Saturday, April 30, 2011

George Soros in the belly of the beast

You know it's the End Times when the CATO Institute has George Soros over to lecture them on economics.

Why I agree with (some of) Friedrich Hayek

presented by George Soros

Cato Institute, Washington DC

Friedrich Hayek is generally regarded as the apostle of a brand of economics which holds that the market will assure the optimal allocation of resources — as long as the government doesn’t interfere. It is a formalized and mathematical theory, whose two main pillars are the efficient market hypothesis and the theory of rational expectations.

This is usually called the Chicago School, and it dominates the teaching of economics in the United States. I call it market fundamentalism.

Friday, April 29, 2011

News from down in the Root Cellar

Wall Street closed up again today despite generally bad economic news but hey the oil companies are doing really swell. Their sector was had quarterly profits rise by 45% to 36 billion. That’s works out to 400 million per day in profits.

Wall Street bankers and hedge funds (that’s where the really wealthy go down to the well) are taking their own separate cut off the top of gasoline. Estimated by Reuters to be at least 50 cents a gallon. Americans use 378 million gallons a day so that’s a cool 189 million in profits every day for the bankers with no real investment or contribution to society of any kind. Oil companies for their part do at least produce oil, don’t mind the occasional spillage disaster or that global warming.

People are outraged that the oil companies are making so much money that even the Orange Speaker of the House is pretending to be concerned. But Wall Street is taking $1.89 in profits for every $4.00 the oil companies are taking and nobody mentions that on the news. And the Reuters estimate is probably low, plus the speculators are using the run up in gas prices to boost the prices in other commodities as well, taking god knows how much profit there. This bubble will burst eventually and prices will fall. Don’t worry about the Wall Street bankers, they make money on the way down too. (that also comes out of your pocket)

Meanwhile the economic damage is starting to have an effect as weekly unemployment claims were up again. The USD set new post crash record lows against other major currencies and gold set a new record as more people continue trying to hedge. But gold could be a bubble too as the Fed plans to end the QE2 on schedule in June and the printing presses will grind to a halt.

Cries of hyperinflation aren’t really supported by these price rises as the rest of the economy continues to sag. Stagnate or falling wages and 20 million jobless are simply to big of a drag on the economy to trigger any real lasting inflation. The extra you pay at the pump is just your lord and master collecting a tax to maintain his lifestyle.

Should the Republicans accidentally get what they claim to want and slash spending the economy would take a turn for the cliff in a matter of months. In the old days out on the prairie, the root cellar in the back yard doubled as a tornado shelter. These days you are increasingly more likely to need a tornado shelter thanks to the damage done to the atmosphere by big oil and it had better be stocked with canned goods thanks to the damage done to the economy by Wall Street bankers.

Thursday, April 28, 2011

The Sting or you can't cheat an honest Tea Bagger

The first quarter GDP preliminary number is in at 1.8% growth which is below estimates and given the trend will probably be revised downward next month. We are still better off than the Brits who came in at .5% growth as they have taken that austerity nonsense to heart. They have an even bigger problem with corporations off shoring profits so they really think they are broke.

You might wonder where all that money goes that the rich and their corporate empires offshore. Is it piling up in huge money bins in the Cayman Islands? Do they drive over from their beach villas and go for a swim in the cash like Scrooge McDuck? No, but only because modern “money” is just an entry on the balance sheet of a bank somewhere.

The offshore tax havens (or tax dodging paradises) are only PO boxes and no such place actually exists. The “money” never really goes anywhere but is ultimately “invested” here in the US or in China simply by pushing a couple of buttons. What do they invest in? Factories, office towers, new technologies? Somewhat, at least in China but not here. Mostly what they invest their untaxed trillions in is US Treasury bonds.

Why in Treasuries? Is it that whopping .5% or less interest return they have been getting? (snort) Is it because they are so safe? Well sort of, they’ve been banking on deflation setting in eventually and US Treasuries are like USDs, as good as cash. When you have deflation then “cash is King” and you can do like Gran’ dad Koch did when he came back from the Soviet Union in 1932 (Stalin paid him cash) and he bought up a ton of stuff for 10 cents on the dollar.

Also there is the small problem of the huge amount of cash they have to spend. There is no where to spend that much money except to buy bonds with it. Of course the only reason there are so many bonds for sale is that all these rich bastards have rigged it so they don’t pay any taxes. A great scam if you can find a bunch of suckers who will let you do it. (Bernie Madoff got life in prison for stealing a paper clip by comparison)

All this debt that has the tea baggers are incensed about is just a confidence scheme. The debt is nothing but uncollected tax money that the rich loan to the government. Then the suckers think they owe money to those rich people as we can’t tax the “job creators” or tax their corporations because they would just pass it along to us anyway. So the rich lend us our own money to pay the bills and the debt just continues to pile up.  

Don’t let anybody tell you that we borrow money from China unless you start seeing Government checks that are payable in Yuans. Here again it is nothing but uncollected corporate taxes that ends up in Chinese banks. Oh, and China announced last week they aren’t going to buy bonds anymore but will put their “extra” money into China’s Sovereign Wealth Fund. That means they will be buying more hard assets like factories, mines and oil fields.

