Friday, November 5, 2010

You took a death pledge

New unemployment claims were up sharply and have not in three years to dropped to levels where you could think jobs were being created. Yet the government survey says 151,000 jobs were created October. The apparent contradiction is accounted for by where the jobs were created, almost entirely in temp services, retail and health care. Corporations continue to pad the bottom line by firing people and replacing them with cheaper workers.

Even though overall they are hiring more people, the high unemployment rate gives corporations the leverage they need to drive down wages. The latest scam, cutting nursing home workers from $10/hour to $8 because Obamacare cut Medicare payments, this is not true of course, nursing homes continue to be highly profitable and are a growth industry.

Temp workers accounted for 35,000 new jobs mostly in October with strong demand for professionals in accounting, IT and finance. All used to be good paying middle-class jobs but no longer. Retail is hiring on stronger sales but they are up on heavy discounting and those jobs are not likely exist after inventory is sold down again after Christmas. The fundamentals of the economy are getting worse and not better.

Sale contracts for existing homes dropped in September. Foreclosure malfeasance by the banks is being suggested as the cause but taking a couple of million houses off the market should be pushing up prices but it isn’t. Four million home owners are estimated to owe twice what their homes are currently worth. A banker would walk away from an investment that bad, but a banker will spit nails at the suggestion a home owner do that. In English the word mortgage means “death pledge”, bankers take that seriously, no matter that they created the housing bubble. In bankruptcy, a rich guy can have the mortgage on his vacation bungalow or yacht reduced to the market value, not so for the middle-class homeowner, pay or die.

You can expect to find bargains at Christmas if you still have money to spend, especially on Chinese made products (the renminbi is still tied to the USD) but your canned goods and such will be going up with the weak dollar and from Wall Street using its free money from the Federal Reserve to run up the commodity markets. Obama could force commodity traders to have higher margin reserves and that would drop oil prices back down close to the cost of production that is around $30 a barrel or less.

Gold set a new record, closing in on $1400/oz and oil is edging toward $90/barrel (3 times what it should be). But Wall Street has to make money somehow, you can’t expect rich people to go out and get jobs in this economy.

Thursday, November 4, 2010

When the President of the United States was the most powerful man in the world

It’s official: the most powerful man in the world is no longer the President of the United States, that would be Hu Jintao leader of the Peoples Republic of China. At least according to Forbes and they the self appointed experts about these things. The question is whether the premier magazine of the business world is acknowledging the damage done by forty years of Republicans dominating economic and trade policy or is it just a cheap shot at Obama as we begin the 2012 campaign.  

Obama has indicated that he will completely give in to anything and everything that corporate America wants. Maintaining the Bush tax giveaway to the rich is apparently no longer a problem as long as the middle class gets a few crumbs. The US Chamber of Commerce is circulating the news that they can now work with Obama with his change of heart over expanding free trade. There are at least three agreements leftover from Bush that have been languishing on Obama‘s desk that will soon become the law of the land.

That Consumer Protection agency that you were looking forward to will be nothing but an empty shell if Republicans have their way with funding and regulation reviews by Congressional Committees. The President does have broad powers to go ahead with all manner of regulation thanks to precedents put in place during the Unitary Executive Administration of co-Presidents Bush and Cheney. Although Obama may not want to ruffle the feathers of his new “friends” in the business community.

The Federal Reserve driven market bubble took off in earnest today with the DOW hitting a new post crash high by gaining 2% to close at 11,434. The price of gold also set an all time high as the USD continues to decline with the prospect of 600 billion in new cash being put into the system. The other shoe to drop is the 3 trillion the Fed had already printed up to stimulate the economy that has been sitting around in corporate money bins. Will this money come into play or not? Hyper-inflation anyone? More likely they will continue to sit on it, bringing it out only when a killing can be made.

Some economists think the FED is being far too timid if they really want to jump start a 15 trillion dollar economy and they need to set their inflation goal much higher or the money will continue to just sit there. The big Wall Street banks and corporations are getting this money for little or nothing and have no incentive to do anything productive with it. They are just sitting around waiting for deflation to set in and then they can use all this free money to buy up the remainder of the US economy for themselves.

In the mean time they can continue to churn the markets up and down taking a piece of the action every day. Wall Street will take a record 148 billion in bonuses this year for doing nothing. Keep in mind that since they do nothing that money has to come from somewhere. The economy is a closed system, you can’t just make money, somebody has to do something productive to create wealth.

