Friday, September 30, 2011

The News has many layers like an Onion and can make you cry

The Dow fell 241 points today, taking it well under 11,000 but still a couple of hundred points above bear territory (which is a 20% drop from the previous high). Commodities also took a beating, except gold which was basically unchanged today. Gold has lost about $300/oz from its recent peak. If you are still tempted to buy gold, keep in mind that if you bought it at its peak in 1982 at $850/oz and kept it, rather than sitting pretty now that its at $1600/oz, you would still be in the hole as the inflation adjusted price should be $2500/oz.

The Federal Reserve will start Operation Twist on Monday where it will begin selling off 400 billion in short term Treasury bonds from its holding and buying the equivalent in long term bonds. This program is to be spread out over the next 9 months with the intention of driving down long term interest rates. The current return on thirty year bonds is already down to 2.9% falling 0.35 points since the announcement of the Fed program. Two year notes on the other hand have jumped to 0.25% from near zero.

Just after yesterday’s economic numbers indicated things might not be as bad as we thought, we find out today that personal income fell in August. This was the first drop in nearly two years and explains the relatively flat consumer spending numbers. The savings rate also hit a two year low as consumers are tapping savings to pay the bills.

Almost everybody with any influence is still talking about austerity as the solution to Europe’s problems and here in the US too. Any further cut back in government spending will of course be a death blow for and economy that is barely holding its own.

Congress comes back Monday and the hostage taking begins again. The Senate had offered two budget extension options to the House, one of six weeks and the other of just one week. The Republicans of course chose the one that will crash the government on Tuesday (the day after they comeback). They are demanding cuts to the budget of what are really trivial amounts of money, but they make sure they only demand cuts Democrats are loath to make.

The party of life is determined to cut the WIC program that feeds pregnant women and infants. They also have their sights set on cutting health insurance for kids and health clinics. They believe in right to life until you are actually alive, and then they try to kill you. The Onion satire magazine is “reportedly under investigation” by the Capitol Police for running an article describing Republicans holding school children visiting the Capitol building hostage as Obama negotiates by bullhorn.

Tweeted updates of the ongoing hostage situation apparently set some Republican news manufacturer into high gear, who then set about creating the illusion of a scandal over the “incident” created by The Onion. Congress wasn’t even in session at the time, making it unlikely that the Capitol Police were the least bit alarmed, if they even noticed.

The only difference between The Onion and Fox News is that one of them produces made up news that is actually funny on purpose.

Thursday, September 29, 2011

The view from under the lemon truck

The weekly report of Initial Unemployment Claims dropped by an unexpectedly large number of 37,000 to 391,000. This is the lowest it’s been since April when high gas prices stalled the economy. It seems things haven’t been as bad as we thought with the government having revised second quarter GDP upward showing a 1.3% growth instead of only 1%.The Bureau of Labor Statistics also revised March job growth up by 192,000 additional jobs, that number would be a good month by itself.

The new normal standard for labor statistics says that anything under 400,000 claims per week indicates significant job growth. That’s the good news, the bad is that retailers are expecting a mediocre Christmas season and are planning to hire a small fraction of the usual seasonal workers. Part of the reason for this is that they already have the help. Retailers have so many people working part time that they can simply increase hours to cover the seasonal demand. That isn’t bad news if you have a job, and you might not need that second seasonal job if your hours are increased. So really, this may not be bad news at all, but could signal a sort of recovery in itself depending on how good retail sales turn out to be.

Things might look gloomy for JC Penny and Walmart, but the parallel economy of high end retailers are expecting another great year. The stores where the top 10% spend their 40% of the retail dollar are doing just fine thank you. The bottom 90% continue to drift toward a lower standard of living with an increasingly smaller share of the pie, even as the pie shrinks. Okay the pie did grow by 1.3%, but we all know where it went. The rest of us can eat cake.

Much has been made of the recent weakening of China’s manufacturing sector, but China has been moving for sometime to reduce its dependence on exports and this is probably the only significance of the downturn. To illustrate the point, China passed a new milestone in the third quarter on its way to world domination. For the first time ever there were more new corporate bonds issued that were denominated in Chinese Renminbi rather than in Euros. The USD still dominates the world with fully half of corporate bonds issued in green backs, but the issuance of Dim Sum or corporate bonds valued in Renminbi for investment outside of China are also growing unabated.

