Friday, November 12, 2010

The mold speaks

Treasury bonds fell like a rock today despite the Fed buying $7.3B in bonds and in fact investors were selling everything in all markets and prices fell as the dollar strengthened against the Euro. This is reported in scary terms like the Fed is ineffectual but its too early to tell. The whole purpose is to shake money loose that is sitting in corporate money bins but the sell off today did just the opposite as investors were selling and staying in cash.

If selling continues the risk increases that deflation will set in and panic selling would drive down prices of everything. Deflation makes repaying debt impossible and is what made the last Great Depression so difficult to overcome. Lower prices sound great but deflation drives income down even faster than prices. People with cash assume they can make a killing like the people who are buying McMansions for 30 cents on the dollar. But if prices don’t rebound your investment becomes just as worthless as it was for the guy who paid the original price and lost it when his income dried up.

The Wall Street bankers and corporate predators however will buy assets that make money in themselves. This works especially well if you can create yourself a monopoly and then you don’t have to compete on price anymore. That’s why anybody who thinks deflation is going to be a good deal is kidding themselves. You’ll find your income is down but the cost of essentials will continue to go up driving down your standard of living, assuming you still have a job.

I’m personally hoping the Fed is able to make this work but I’m not confident. Guiding an economy with monetary policy is like steering a ship by firing broadsides. It can work but it raises hell with your port city.

The corporate media is painting Obama’s trip to the G-20 as a complete failure but Obama can’t do miracles. This same corporate media spread the lies that allowed the dismantling of  Alexander Hamilton’s manufacturing and trade policies after 200 years of incredible success. Now they are cheerleading for the dismantling of the New Deal on the pretense that it is a failure after 70 years of success.

The New Deal is only in trouble because we don’t make anything anymore and they all know this. That’s why they get seven figure salaries so they won’t be tempted to start telling the truth. They can afford their gated community, private schools, gold standard health care and so on. They are living the new American dream to be the mold living on the rotting corpse of democracy.

Thursday, November 11, 2010

Hold on to your rubber duckie

It was bad news for President Obama as he emerged from a personal meeting with the President of South Korea without the trade deal he had been touting all summer as a significant step toward economic recovery. The good news for the US is that he failed to get an update to the 2007 Bush agreement that has not been approved by Congress. The deal was supposed to increase exports of US cars and beef but even Ford Motor Company was running full page ads opposing it. The only people in favor of the deal described as the biggest trade deal since NAFTA is the US Chamber of Commerce and they don’t represent US businesses.

The corporate media is playing up Obama’s loss of power to the Republicans as the reason Korea wouldn’t make a deal. The reality is that Obama has little to offer them. The current arrangement allows Korea to sell as many cars in the US as they can make and basically keep US cars out and they can buy all the beef they want. The real problem for the Koreans is the weakening USD and the fact that China continues to tie the renminbi to the US currency. The falling Chinese Yuan is the big problem since they need to compete with them (the US doesn’t export anything)

This problem isn’t confined to Korea of course with countries that are major trading partners with China like Brazil find they are a huge disadvantage. The  renminbi has dropped 60% compared to the Brazilian real and it makes it very difficult for their manufactures to compete with China even in Brazil.

The World Bank is making no secret of their intention to create a new international currency backed by a large gold component. This would mean the end of the USD as the reserve currency of the world and this might be a good thing except that some people are pointing out that this could easily lead to the end of US sovereignty. The reason for this is that we are completely dependent on imports for our very existence and without the ability to create our own money we would become serfs to the people who do control the money. Currently we are at least peasants with some rights, serfs have none and without a sovereign currency we would only sink ever lower.

The folks in control of the Deficit Commission are the very people who have no problem with the loss of US sovereignty since they see themselves as potential feudal barons. It’s time for Obama to show some spine if he want’s to be anything but a novelty footnote in US history. Perhaps it was a deliberate strategy that he didn’t give Korea what they wanted (whatever that was). Obama has hinted ever since he created the Deficit Commission that he was calling the bluff of the so-called deficit hawks by doing so. This could explain loading the commission with all the right wing crazies who really believe in drowning government in the bath tub. The American people maybe forced to face reality before it’s too late to stop the Republicans after all.

