Saturday, April 9, 2011

How many more of these victories before we lose the war?

Obama "won" another round in his political struggle with the Republicans by giving them draconian budget cuts in return for not shutting down the government and collapsing the economy if not western civilization itself.

Friday, April 8, 2011

Inflation/Deflation, take your pick

Oil jumped 2.50 a barrel today and gasoline continues to climb despite excess supply. Natural gas futures are down sharply with higher than expected supply on hand. Too bad winter is over.

Used car prices have dropped by 5% mostly on the declining demand for SUVs and the sputtering economy. A shortage of parts from Japan will make new cars harder to get. Black and red models will be in short supply, the pigments are made inside the evacuation zone.

 Home prices continue to fall of course. 

Gold and silver are soaring as the USD falls through the floor.

The minutes of the last Fed meeting indicate some board members are pushing for higher interest rates to counter inflation. The European Central Bank has already raised interest rates to "fight inflation". The problem is that there isn't any "inflation". Unemployment is still high even in Europe (by their standards). The price of big ticket items are falling. The last thing to do right now is raise interest rates.

If you want to do something about rising commodity prices you could require speculators to put up more than 10% cash to buy futures contracts and ban derivatives (they were illegal up until Bill Clinton and the Republicans decriminalized them). The only problem is that might well add to the deflation spiral if prices fell through the floor.

It's really hard to get an economy going again if the first and foremost thing (well really the only thing) on the agenda is to maintain and increase the holdings of the extremely wealthy.

Monday, April 4, 2011

Economic de-stimulus

George Will commented on Sunday Morning that the Fed is printing money and buying 70% of the new Treasury Bond issues and this will end in summer. He didn't say what any of this meant allowing anybody who even got what he was saying to jump to their own conclusions. First the Fed isn't buying new issues but buying them on the open market allowing the rich to bail on their Treasury holdings at full price. Secondly pumping a cool trillion into the markets does stimulate the economy at least at the Wall Street level. This is great for the rich but does little for the rest of us but drive up food and fuel.

If they really wanted to stimulate the economy they would increase demand. Seventy percent of demand comes from consumers and half of consumers have little or no discretionary income and increasing food and fuel costs only makes that worse.

It would take little more than the stroke of a pen to increase the demand by increasing consumer income. They could increase the pay for lower income government workers (teachers, nurses and so on) and increase the minimum wage (adjusted for inflation it should be around $14/hour). Increase Social Security payments, unemployment benefits, food stamps and welfare. All of these people would spend the money immediately and boost demand. You would need to increase tariffs to keep the money from draining away to China and crack down on trans-national corporate tax avoidance schemes. Tax revenue would increase dramatically with the revitalized economy, coupled with a crack down on the rich you would run a huge surplus.

Not surprisingly the Republicans want to do just the opposite. Drastically cut pay for government workers, slash pension payments, eliminate unemployment benefits, cut food stamps, do away with welfare, cut the minimum wage to zero, bring back child labor and on and on. And they constantly clamor for more free trade and tax cuts for the rich.

Lets be clear, the people who come up with these talking points aren't stupid. They aren't just trying to play to their base by appealing to their shortsighted jealously, fear, hate and bigotry, they are deliberately killing the economy. The crisis this will cause cannot be over emphasized. They intend to use the crisis to grab power once and for all.