The right likes to talk about all the opportunities there are in a downturn, “when you’re given lemons, make lemonade”. So if you’ve been hit by the lemon truck or more specifically you’ve been given the permanent vacation by the heartless corporation you worked for, you can look forward to getting a Hallmark card to commemorate the occasion. Hallmark has a whole section devoted to the cards, and with 400,000 Americans put out of work every week, they have identified a truly big demographic. At least Hallmark is creating jobs, if the cards aren’t made in China. I think I’d prefer to get an envelope with few Renminbi in it.

Wednesday, September 28, 2011

The Truth has to be a Hoax

The stock markets were down again today as were commodities (especially oil) and this is widely attributed to a “lack of confidence” in the economic outlook. Well duh, the economy is circling the drain and the Republicans and their billionaire masters just keep tripping the flush handle.

The big, really big thing to fear in an economic downturn is deflation. This has been a problem ever since humans started using money. The thing that defines bankers throughout history has been their ability to use the twin phenomena of inflation and deflation to separate people from their money. The founding fathers warned against bankers and gave the power exclusively to Congress to establish the value of money. We all know how that’s turned out.

Most of us think of inflation in terms of the Consumer Price Index but that’s really just a survey and it’s been heavily manipulated over recent years to eat away at the standard of living. For example every time computers or cell phones have improved, this improvement has been counted as a price reduction.

There is a more relevant measure of inflation that is used by investors. It’s not perfect but it measures the expected rate of inflation over the next 30 years by the difference between Treasury Inflation Protected Securities (Tips), and the regular cash government bonds. It‘s dropped as low as 1.85% in the past week down from 2.73% last month. The idea behind this measure is that investors know what the money supply is really doing as they cast about for some place to put their trillions. The big boys in fact employ a lot of really smart people to figure out what is going on, but they never, ever tell you what they know. They tell you what they want you to know.

This inflation number revealed as “truth” by the movement of billions of dollars is way below what the Federal Reserve wants to see for inflation. This means that you can expect more cash hoarding. Corporations are already sitting on 2 to 3 trillion dollars and the rich still more piles of cash. This means no investment and no spending which ultimately drives the deflation cycle, think 1929 times a thousand.

It doesn’t really matter if the bond traders are right or wrong because they represent such a huge overwhelming force that the economy will conform to their opinion. Up will be down, black will be white. This is what happens when you let the “invisible hand of the market” control things instead of having  national policies for manufacturing, trade, banking, energy… well you know, all of those things Republicans don’t want regulated because it lets them steal from you.

The predators rarely tell the truth in public but the rare exception was a previously unknown trader named Alessio Rastani appearing on the BBC who said, “… that governments don’t rule the world, Goldman Sachs rules the world…”. He also elaborated on what a money making opportunity the Great Depression was and how he has been dreaming for three years about the coming collapse of the Euro and the markets. [the video is available at]

The interviewer was rather shocked and said “jaws were dropping in the studio”. When it was pointed out that his candor didn’t really provide any help for the rest of us, he responded by saying that anyone could do what he is doing to prepare by moving into the USD, US T-bonds, putting money into hedge funds and such.

The reporter didn’t point out that all this money he was going to make would come from other peoples’ pockets, and it certainly wouldn’t occur to this trader that this might be wrong. The entire financial services industry revolves around picking other peoples pockets but they constantly pretend that they are “creating wealth”. In reality they’ve never created a dime and never will.

The response from the Right was that this was a hoax from the group The Yes Men who regularly protest greedy bankers and corporations. Subsequent investigations by other reporters as well as the BBC claim the guy is real. Certainly everything he said was true. But this is a truth never spoken, the “official” truth is spoken instead: Wall Street makes money, the invisible hand of the economy knows best, we have a flat earth economy, black is white, down is up, conservatives are patriotic and above all they are your friends, you can trust them.

Tuesday, September 27, 2011

Countering the Tea Bagger Gambit

A new government report came out today detailing just how bad the current Great Depression has become. Things are indeed as bleak now as they’ve been at anytime in the 70 years since the last Depression, and the turn around is still not happening.

For the second year in a row (in 2010), Americans earned less and spent less. They spent less on food as more people go hungry at the end of the month or are simply buying cheaper food (or food like substances). Those who formally  aspired to the American middle class have cut back on entertainment and eating at restaurants and they give less to charity. But the costs they can’t control like gas, heat and health care continue to go up.