But don’t worry, the rich Americans that sell off our assets will continue to buy Treasury bonds with it. They are playing the long con. Do the rich touch the side of their noses when they meet another rich person like the confidence men Newman and Redford in The Sting? They should.

Wednesday, April 27, 2011

The man behind the curtain has another curtain

Ben Bernanke held the very first press conference in nearly a century of the Federal Reserve having dominated our banking system. His excuse for changing this “ignore the man behind the curtain policy” was that he believes in transparency at the Fed but at the same time the Fed has been dragging out the court appeals (which they have been losing) involving Freedom of Information Act requests from news outlets (mostly Bloomberg).

The Fed under Alan Greenspan committed a host of unethical and perhaps more accurately criminal acts of conspiracy with the Bush Crime Family over many years to further his Ayn Rand belief that the rich are rightly the privileged few. Greenspan literally built a house of cards or paper dollars to create a system where the rich could extract trillions of wealth from the middle class under the guise of a “modern” banking/investment system that made the conventional manufacturing economy obsolete.

When the house of cards utterly collapsed in 2008 after Greenspan had conveniently retired his successor simply issued new cards. Trillions and trillions of them to prop up banks and major corporations that by any normal standard were simply bankrupt. This was of course done with the full blessing of the Bush Administration and rubber stamped by the Congress with TARP program which was created by Congress under threat of Martial Law from Bush.

The TARP program at 700 billion was chump change compared to the bailout from the Fed and the fact that the TARP has been largely paid back is completely irrelevant. It’s hard for most people to wrap their heads around the concepts used by the Fed to justify what they do and for good reason. It’s all crap.

The rich privileged class the Fed represents and acts on behalf of do nothing, produce nothing and consume much. The fact that the economy continues to operate is simply a parasite/host relationship and not because the Fed is trying to meet its legal mandate to control inflation and maintain employment. In fact they don’t even make any pretense of doing anything about 7 million workers who lost their jobs in the crash or the 5 million who have come to working age since who don’t have jobs. They act as if unemployment were some act of god completely unfathomable to mortal man. Unregulated predatory capitalism is a given to them and not the problem.

At the current rate of “recovery” these 12 million jobless won’t be completely integrated into the economy for another ten years. (this time frame prediction is also baseless)  If it were to happen however, this is about how long it took to recover from historical “bank panics” (what they called depressions before there was a Federal Reserve).

The Fed was created to prevent bank panics but did nothing to stop the mother of all bank panics in 1933 and FDR dictated Fed policy thereafter in order to achieve a recovery and the New Deal kept the system on an even keel for decades. The New Deal has been repealed and we are living with the result. While the Fed halted the bank panic of 2008, they aren’t likely to stop the bank panic of 2012 and it could be a civilization ender.  (footnote, it might take longer than 2012, the Mayan accountants could be off a year or two)

Tuesday, April 26, 2011

I feel good about the edge

Wall Street had a good day today as higher corporate profits overcame fears that debt ceiling might not be raised. And the folks on Main Street seem to be feeling a little better about the economy according to consumer confidence polling. The perception of the job market is improving with those who say jobs are “hard to get” down to 41.8 per cent in April from 44.4 per cent in March, while the those saying jobs are “plentiful” rose to 5.2 per cent from 4.6 per cent.

Of course these numbers just indicate a “feeling” that people have and don’t reflect the availability of jobs for anybody out of work. It’s more the fact that the guy in the next cubicle hasn’t gotten the axe lately then any real change for the job market. The “jobs are plentiful” statistic of 5.2% is amusing. They would probably get a higher percentage if they asked people if the world was flat. Basically, nobody thinks the job market is good and they are right.

Housing prices continue to fall reaching the post crash level 2009 wiping out most of the market “gains” of the past decade and there is no bottom in sight. This is draining away the only real wealth that most of middle class had and is dragging still more people underwater on their mortgages. The current glut of foreclosed homes will take ten years to clear and this is leaving whole neighborhoods boarded up and rotting away.

The Government’s preliminary report on first quarter GDP will come out Thursday and is expected to show a 2% growth rate, down from 3.1% last quarter. I would be surprised if it’s that good and anyway the first number is never even close to being correct.

The big new talking point from the Right is that we need to slash government jobs because there are now more people in government than in the manufacturing sector. They are also running the parallel talking point that government is too big because it’s a larger percentage of GDP than ever before. They don’t mention that tax revenue as a percentage of GDP is at a 60 year low or that they tanked the economy to make themselves rich.

The same people said we didn’t need any manufacturing jobs, now say we will get them back if we just cut government jobs. They say tax revenue will go up if we just cut taxes. They say the home foreclosure crisis will go away if we stop trying to regulate the banks and allow a free market and deregulated oil companies will drill more and gas will be cheap. The people saying this would be the same 5.2% that say jobs are “plentiful”, but don’t get too close to the edge of the world, the view is nice but you could fall off.

