Friday, July 15, 2011

I'm completely relieved, aren't you?

Initial unemployment claims dropped again last week and are getting close to the “new normal” of 400,000/week which will indicate a “robust” level of job creation. With all the hiring concentrated at large corporations in this neo-feudal depression that we are living through, you really can’t tell what’s going on from the unemployment numbers.

Ben Bernanke and the Federal Reserve are blowing hot and cold on the idea of a QE-3 stimulus program, one day it’s on and the next day not so much. QE-1 saw the Fed buy over two trillion in sub-prime assets from the big banks and with QE-2 they bought close to a trillion in Treasury bonds from the Wall Street banks. Not a penny of this went to stimulate the economy. The rich and their corporations have so many trillions in cash that they don’t know what to do with them. The spike in interest rates predicted at the end of QE-2 didn’t happen and 10 year Treasuries continue to sell at the government auctions paying only 3 percent interest.

The USD is quite strong lately against the Euro as things aren’t so good there. The European Central Bank did a stress test on their banks and a number of them were found to be unlikely to survive any sort of downturn. Greece is in the trick bag already and the bond vigilantes are moving in on Italy already, skipping over smaller prey for now. Italy is paying soaring interest rates on bonds because credit rating firms “have concerns” that Italy may not have sufficient growth in the future. (the same firms threaten to downgrade the US) Not that the Italians really have budget problems or even a weak economy, just some vague notion things might not be good enough in the distant future and they are desperate to embrace the new austerity to avoid being another Greece. This isn’t a trivial matter as Italy is the world’s eighth largest economy.

Not that the Wall Street predators have lost track of Portugal and Spain, they keep nibbling at their ankles all the time. Ireland who did all the austerity measures that the IMF demanded of them after they were robbed by the banksters, now Ireland finds that their bonds have been downgraded to junk status.

Wholesale prices in the US are down now that the price of gasoline has subsided, some consumer prices continue to rise as they lag behind but any concern for hyperinflation that was promised by the gold bugs has evaporated. Some people are calling them “gold pigs” and if you think of Glen Beck that works for me. That being said, gold prices have been rising all week and again approaching $1600/ ounce despite a strong USD that should push the USD price of gold down.

The thing to remember about markets is that they are set by who ever feels like buying and selling on a given day. There are a fair number of people who are really spooked by the prospect of the US defaulting and this is where those criminal credit rating agencies come in. Large institutional investors (people who gamble with billions of other people’s money) are required to sell any holdings that don’t maintain a certain credit rating and a downgrade could trigger a market panic.

In all likelihood the various Federal agencies and the Federal Reserve would step in and try to stabilize the markets. Just like when a nuclear plant has an accident and the local fire department responds. The outcome depends if it’s a fire in a trashcan or is a core breach. Speaking of dangerous out of control situations: Sarah Palin tweeted today, “Obama lies and the economy dies”.  Michelle Bachman says “He’s [the President] trying to scare people . . . into thinking that if we don’t raise the debt ceiling by two and a half trillion dollars that we’ll default on our debt. That’s absolutely not true,” Bachmann said in a television appearance. “We have more revenue coming in all the time, and we can simply pay off the interest on our debt. There is no need to default.”  Whew! I’m completely relieved, aren’t you?


Anonymous said...

There is some truth to the Palin/Bachmann ditzy-duo. The Federal government would probably be able to continue to pay interest on the Treasuries regardless of a debt ceiling deal. However, it would be at the expense of the real purpose of government revenue. Of course, isn't that the point of the Palin/Bachmann's statements. They are getting their marching orders from the uber-rich who own US Bonds. They need to be paid first-not those worthless unemployed deadbeats or the elderly who were too careless to save for their own retirement. To paraphrase former Utah Senator Alan Simpson, these people need to stop sucking off the government breast. Pay those bondholders; their interest income is more important.