Friday, November 19, 2010

God's own check cashing store

Where are the jobs? This was the reverberating chant from Republicans during the campaign, but now that they can set the agenda the answer is no where. Conservative Republicans upset that the Fed is injecting cash into the economy are putting forward a bill to change the existing mandate of the Fed. Since 1977 the Federal Reserve has been required to keep down unemployment and simultaneously control price inflation. The Republicans like high unemployment and the collapsing economy doesn’t have any inflation.

During Alan Greenspan’s reign as Fed Chairman he put the two mandates into a blender and came up with the “mandate to control wage inflation“. His mission as the representative the billionaire class was to eliminate the middle class in favor of creating more working poor. He was very successful, as George Bush noted when ambushed by a middle-aged women who stated that she had three jobs he responded, “Three jobs? Well idn’t that just the American way…”.  And you thought George didn’t pay attention in briefing sessions.

In reality there isn’t much the Fed can do to create jobs with the economy in shambles but they could make things a lot worse, especially now that the Republicans can stop the government from doing anything meaningful and they want to make sure the Fed isn’t tempted to do anything constructive either.

It’s hard to say what effect this latest printing of money is intended to do. They are only buying longer term Treasury bonds with stated goal of lowering interest rates but interest rates already range from cheap to free now. Perhaps one could glean something from who they are buying them from? The best source for Treasury bonds is from the Treasury Department auction, they sell a lot of them every week.

The Fed is instead buying them on the open market with the intention of paying more than the current price to “lower“ interest. The interest rate is the inverse of the price since the interest was included in the original price of the bond. To pay “lower interest” the Fed has in effect give a gift to who ever sells them their bonds.

We don’t know yet who is selling their bonds. Someone cynical might assume the big Wall Street banks are the beneficiaries. How about rich people? The Bush family has much of its fortune in Treasury bonds. Then there’s China with 900 billion (they have been quietly selling for sometime) Japan has a similar amount as do the Arab sovereign wealth funds.

It’s possible the Fed is simply doing its job to protect the money supply by heading off a massive dumping of US debt that would put us a Greek like condition of soaring interest rates. You can bet what they’re not trying to do is create jobs. They are trying to keep the investor class from finding out they are holding a lot of worthless paper.

With US having been turned into a third world country that produces nothing and sells its resources to maintain the lavish lifestyle of the 1% at the top, the “full faith and credit” of the United States of America isn’t worth what it used to be. “In God we Trust” on the money is now a poignant reminder that should read, “your reward will be in heaven” because they won’t cash your check here.

Thursday, November 18, 2010

Today's color code is Blue, very Blue

Unemployment claims were up again last week. The Republicans had claimed that business would go on a hiring spree as soon as Nancy Pelosi’s reign of terror was ended in the House. The Republicans did keep one of their campaign promises today as they killed the Federal extensions to unemployment compensation.

Some four million people will lose benefits at the end of November and many will likely be homeless in time for Christmas. Who would Jesus kick to the curb? The poor and the sick according to the GOP, that would be God’s Own Party to the likes of you. The bill the Democrats put forward to extend coverage for another three months would have cost 12.5 billion but the Republicans blocked the bill as being unpaid for.  The Democrats call this an emergency that doesn’t require an offset of other spending. The Republicans see crushing unemployment as normal, funding tax cuts for billionaires is an emergency that doesn’t need to be paid for, ever.

In order to get the needed 67 votes to ratify the new START treaty with the Russians, President Obama has offered to spend $80 billion on upgrading nuclear warheads. Senator Kyl of AZ is holding up the treaty as he would like to earmark another 8 billion for his cronies and none of this needs to be paid for. This warhead budget of 88 billion would be enough to extend unemployment coverage for almost two years.

By the way this amount is just for the warheads and the labs that oversee the contractors who do the work at a huge profit. Obama’s proposal doesn’t include anything for delivery systems. Submarines, ICBMs, B1 bombers and things they don’t tell us about like suitcase bombs.

The new START treaty also allows for ICBMs to be converted to carry a variety of “conventional” warheads. This new class of warheads would reportedly include kinetic weapons. These would be super bunker busters that wouldn’t even carry explosives but would be like a giant anti tank shell slamming into its target. Traveling at such incredible speed that the kinetic energy released would cut through the target like a plasma laser.

