Friday, June 24, 2011

Short selling on Republican futures

Crude oil has fallen by 7% as traders that were certain Goldman Sachs had the market fixed and that $150/barrel oil was a certainty have taken a bath in their own blood. Short sellers (those who bet the market will go down) have been cleaning up as the price falls. Short selling wasn’t the smart bet so those contracts would have been available cheap.

If the smart money moves to a short position because Obama has promised to continue pressure on the market then you could see the price continue to fall. Saudi Arabia would like to see $70 oil, but once a good old fashioned market crash gets going there is no bottom. Not that you need to cry for the oil producers, most oil will pump from the well for under $20 a barrel and $30 will get oil from the most stubborn well so they’ve been cleaning up for almost ten years and long term there is always money to be made in oil.

When Bush came into office the price was $18/barrel and he ran it up to Bin Laden’s demanded price of $140/barrel, but that only lasted until Bush crashed the economy.  Now the man Bush “couldn’t find” is dead and the President who killed him is driving the price of oil down.

The CBO estimates that if absolutely nothing is done by Congress which would mean that the current Obama budget is maintained and all the Bush tax cuts simply expire after two years, the CBO estimates that by January 2017 the government will start to run a surplus. The one fly in that ointment is that this scenario would also allow the full implementation of the Alternative Minimum Tax originally put in place in the sixties to force millionaires to pay taxes and not dodge them completely with exemptions and deductions.

This concept has been completely perverted by the Republicans since then as millionaires and now billionaires don’t pay the alterative minimum tax on very much of their income but the upper middle class does. Because it’s not indexed to inflation the tax threshold would now intrude on ordinary middleclass workers without the series of annual raises of the threshold that the Republicans have allowed only after extorting concessions from Democrats.

So the apparent reason that Republicans have walked out of debt ceiling talks is that Obama is bargaining from a position of strength and doesn’t need to accept any spending cuts. Mere inaction by Congress will allow Obama to campaign on the promise of a balanced budget. Then the question is are the Republicans ready to default on the debt? Their Wall Street masters won’t be very happy if they do. Since Wall Street doesn’t care who is in power as long they keep getting rich the Republicans are screwed. Will Republicans give in or risk a complete meltdown? A meltdown  could play into Obama’s hands as well. The modest financial reforms that were passed when Democrats were in control of Congress gives Obama the authority to do away with much of Wall Street if they really get into trouble from such Republican intransigence. To the surprise of almost everyone Obama does seem to be playing chess.

Thursday, June 23, 2011

Play it again Sam

Last week’s initial unemployment claims were up again and according to the Chairman of the Federal Reserve we can expect high unemployment to become the new normal for the long term. Even though the Federal Reserve is mandated by law to maintain low unemployment, not only have they have thrown in the towel but they are implying there is nothing to be done. Chairman Bernanke has also claimed to be surprised at the high rate of inflation we are seeing. The Fed is surprised that when they printed a trillion dollars and pumped it into a 15 trillion economy and that would produce inflation. (Mon Dieu! There’s gambling at Rick’s? I’m shocked, shocked!)

In the meantime the hero of the movie has been doing other things besides killing Major Strasser (I mean Bin Laden). The President has obtained a commitment from our allies to pump 60 million barrels of oil from strategic reserves to break the stranglehold Wall Street speculators have on the market and more as needed. This produced an immediate and blistering response from the Congressman representing Wall Street who is currently serving as Speaker of the House. It’s his opinion that we don’t have an emergency, Wall Street is doing just fine. We just need to drill more, [sob!] Obama is blocking all drilling you know. [sob!] The twin finds in the Gulf of Mexico of 700 million barrels each announced two weeks ago not withstanding. Each of these is equal to the US Strategic Petroleum Reserve.

What Boner really doesn’t like is that Obama’s maneuver might actually work. Gas prices had already begun to slide which indicates that Wall Street is unable to hold them up and further pressure should pop the bubble. If it works it also proves that the proposed rules to ban oil speculation should be implemented and Obama can use this against Republicans who have been predicting the end of the world if Wall Street was ever to be regulated.

Anecdotal reports of large new factory expansions suggest the economy is in recovery and a sharp cut in oil and gas prices would add significant stimulus. The position of the Fed that there will be inflation also forces the big corporations who are sitting on more than 2 trillion in cash to think about actually putting that money to work or watch it erode from inflation.

These corporations were holding onto cash as a war chest or more accurately a pirates chest. Ever since 2007 the economy has been teetering on the edge of runaway deflation and a general collapse. They were all positioning themselves to loot and pillage the economy for ten cents on the dollar. If a more traditional rate of inflation can be cooked into the economy that strategy falls apart but runaway inflation must be avoided on the other hand and Obama taking an active role in controlling oil prices is required.