Wednesday, November 10, 2010

A good investment if you can keep from eating them

The first broadside came from the deficit commission came tearing through the aging bulwarks of the American dream. The expected cuts to Social Security and Medicare were there along with a number of other cuts to add window dressing like cuts to the defense budget. But the big guns are the cap on Federal revenue at 21% of GDP and slashing the top marginal tax rate to 23%.

Capping revenue is of course intended to be a self reinforcing death spiral as GDP will continue to shrink with the continuation of the insane rightwing  policies that already have us by the throat. The reason we have the deficits we have now is that GDP has not grown adequately in many years since we no longer produce anything, indeed a big chunk of the GDP comes from Wall Street shuffling tons of paper so that they can skim off the top instead of producing anything of value. They don’t create wealth, they merely steal it from those who do.

Of course the 4 trillion or so that Bush gave away to his rich cronies had something to do with it too. In fact for the top income bracket, who now average 16% in income tax, this group would find the 23% top rate proposed by the (increase the) deficit commission as an increase in taxes if they ever would actually pay that.  Thanks to Bush’s slashing of the tax on capital gains to 15% and loopholes that allow any rich guy to take his salary as capital gains without producing any real increase in capital. The Republicans including the tea baggers want to cut capital gains tax to zero.

The Masters of the Universe at the Wall Street banks have announced that for practical purposes they will simply ignore the new regulations prohibiting proprietary trading. This is the only division in these banks that “makes” money so there is no way they are giving that up. Their lending operations are hemorrhaging hundreds of billions from all the bad loans they created to provide a basis for securitized debt and derivative trading. They would all fold if they had to stand on that alone. They are really zombies, long dead but still staggering about and producing 144 billion in bonuses for their masters (that would be Masters of the Universe to you).

The Federal Reserve has already ratcheted up its money printing operation, originally slated to be 90 billion a month is now going to be 110 billion a month for the first two months. Billed as reducing credit costs for consumers and business to stimulate the economy. Mortgage rates are already at an all time low but try getting a loan as home price continue to fall and credit card companies are not likely to cut interest rates because they are monopolies and don’t need to.

Corporate bonds are already at less than one percent and they are just sitting on the 1.7 trillion they have now. Lending them more at an even lower rate is going to make them invest. They are operating at 80% capacity and have no incentive to expand as long as they can buy cheap from China.

Gold fell back yesterday but is back up over $1400 as the USD is alternately seen a safe haven compared to Euros and as a sucker bet with the Fed printing money. GDP is about 1.2 Trillion per month and the Fed will print 0.11 trillion a month so inflation of the money supply is not going to happen quickly. How ever the only place for the money to go is into commodities so expect your canned goods to appreciate dramatically. That is if you can just keep from eating them.

Tuesday, November 9, 2010

Buy egg futures

The headless chickens are in charge; the Republican flock insists that Ben Bernanke is socialist liberal fascist and is really from Kenya like his boss (no matter that the Fed Chairman doesn’t answer to the President, the Fed isn’t Federal and has no reserves). They are predicting Weimar levels of inflation and they’ve got gold to sell you for your protection (ask them why they are selling). Gold set yet another new record today at about $1410.

The bond trading chickens are trying to create a panic over the Irish debt and this is driving up the USD which is exactly the opposite of what the Fed is trying to do. A weaker USD would make imports more expensive and give a boost to domestic manufacturing (it would be nice if we had some).

The grain trading chickens are squawking about the worldwide grain shortage, of course they’re making a lot of scratch from this panic. It’s hard to grow reliable crops with the wild swings in weather due to extra 15% of moisture in the atmosphere thanks to global warming. The new Congress will outlaw global warming so we have nothing to worry about. (the sky isn’t falling, that bird just won’t show his hatching certificate)

The banks that were responsible for the bad mortgages on all the chicken coops are “co-operating” with the state attorneys general, at least that’s what the fox’s PR spokes people are saying. Handcuffs and shackles would make them even more co-operative.