The shock wave and EM pulse produced by such a high energy impact would in theory destroy targets at considerable depth. You wouldn’t want to be down wind of such a strike however as the plume of vaporized material would be quite deadly. Like a DU tank shell but on a much bigger scale.  

The Republicans will counter that this expenditure will “create” jobs (but, but the government doesn’t create jobs). In fact in this case the government won’t really be creating jobs as the work has little or no civilian application and is kept secret anyway. The warheads themselves will sit around for decades so a handful of security jobs will be created but the “product” itself will never produce anything of value.

Speaking of security jobs, Rep. John Mica (R-FL) the soon to be Chairman of the Transportation and Infrastructure Committee has sent a letter to 150 airports suggesting that this would be a good time to replace their TSA employees with private contractors. This has reportedly received wide acceptance since with out Congressional oversight there will be none of that big government intrusion into airport security. We will soon be able to go back to the good old days of 9-10. Or the morning of 9-11 to be more specific.

My color code alternates between a depressed blue and boiling mad red.

Wednesday, November 17, 2010

Why didn't I think of that?

Consumer prices excluding food and fuel were flat for the third straight month. And on a yearly basis this so-called core inflation fell to 0.6% and this the lowest rate since records began in 1957. Indeed it would be safe to say we haven’t seen anything like this since at least 1937. That was the last year that the Republicans really screwed up the economy by intimidating FDR into briefly curtailing New Deal spending.

The New Deal was so successful that it has taken them until now to cripple the economy to the point that we are again on the edge of complete collapse.
Republicans have always portrayed FDR’s programs as just a welfare state giveaway, counting on the fact that few Americans are concerned with history.
In fact there was so much infrastructure built, so much development done and so many reforms put in place that you can’t find a place to stand in the US where you can’t see its effects.

Everything that Americans take for granted as their birthright comes directly from the work done then. Roads, dams, airports, bridges, electricity, safe water, forests, parks, on and on. Even things that have been rebuilt are still built on the foundations laid then and it would be safe to say would not exist now. The very soil that feeds us was saved by New Deal programs.

The Dust Bowl was Republican policy writ large. Desertification of most of the heartland of the US could easily have come to pass without “big government” intervention. Congress was finally moved to pass the required legislation when the noon day sun was obscured by a dust cloud over Washington DC.

The Republicans are at it again with Sarah Palin twittering about monetary policy. The talking point is that gas and food are “way up” so the government is lying about inflation. In fact gas is not up compared to the recent past and food is up only modestly. They have a lot of nerve anyway since gas and food are hard for the tea baggers to afford as a result of policies Republicans have been pushing for thirty years.

The truth is that what the Fed is doing is not good economic policy but it’s the only oar we have in the water. And they may only be postponing the inevitable by a short time. The reforms necessary are not even being talked about by any serious people. The serious people are all talking about austerity, that would be austerity for you and not for them.

Erskine Bowles, the nominal Democrat on the deficit commission stated today that we must cut spending as we can’t balance the budget just by raising taxes. Erskine said in a tv interview, that “We’d have to raise the top marginal tax rate to 80%” .  BINGO! Roll back the Reagan tax cuts. Why didn’t I think of that? I guess because I’m not a rich guy working for really rich guys. Oh wait, he said we can't do that. Bummer.

Rand Paul said something out loud that should clue you in on the new normal. “We all either work for rich people, or we sell stuff to rich people. So just punishing rich people is as bad for the economy as punishing anyone.” Lately he’s claimed there are no rich people or poor people that we are all interconnected and are just the same. I think that last one proves he hasn’t given up smoking from the “aqua Buddha” pipe.

Tuesday, November 16, 2010

They grow 'em big in Texas

The Dow was down for the seventh straight day losing a month of gains and is flirting with 11,000 again. This comes as Asian countries are signaling that they will deal with the Fed’s policy of printing money by throttling back on growth to control inflation. Markets continue to fall including non food commodities such as gold which has lost $80 from its high and the USD continues to strengthen. All of this exactly the opposite of what should happen with the Fed printing new money now expected to exceed one trillion by mid-summer.