To be clear we are a long ways from having a happy ending to our movie since we still need a manufacturing policy, a trade policy beyond tactic cooperation from China and 80% of Wall Street needs to be eliminated.  But, we do seem to have an inkling of an energy policy at least when it comes to the Wall Street parasites. Maybe “this is the beginning of a beautiful friendship” after all.  [Rick and Captain Renault stroll into the night]

Wednesday, June 22, 2011

Greed is good, for the greedy

That forlorn looking couple standing in front of their house holding a pitchfork in the Grant Wood painting American Gothic are on their way to the homeless shelter. More than 500,000 people from rural areas and small towns are seeking a cot at homeless shelters and this is up 57% from 2007 to 2010.  This number of people if they were a city would rank 33rd in population between Tucson AZ and Fresno CA. This “small town” would be larger than 42 state capitals and also qualify as the 103rd largest metropolitan area.

Of course this is only the rural homeless and in total 1.56 million are without shelter in the US and this population would rank as the 39th metropolitan area at about the same size as greater Milwaukee Wisconsin and larger than metro areas of Jacksonville FL, Memphis TN, Louisville KY or Richmond VA. It would 2.5 times larger in population than the District of Columbia  The total homeless population is also larger than any state capital just edging out Phoenix AZ.

These are of course only the “official” homeless who find themselves on the street at least part of the year. On any given night it’s estimated that people in shelters or out of doors totals 750,000. But this doesn’t begin to cover the total number of Americans who don’t have a home, it just counts those who have run out of options. If you can stay with friends, family or just never register with a social services agency seeking shelter you won’t be counted as homeless, officially you are still living the American Dream.

Of the 80 million baby boomers, fully half report having at least one adult child living with them which is another 40 million plus people without a home of their own.
In the last Census there were 15.5 million multi-family households, again not counted as homeless, a number that has doubtless grown in the past year and will continue to rise with 1.7 million foreclosures in process and many more on hold as banks struggle to unload houses already on the market.

Multi-family households are mostly two or three generations of the same family with Social Security going a long ways to keep everybody from living out doors. Over 54 million people live this way according to the Census but they don’t count siblings who live together or single adults living with parents so the number of people who can’t afford housing is much larger, tens of millions larger. You may in fact be talking about a third of the population, if not now, it will come soon enough. But this is the age of “new normal”, so a roof over your head is counted as a good thing no matter how stressful or tenuous.

At minimum wage, even two people working fulltime cant’ afford an apartment in any market and this is the reason that a third of the homeless are rural poor. No more going home to grandpa’s farm like folks did in the last Great Depression, the farm is long gone. Work is scarce in rural area with 58,000 factories closed in the last ten years. People who don’t live under the threat of deportation don’t get hired for migrant work anymore like in the good old days the “Grapes of Wrath“ so that isn‘t an option, but there are Hoovervilles down by the river or in the wooded areas beside the Interstate just like in the good old days.

We could really use a “New Deal” in this country but the vestigial elements of that are being stripped away under the slogan “we’re broke” so we can’t afford to take care of the poor, the sick and the elderly. The homeless better pull themselves up by their bootstraps.

The truth is the exact opposite of course. Even with the economy devastated by Reaganomics if we simply returned to Clinton era tax collection rates which were extremely low by pre-Reagan standards we would run huge surpluses. If we eliminated everything stupid that has been done since Reagan we would be enjoying the kind of growth only the godless communist Chinese have today. The kind of growth we used to have before greed became good.

George Soros

My Philanthropy
By George Soros
The New York Review of Books
June, 2011 
The formative experience of my life was the German occupation of Hungary in 1944. I was Jewish and not yet fourteen years old. I could have easily perished in the Holocaust or suffered lasting psychological damage had it not been for my father, who understood the dangers and coped with them better than most others. He had gone through a somewhat similar experience in World War I, which prepared him for what happened in World War II. 

Monday, June 20, 2011

Latest ruling from SCOTUS Inc.

The Supreme Court of the trans-national corporations issued another ruling today effectively banning class action lawsuits. They won't come out and say that but keep issuing 5-4 rulings to that effect. Supreme Court watchers have had a problem rating the Court liberal or conservative since the cases seem to go either way at random, but all you need to do is look to how a case affects big corporations and there is the answer. The Court or rather the majority of the Court are neither liberal or conservative on those cases but simply corporate. Some really bad rulings don't even involve the Court directly but simply hinge on the Court refusing to hear cases on decisions made by Bush appointed Appeals Courts. You only need 4 Justices to accept a case so apparently the Court really isn't divided 5-4 when it comes to corporations trampling on Americans.