All the pundits are saying Obama really laid an egg in the election. Historically, he is in far better shape than Bill Clinton after 1994 when he lost both houses of Congress. Obama is much better shape than Harry Truman after the 1946 election when he not only lost both houses but the Republicans had 2/3 majorities. Truman called them the “do nothing” Congress and they set a record for sloth and passed more bad legislation than any Congress until the Bush Administration.

The economy however doesn’t compare in Obama’s favor. Basically it’s Chicken… errr, ahh,  feathers. Truman still had the New Deal reforms in place and the Republicans were all thrown out in the election of 1948 for their attempting to nuke them. Clinton managed to ride a series of bubbles created by the Fed but had to sign away the New Deal to keep things going his way.

Obama is trying to institute modest reforms that will probably be rolled back while doing nothing meaningful to rein in Wall Street. Truman called them out like FDR had and reversed the fortunes of Democrats for the next forty six years. While the elections of 46, 94 and 2010 all have many similarities, Obama doesn’t seem to learn from history. “Give’em Hell Barry” is probably not going to be the slogan for 2012.

Monday, November 8, 2010

They voted away the dream

You know things are getting bad when the head of the World Bank wants the world to go back on the gold standard. Robert Zoellick, World Bank president, said “leading economies should look at a modified global gold standard to guide currency movements“. Gold broke $1400/oz today and spiked to 1000 euros/oz as Mr Zoellick also questioned Ireland’s ability to pay its debts.

President Nixon in the early 70’s took the USD off the international gold standard established near the end of WWII by the Bretton Woods Accord. He had a serious problem with the debt he had run up with the Vietnam disaster and in order to inflate his way out of it, the gold standard had to go.

If we were to actually go back on a gold standard, some experts claim that the amount of USDs in circulation would require gold to be in the range of  $6000 to $10,000/oz. This is of course a totally made up number and shouldn’t be seen as a reason to dump your canned goods and buy gold from Glenn Beck. The problem is that there are way too many USDs in circulation as Wall Street has been using them to try to dominate world markets and they don’t represent our real economic needs. This needs to be resolved and simply going a gold standard wouldn’t do that.

President Obama was out courting a new girl friend over the weekend telling India that she is pretty and really deserves to be on the student council, but Obama doesn’t seem to realize the high school girls all talk in the locker room. Pakistan wasn’t at all happy with him sweet talking India and the Prom Queen China has a veto on the council so it‘s not likely to happen. He also told Japan the same thing when he was over at her house so none of girls take him seriously anymore.

Some people think that Obama is courting India by endorsing their hopeless bid for a permanent seat on the UN Security Council as a thumb in the eye to China, signaling that he sees them as the enemy and not a partner. India definitely sees China as an enemy and many there see war as inevitable. India has a much larger nuclear arsenal than China but China has eclipsed them in technology thanks to the treasonous behavior of US corporations giving the Peoples Republic all manner of strategic information.

The few things Obama has to offer India include access to US technology and advanced weapons systems (India can’t buy them from China). India in return will give more open access to India by US corporations so they can sell the stuff they make in China in India. Other than fueling an arms race that could easily lead to WWIII there is very little Obama can do for US trade given the suicidal trade policies put in place over the last forty years by Republicans. This was of course made possible by spineless Democrats that saw big business as the future and labor unions, small business and the middle class as the obsolete past.    

You can’t really blame Democratic politicians given all Reagan Democrats who saw themselves as capitalists after decades of New Deal policies had put them in squarely the middle class and then they voted like they were millionaires. Some pundits say it was a high turn out of Reagan Democrats that caused the widespread bloodletting in this election.

After coming back to the Democratic party in the last two elections they were seduced by the Tea Party’s simplistic slogans this time and again voted like they were millionaires. They really want to believe in trickle down economics, they really want to believe that will get their kids and their grandchildren out of their basement and into the middle class dream they voted away in 1980.