on the hook for 50 billion in bad mortgages that they pledged as security sometimes two and three times to different investors, a classic ponzi scheme.

Then the really bad news came out after the markets closed although the dim bulbs on Wall Street probably don‘t grasp its significance. China is flexing its muscle again over rare earth metals. We had been led to believe that China had relented on its embargo against Japan after Japan completely folded and ceded any claims it had in the South China Sea but this seems to not be true. More importantly, as of Monday China has stopped all rare metals shipments to the US as well.

These metals aren’t really rare but difficult to extract and China now controls 97% of the world’s supply and it will take the better part of 15 years to change that. Even to increase the output of the 3% of production that is outside of China will take five years and we’re not talking enough of an  increase to matter. Japanese companies have been stock piling the metals and US manufacturers have not but there certainly isn’t a enough on hand to make much difference. Recycling may take an importance it has never had before. That old pc in the attic might actually be worth something.

As the world leader in manufacturing and high technology the US used to dominate the mining and production of rare earth metals. Everything that was developed in the 20th century requires one or more rare earth metals and most of what we take for granted in the 21st requires them in large quantities. Things like computers, green energy equipment and high tech weapons use large quantities of these metals that China controls completely.

How could we have put ourselves in such an dire position from a national security stand point? Does the phrase “A guy you’d like to have a beer with” come to mind? In 2003, at the height of the “national security” frenzy when FOX News was running the color code alert at the bottom of the screen 24/7 is when it happened.  At a time when the Bush Administration said they made every decision as a matter of NATIONAL SECURITY but they didn‘t even blink when China not only bought all our rare earth metal capacity but crated it up and moved it to China.

But hey, the earth is flat, it’s a free market and the markets decide everything, we just need to have faith in the markets. Of course the godless Communists don’t act on faith, they act on smart planning and hard numbers. They don’t believe in free markets either and they are eating our lunch.

It boils down to this, China can do as it pleases and we have to do what pleases China. This could go on indefinitely as China can use its leverage to keep us from doing anything about it. Your lesson today: "nǐ è le ma", are you hungry? And your response is, "shì de". You can guess if that means yes or no.

Monday, October 18, 2010

Ignorance is bliss and it keeps corporate profits up

Stocks were up today on news that US factory output was down in September pointing to further weakening in the economy. It seems counter intuitive that the market would be up but Wall Street is of course completely detached from Main Street, it operates more like a financial derivative and they are selling short on America. The worse that the economy gets then the more likely the Fed will start printing money and Wall Street is licking its chops.

Inflation of the USD has Korea worried that they are too heavily invested in dollars and they are considering buying a sizable amount of  gold with dollars. They are a bit late coming to the party and hold by far the least amount of gold for an economy of their size. The price of gold was down slightly today just the same.

US corporations are said to have 1.6 trillion in cash on their books waiting for the stock market to crash so they can buy their own stock really cheap or that of their smaller rivals. But they have a problem, more than a trillion of this booty is in overseas banks where they are evading US taxes. They have done so much of this legalized tax dodging (which contributes to the trade deficit) that some are on the verge of having cash flow problems.

There are reports that some companies have more than 75% of their cash overseas and effectively out of reach, of course they could bring it back anytime by paying the US tax. This could run as much as 35% and generate a several hundred billion for the US Treasury and they can‘t have that. They’ve been appealing to the Government to give them another tax holiday like bush did but Obama has been telling them not a chance.

You see the whole conservative mindset that the government is too big and spends too much starts to unravel if government is run by people who aren’t trying to destroy it. There are several cash flow problems that were created by the Republicans. The big three are that corporations avoiding taxes by parking money overseas, the rich are evading taxes by using Swiss banks and local tax revenue has been decimated by the Depression the Republicans caused.

Total government spending local, state and Federal has not recently increased at any faster rate than it has over the last thirty years but GDP growth has fallen off even though the population continues to grow. Even adding to this increased social safety net demand doesn’t increase overall spending disproportionately.

The simple fact is there hasn’t been any massive growth of government, no huge infrastructure projects and no massive aid programs for the poor. Home owners have gotten almost no mortgage relief, nothing has been done for small business or for small farmers (what small farmers?) Social Security continues to languish even as the country ages and the Republicans keep chanting that it’s broke and needs to have benefits slashed if not done away with entirely no matter how absurd that idea is.

Obama is not spending money at anywhere near the rate that Reagan spent borrowed money to pull the country out of the recession that Reagan caused. These problems aren’t insurmountable but require the application of real numbers, real facts and real economic theory. Conservative talking points where black is white, liberals are the enemy and if we give all our money to the top 1/10 of one percent then we’ll all be rich, just doesn’t work.

Today’s mystery: if ignorance is bliss, why are tea baggers so angry?