Monday, April 25, 2011

Planting a big garden this year.

The big economic news this morning was that the average price of gas is now double what it was when Obama was sworn in as POTUS. The media gleefully displays charts tracking the President’s declining poll numbers running opposite the rising price of gas.

No mention is made that the last time gas was that low (on inauguration day) was during the Clinton Administration and that gas was as high as it is today in 2008 when it looked like McCain would be President. No mention is made that the Bush policy of endless war with countries that produce oil had taken oil from 18/barrel to 140/barrel. No mention that 140 dollar oil was one of Bin Laden’s demands along with removing troops from Saudi Arabia and deposing the secular government in Iraq. All things that were accomplished by Bush.

The right blames Obama for the collapse of the economy in 2008 even though Obama had no prayer of being elected until McCain demonstrated that he had no clue what an economy was. Obama’s prospects changed when McCain who was trying to look Presidential called a meeting at the White House to deal with the crisis. He then had nothing to say at the meeting which even moved Bush to comment on McCain’s lack of intelligence while Obama came across as thoughtful, knowledgeable and engaged. Sarah Palin was still trying to remember what newspapers she had read.

The truth is that the price of gas has little to do with reality. We have the largest supply on hand in almost 20 years, gas should be selling for around a dollar to follow the historical precedent and the “law“ of supply and demand. Of course 20 years ago much of what is done in commodity trading today was then illegal.

The deregulation of commodity trading and the rolling back of the New Deal was engineered by Sen. Phil Graham R-TX  on behalf of his wife Wendy who was an executive at Enron. This allowed a “new” paradigm in energy trading called appropriately the Enron loophole. Efforts by Brooksley Born, Chairman of the Commodities Futures Trading Commission to sound the alarm in 1998 were quashed by then Fed Chairman Alan Greenspan, Clinton Treasury Sec. Robert Rubin and Larry Summers. You might recall Summers advising Obama until recently.

What the Enron loophole did for electricity in California is what happened to  gas prices in 2008 and the bubble only ended with the collapse of the Wall Street banks. These same banks are still at it thanks to trillions in bailouts from the Federal Reserve so we are seeing exactly the same bubble yet again.

The recent one dollar increase in gasoline price costs the average family 1000/year or about 140 billion sucked out of the economy. This money goes directly into the pockets hedge fund managers, Wall Street bankers and of course the oil companies. This increase also applies to the rest of the economy as well and drives up all prices and makes any sort of economic recovery impossible in an environment of stagnate or falling wages.

Could Obama do something? Yes, he could crack down on speculators by requiring them to actually have real money to back their bidding up of commodity prices. Would this collapse the zombie banks on Wall Street, plunge us into a major banking crisis and end western civilization? Obama seems to think so and he’s probably right.  So he’ll wait for it to happen spontaneously, you can bet Michelle is planting a really big garden this year. I am.

Sunday, April 24, 2011

The Big Medicare Lie

David Brooks of the NY Times seems to be on every news show and his favorite lie to repeat lately is that the average senior citizen gets 450,000 in medical care and pays in only 150,000. His conclusion is that grandma putting 300,000 in debt on the backs of her grandchildren. Nobody ever challenges this ridiculous assertion as news pundits mostly weren't hard science majors so talking points with numbers in them overwhelm them. Besides this is an official rightwing talking point and those are never challenged unless Donald Trump starts surging in the polls by using them, and then they are debunked by every moderator upfront (much to the dismay of unprepared rightwingers who have been making a living from using them).

The fact is that Medicare is solvent for at least another decade thanks to the very modest reforms in Obamacare. You can debate that point but it's irrelevant. Medicare is self funding from the payroll tax and as long as you don't let the Republicans punch holes in it and allow their corporate cronies steal from it, Medicare will work just fine.

Take "fee for service", as many as 2/3 of expensive, painful and life threatening medical procedures are unnecessary. This has been traditionally blamed on the Doctor's fear of malpractice lawsuits (you know, the evil trial lawyers) but in states like Texas that have capped the value of a human life at $250,000 there has been no reduction of services. In fact in some large corporate medical practices the number of expensive, painful, life threatening and totally unnecessary procedures have mushroomed. No fear of lawsuits doesn't seem to keep costs down (well, duh).

You could simply pay Doctors a salary and not allow them to own diagnostic labs or expensive and very profitable equipment as a "for profit" sideline. You could reward Doctors who produce a higher rate of favorable outcomes with handsome bonuses (the right likes that idea for teachers). But, but, but that would be socialist medicine and we're capitalists (especially the rich).

But where do the rich go for their "best in the world healthcare". They go to places like the Mayo Clinic where they operate on this "socialist" model of healthcare. Say what you want about the rich but they aren't stupid, they want favorable outcomes and not to have 2/3 of the procedures done to them be of the expensive, painful, life threatening and totally unnecessary variety. The rich do however think the expensive, painful, etc model of healthcare is just fine for you or better yet you can go without healthcare entirely. David Brooks makes his living seeing to it.