Only twice since the Labor Department started doing this survey nearly 30 years ago has total consumer spending declined. In 2010 spending fell by 2 percent. The only other year when consumer spending fell was the year before that.

The good news is that the rate of income decline slowed last year to a negative 0.6%, which was better than the 1.1% drop the year before. In 2011 the early numbers actually show a modest but tentative increase in both income and spending. The cut in Fica taxes was supposed to give a big boost to consumer spending but was stifled by high gas prices, with the average $150 per month tax cut simply going into the gas tank and for higher food prices driven by energy costs and of course Wall Street banks speculating in food commodities.

What improvement that we have seen comes from gas prices coming down 50 cents/gallon from their $4 peak in May. We could probably thank Obama for this from his putting Strategic Reserve oil on the market and we aren’t paying $5 plus as the Wall Street banks were predicting. Since 40% of the pump price is a direct result of these same Wall Street banks, their predictions are usually accurate. Gas prices are falling again this week as speculators are forced to sell contracts to meet margin calls as a direct result of the whole financial system teetering on the brink of collapse.

No need to shed a tear for the big banks as prices fall, they make their real money from selling derivative contracts. These “financial weapons of mass destruction”, as Warren Buffet called them as they are really time bombs, are supposed to protect the buyer against swings in prices. These totally unregulated and non-transparent contracts are extremely complicated however, and weighted in the favor of (wait for it) the banks.

 Triggers built into the contracts are not known to the market in general and other holders of similar contracts don‘t know how vast the holdings are. Complimentary contracts across a commodity group can cause a domino effect that nobody outside of the banks can see coming. The Dodd-Frank Act is supposed to rein in these contracts and Republicans have been doing everything possible to keep that from happening.

Commodities including gold were up significantly today, after four days of declines, they were up based on news of a possible deal to save the Euro zone. This rosy outlook also pushed up the equity markets. The Senate deal to avoid a government shutdown didn’t hurt the markets either.

House Republicans had slyly made a two pronged advance across the chess board to force the Senate to sacrifice 20,000 green jobs, mostly in the auto industry, or instead let disaster relief money run out. The biggest cut was to a Detroit advanced engineering program that was ironically endorsed by the US Chamber of Commence, you know, those real lefties.

The House then skipped town with the game plan being that the Senate would either have to make the job cuts further crippling the economy, or let FEMA run out of money today, and that option would also cutting jobs from recovery construction. A certain checkmate for the GOP (Greedy Old Party). However the Obama Administration was able to come up with enough money to fund FEMA disaster relief until end of the fiscal year blocking a move know as the Tea Bagger gambit once again. The Republicans not wanting to take the blame for a government shut down at the end of the year on Friday agreed to a Continuing Resolution temporarily funding the entire Government at the rate agreed to in debt agreement in August.  

While Obama can slap the clock on the speed chess board and lean back satisfied that he’s kept the government running for another six weeks, the game is obviously not won. The Republicans are not shy about killing pawns on this board game called Class Warfare. A contest that’s scored in real blood while they maneuver to take out not just Obama, but all of the middle class from the 99th percentile down.

Monday, September 26, 2011

Out of the Pizza Pan and into the Fire

When the current Great Depression started the southern states were booming, and the rust belt states were already in serious decline from the outsourcing of manufacturing jobs. Now it’s the south’s turn to see steadily rising unemployment as the lower paid jobs are now being outsourced, and the general lack of demand brings layoffs in the retail and service sectors.

A reverse migration of skilled workers from rust belt states who have ties to the south also contributes to the unemployment rate as they displace local workers. On top of this, is the attitude of Red State governments to slash jobs and cut revenue and you have a self reinforcing decline.

One of the states with the fastest declining job situation is Texas where Governor and one time Presidential candidate Rick Perry and the Republicans are determined to do all of the wrong things. They have yet to realize that an economy can’t be operated on articles of faith. They have faith that cutting wages makes everybody rich, that no taxes on the rich will make more rich people and free trade is really free. An F-5 tornado can be modeled with numbers put into equations, and numbers put into equations define an economic model. Neither of these phenomena care if you believe that the numbers don’t matter, either of these (sets of numbers) will kill you if you ignore them.