The main reason the USD is up on the Euro again today is that the debt woes in Ireland and Greece are again in the news. It turns out Greece has a lot more debt than they have been letting on, so bailing them out is becoming problematic and Germany and Austria are starting to balk. Ireland got in this predicament by bailing out three large banks at taxpayer expense and it too may not be able to survive without Europe’s (largely Germany’s) help even though they continue to deny needing help.

The rightwing trolls like to claim Europe’s debt crisis is a failure of socialism and the US is going down the same path. In fact the similarities come not from socialist parts of Europe that are doing very well thank you, but come from the US in the form of crony capitalism with Wall Street banks in the thick of it. The US could go down the same path but only if we allow ourselves to be led down the that garden path by the neo-feudalists.

We are bombarded constantly with everything but the truth about what is happening, how it came to be and why. Alternately we are told it’s the nature of economics to cycle up and down or we’re told that it’s the fault of some scapegoat or another. Even when the Wall Street bankers are mentioned it’s just that they are a little bit greedy and not that they are completely to blame for the mess we are in and why we stay here. More accurately it’s not the bankers but the handful of billionaires that give them their marching orders.

None of what they have done would have been possible without the decriminalization these activities by the Republicans and a smattering of Democrats who all were corrupted by money. People who act independently end up like Bernie Madoff. If you want to retire to a beach house you only commit the crimes approved of by your superiors in the crime family.

Paul Krugman brought up a bit of history in his blog that I had forgotten. Half of the S&L bailout taxpayer costs from back during Bush the elder’s reign came just from the state of Texas. They grow their crony capitalists big in Texas.

Monday, November 15, 2010

Time to move to high ground

There must be some real possibility that the new round of Quantitative Easing by the Federal Reserve will in fact achieve a resounding success. The proof of this is the open letter to Ben Bernanke from Republican luminaries demanding that he cease and desist immediately. Signers include such scholars of economics like Bill Krystal and Sarah Palin, Krystal has never been right on any question of importance in his entire career and Palin has never met a question of importance that she understood.

They also trotted out a few conservatives with real economics degrees to sign the letter as well. The small problem there is that until the minute they signed this manifesto they had built there entire professional careers on premise that the Fed should print money and give it to rich people.  My opinion of regulating an economy by using monetary policy alone is like steering your ship by firing broadsides. It can make things happen but the neighbors don’t like it.

The Obama Administration wasn’t happy with former Fed Chairman Alan Greenspan announcing to the press during the G-20 meeting that the US was devaluing its currency by printing money. Greenspan did during his career regularly fire all guns at once but only when they were aimed at the middle class and the poor. He bragged that the most important aspect of his job was to “maintain a high enough level of worker insecurity to discourage employees from demanding pay raises and benefit increases." He saw this as controlling “wage inflation”.

What he really accomplished was to create a new normal where the middle class holds no wealth but have become corporate serfs with ever increasing debt burdens. The bottom eighty percent holds only 7% of US wealth. Of course a big slice of US wealth isn’t even held by anyone in the US anymore as selling off American assets has been a cash cow for Republican luminaries like Mitt Romney. This gutting of American infrastructure also created trillions in worthless corporate junk bonds that will start coming due in a big way in 2012. (there’s a glyph for this in the Mayan language)

So the problem is that despite what Alan Greenspan and most of the conservative economists have been saying for the last thirty years, you simply can’t have a healthy economy while declining wages reduce the demand for goods to less than the supply of goods. Their solution for this was to replace low wages with debt to increase demand and use up the surplus supply that way.

It’s impossible to continue to do this of course and now consumer debt is shrinking rapidly. If the demand is not replaced by the injection of money into circulation than the whole system collapses. But the way the Fed is putting money into circulation is by giving it to the people at the top. These people do provide a disproportionate percentage of demand, but they don’t really need the money. They aren’t as likely to spend it as say the four million people about to lose unemployment benefits or the 44 million people who could lose food stamps under Speaker Boner. Nor are they going to expand given more money as supply side economics would predict since they are already operating at less than 80% of capacity and are increasing profits by cutting wages (and hence demand so there is even less need to expand).

So why are the Republicans opposing the Fed action? Because all Government is bad and trying to fix problems is bad, let the natural rule. Of course Republicans have never lived by the natural order, they always make sure there are rules that favor them over us common folk, (that’s just the natural order of Republicans).  Here comes new monetary policy, time to move inland. Always store your canned goods on high ground.