Monday, August 1, 2011

Kitty is always hungry, so very hungry

The only thing good to be said about the budget deal is that it could have been worse. We don’t know yet when these austerity cuts start taking effect and most of the damage to the economy won’t happen until the bleeding actually starts.

There is one upside to austerity: despite all the Sturm und Drang from the bond rating agencies the interest rates on Treasury bonds continues to fall. In fact except for a brief panic a couple weeks ago the downward trend has been steady ever since the specter of default was raised last spring. And, this does continue to drive down mortgage rates which are based on the Ten Year Treasury Note. Not that anybody can qualify for a home mortgage anymore.

We could go through all of this again at Thanksgiving depending on how rigid the rules are for the Super Slash and Burn Committee that is supposed to come up with the majority of the austerity measures. There is even the possibility that if Barrack has been a good little boy they might bring him some taxes levied on the rich for his Christmas stocking. (he’s more likely to find a pony in it or rather pony byproducts)

It seems more and more likely that Obama really does buy into the “growth through austerity” nonsense and that the “real” economy is created by the Federal Reserve and that he should keep his hands off of it. Obama is a smart guy but he’s a lawyer and so has no real education. He capable of following along with the reports put out by the even smarter guys that work for the Fed and the Wall Street banks and they probably make sense to him. That comes from not knowing any history and not realizing that economists get paid by how well they can lie. The really well paid ones are complete stone cold sociopaths. I’ve seen Allen Greenspan’s wife on the news a lot lately and she’s capable of telling some real doozies herself.

The pundits had promised us a big rally on Wall Street this morning since a deal was imminent and since it had lost 500 points last week that should have been easy. Indeed on the opening bell the market shot right up. Then the Manufacturing Index came out and the market fell though the floor, it did pull near to even late in the day but on light trading which doesn‘t mean much.

Since austerity is the new watch word, the traders all expect the economy to slide so they are starting to build in the idea of a QE3 from the Fed and so the USD is weakening as they expect more to be dumped into the markets. The question is how much will they print and who will they give it to (the best guess is rich people and Wall Street banks).

You’ll hear people screaming “hyper-inflation, buy gold, panic, panic” but we are in a Depression. The real risk in a Depression is deflation, no matter how much money they print. Since wages are declining, government spending is declining, job numbers are declining and demand for goods is declining (and there are more things declining, well just about everything is declining). This all presses down hard for deflation and not inflation. Not that buying stuff you really need will be a bargain, deflation only works for you if you are rich and even then it’s a dangerous tiger to keep as a pet.  (kitty is always hungry)