Rick Perry fell on his face in the Florida debate, and then finish a very distant second in the Florida Straw Poll. This was not because he gave the wrong answer on immigration. Mitt Romney did kill the Dream Act in his state and he did even worse in the Poll than Perry. Florida’s Straw Poll was different than the Ames Iowa Straw Poll where the person with the most buses and the best box lunch wins. Potential voters in Florida were restricted to party activists who tend to have some money, and therefore a greater interest in economic policy.

Rick Perry’s plan for the economy revolves around Texas swagger (as in don’t step in that pile of swagger). Mitt Romney successfully pointed out that Perry was taking credit for jobs he didn’t create, and in fact Texas is declining fast. Mitt Romney wasn’t rewarded for tattling however, as people are catching on to the fact Mitt created his jobs in China and India. Mitt also has a problem campaigning to a small group like in Florida, Republicans who meet him describe him as “the more you get to know him the less you like him”. He’s basically a rich preppy kid who has never worked and has no clue about anybody who does. This results in Mitt constantly sticking his foot in his mouth. It doesn’t really have that much to do with him being a Mormon because neither of the hardcore Christians got the votes either, Bachman got almost none.

Enter Herman Cain, personable, passionate and best of all, he has an detailed economic plan. If he wasn’t, you know, [whisper] BLACK, he would have swept the Straw Poll by an even bigger margin. The problem is that Republican grey beards don’t really want people talking about the economy too much, they might start learning something (can’t have that).

They won’t however, learn anything from Herman Cain’s plan. It’s utter nonsense, but it’s complicated enough with lots of buzz words Republicans like in it. This makes the dim bulbs think he’s really on to something. After all he made the pizzas come on time, just like Mussolini did with the trains.

The clever symmetry of the Pizza Plan is it has three “nines“, like nice even slices of pizza pie. Why it doesn’t occur to people (even dumb people) that there is no reason that these numbers should be the same… oh what am I saying, these people go for this kind of crap all the time.

Herman’s Pizza would have 9% flat corporate taxes, that would be 2 points less than they pay on average now. An individual flat tax of 9% for everybody, people too poor to pay now, would pay 9% while the rich would go from an average of 28% down to 9%. To pay the bills, a 9% National sales tax, on top of the 6 or 7% most states have now, not counting the need for more state revenue as the Federal Government shrinks under this plan.

To top this off there would be zero tax on repatriated offshore profits so that there would be no impediment what so ever to outsourcing jobs. No capital gains tax, so Warren Buffet would pay no taxes at all. Elimination of the “Death Tax” so that the top 0.024% who have estates large enough to be taxed would “save” $1.4 trillion over the next 10 years. The bottom 99.976% would get no benefit but would need to make up the $1.4 trillion. He preaches elimination of payroll taxes which means no funding mechanism for Social Security or Medicare, but who needs that?

His conclusion is that this would immediately put 10 million people to work and dramatically increase revenue. Let’s see, the plan encourages outsourcing and capital hoarding since capital gains, offshore profits and rich people in general aren’t taxed. The poor and middle class have their taxes increased dramatically whether they are working or not (9% sales tax and 9% income tax with no exemptions for luxuries like kids), but they get no benefits from the shrunken government. But Herman Cain’s plan will get here in 20 minutes or less.

Sunday, September 25, 2011

Talking Points

 First some rules for Right Wing Talking Points, all comments are moderated (that means they have to get by me).

You need to give me the impression that you at least read my blog before I will consider them.

Repetition doesn't pass for knowledge. "Clever" proverbs about thriftiness, stupid assumptions couched as "common sense" and your prejudices are not wisdom.

Do not appeal for compromise or pretend the left is biased. Halfway between right and wrong is not truth. 

Long winded augments won't even get read, get to the point.

Don't kid yourself that you know this crap better than I do, and that because you don't understand what I said that makes you right. If you didn't understand my point, read it again. There are books on economics and dictionaries if you still don't understand.

Before you start writing remember that I will post what you write only to rip your guts out and display them for the crowd.

Speaking of Talking Points
Mayor Bloomberg went on Meet the Press this morning and demonstrated his total lack of any clue about what is wrong with this country. Apparently his comments last week about fearing an Arab Spring style uprising in the US because of all the out of work college educated youth weren't based in understanding. Unless he's been taken to the woodshed by the other billionaires, because he's right back on the talking points.

Mayor Bloomberg on Meet the Press