Wall Street’s preferred method is to steal it from people who have done the work. That’s why Reagan’s people invented the 401(k). All of that 148 billion plus the cost of maintaining the Wall Street ponzi scheme comes from people who have worked for generations to build wealth and it’s just disappearing right in front of them. Ironically the more wealth an American has the more likely he will vote for the people that are stealing it from him.

If Hu Jintao caught any of his people doing the things that Wall Street does, they would be shot and their organs sold. China uses its wealth to build things, we used to do that, when the President of the United States was the most powerful man in the world.

Wednesday, November 3, 2010

The outlook is bad or worse

The markets didn’t take well to the realization that the Republicans are now in a position to completely tank the economy but the markets did recover on the announcement from the Federal Reserve that they will indeed print 600 billion in new money and hand it out free to rich people. The idea being that it will encourage investors to buy something besides US Treasury bonds because with the Fed buying them it will make them more expensive and the interest that bonds pay lower. The problem is that the interest on bonds is already less than one percent, people aren’t buying them for the high return but because they will hold their value in the face of deflation.

So the Fed has to convince everybody that we will have inflation instead of deflation otherwise the big corporations and Wall Street banks will continue to sit on all this free money. Even if they can force investors out of bonds and into equities or commodities that does nothing for the economy. Even if the middle class see their 401(k)s increase in size they aren’t seeing any income rise and so they aren’t going to spend more. The reality is that rising commodity prices don’t stimulate business, they just make fuel costs go up.

The Fed is betting that this new money in the markets will trigger an inflationary spiral and business will be forced to invest in something that will generate income and this will boost GDP. Unfortunately big business has become accustomed to making money by devouring their weaker competitors and by pushing worthless paper around. So it’s becoming doubtful they are even capable of producing any real growth anymore, we‘ll need to import that from China.

With Speaker Boner in charge of all government spending there will be no help from the government and if he doesn’t raise the debt ceiling as one of his first acts then there will be a government shut down to further cripple the economy. Of course the Republicans aren’t really concerned with deficits as they know the ignorant voters will blame Obama no matter what.

When President Clinton began running surpluses for the first time in US history, the 3/4 of Republicans polled believed Clinton was still increasing the deficit or at best holding even. Sadly, fully a third of Democrats at the time thought that too. The biggest talking points of yesterday’s election was the record 1.4 trillion deficit for budget year 2009 that they blamed on Obama not even considering the date. You see fiscal year 2009 started in October 2008 and Obama wasn’t even elected yet.

So we find ourselves in a position where the only thing between us and the depression to end all depressions and perhaps civilization itself is a bunch of rich bankers that are printing money and giving it to themselves. We either get inflation and no growth or we get deflation and a plunge off the cliff. The outlook is indeed bleak.

Monday, November 1, 2010

Living and dying in the Company Town

If the Republicans prevail tomorrow we will see the solidification of an entirely different America. Quantitative Easing by the Federal Reserve (fancy talk for printing money and giving it free to rich people) will pump still more trillions of cash into corporate coffers and the vaults of Wall Street banks. And if you use Japan’s recent history as a model, that’s where it will sit and not fueling economic recovery.

Of course history rarely follows exactly the same path, so-called turning points are usually marked by great leadership, good or evil, FDR or Hitler. If Obama and the majority Democrats (oops) were to resurrect the New Deal then QE could work if coupled with trade and manufacturing policies to rebuild America. There is an incredible pent up demand, it could easily be boom times again.

Speaker Boner however will never allow any such thing to happen. Slashing the budget and demands for austerity for the middle-class will result in Obama accepting crusts of bread as the New Normal for America. Even if the Republicans were to give in on the Bush tax cuts for the rich it won’t begin to make up for the damage Reaganomics has done and the country will continue to decline.

2011 will be the year of municipal bankruptcies and the elimination of public sector unions and their pensions. This will push down local tax revenue and property values still further and put more retirees onto welfare even as public assistance programs are de-funded. This will also push the unemployment rate still higher even as the millions already unemployed will lose benefits under Speaker Boner and the Republicans.

There is one remaining revenue source that was created during the Bush Administration and this will be put into high gear in the new austere America, the wholesale privatization of the commons. Those trillions in QE that Wall Street is sitting on will be translated into budget windfalls for state and municipal governments.

In the long run of course the public works that are sold for pennies on the dollar will need to rented back again from the new slum lords at what ever rate the corporate monopoly deems appropriate. The concept of the company town is going to take on a whole new meaning.