Friday, October 28, 2011

Sorry Senator, we couldn't budget a bribe for you this quarter

The stock markets were flat today with some indexes up slightly and some down on very light trading. Nobody can quite decide if the Euro zone deal will really work. At best it’s only a framework to start from and could fall on its face if investors aren’t willing to put hundreds of billions into a stabilization pot. A senior EU official went to Beijing with hat in hand seeking help and China’s response was positive. Indeed what does China have to lose? They have an awful lot of Euros and they really don’t want to see them trading on par with currency from the Confederate States of America.

Nor does China really want to see the USD become the only major currency in the world. They hope to see that role being filled by the Renminbi (or People‘s Currency), but they aren’t quite ready for that. Maybe in five years when their economy has eclipsed that of the United States. Given the likelihood of the US collapsing into complete chaos in the next couple of years, the Chinese are probably being too cautious.

The US economy is showing some growth, consumer spending is up and businesses are buying new equipment. The problem is that consumers are spending savings and using what little credit they have left to buy things they have been putting off. This sort of spending will peter out quickly if nothing is done. Business believes this to be true because the only equipment that they are buying is to replace worn out machines and they aren’t hiring or expanding.

Whirlpool, which is the world’s largest appliance manufacturer and also a big player in union busting, along with outsourcing to Mexico, announced today a 5000 person cut in its workforce, and the closing of a major plant in Arkansas. The Arkansas plant was only built to break unions in the northern states, but with that accomplished it is now surplus production. You see with no middle class, the building of shiny new appliances isn’t really needed so much.

This doesn’t really matter to the one percent, all that matters is that they completely control 100% of everything. We are very close to the tipping point with core inflation approaching the zero line, below that lies deflation and economic collapse. Having the Federal Reserve print more money for a QE3 cash infussion isn’t going to stop it this time. Massive government spending is the only thing that can put the brakes on as this would create actual jobs and demand for goods and services.

You’ll never guess which party is suddenly in favor of massive government spending to preserve jobs. No, it’s the Republicans. With reports that the super committee is not getting anywhere on balancing the long term budget, the prospect is looming for massive cuts to the Pentagon budget to be triggered if they don’t act in the next few weeks. There would also be cuts to Medicare, but they don’t care about that.

Republicans are predicting the loss of a million jobs and total chaos as the military and more importantly the Military-Industrial Complex types won’t be able to budget for 2013 given all the “uncertainty“, and when they say budget, they mean arranging kickbacks for Republicans. Who says the one percent don’t suffer in an economic downturn? Well they don’t, but sometimes their lackeys do.

Thursday, October 27, 2011

The Grass is Greener Today but it Hides the Snakes

The stock market was up a solid 3% today on the announcement of a Euro bank deal and better than expected growth in US GDP. Banks holding Greek bonds are going to take a voluntary haircut of 50% and the voluntary aspect is important. That it should keep the avalanche from starting on Mount Derivatives of Doom, estimated from $600 trillion to $1.4 quadrillion in potential payouts, that is if things start to unravel.

Right wingers always say “there are counter parties to derivatives and it will all balance out”. If that were really true, there would be no point of having them to begin with. It really is a wild combination of high stakes poker and Russian roulette. Although it’s never the rich bankers whose brains get splattered on the wall, they just keep the pot.

The growth of US GDP was better than expected and if maintained next quarter this would be great news, with the caveat that we still don’t have policies for manufacturing, trade tariffs, energy production, infrastructure, progressive taxes or any of the other things we need to bring back the middle class.

The Consumer Price Index showed only 0.3% inflation in September which was down from August. If you eliminate food and fuel it shows core inflation was only 0.1% and this is not good. It means that wages are still flat at best and probably falling for many Americans. This again brings us to the edge of deflation and the collapse of economic activity. This is echoed in the continuing high number of unemployment claims last week.

The Federal Reserve is again hinting at a QE3 but they are getting to the point of diminishing returns. There isn’t a lack of money in circulation, banks are wallowing in it, even charging large depositors for keeping it rather than paying interest. The rich are willing to buy short term Treasuries that pay no interest, even ten year bonds are at just 2%. This doesn’t count trillions held offshore to avoid paying US income taxes.

The government could easily give the economy the boost it needs by direct loans to small business, enforcement of the Buy America Act for Federal Government purchases and by increasing the income of the bottom half of its citizens. An increase in the minimum wage, as well as in transfer payments (as the Right calls them, short for Wealth Tranfer), such as Social Security, welfare and veterans benefits. Raising the wages of all lower paid government workers would also provide an immediate increase in demand.

This would need to be followed immediately by reversing everything Republicans have pushed through since 1947 when they created “Right to Work for Less" states on up through the Reagan tax cuts and Clinton trade and Wall Street “reforms”. It is also essential to break up all the big banks and corporations. Eliminate monopolies like Walmart, McDonalds, big media and on and on.

It’s going to take more than a few thousand people occupying a park to change these things, but if we don’t make these changes, any gains, if there are any, will be reversed and worse. Get used to being a feudal serf or fight back.

Monday, October 24, 2011

Teacher says, "Every time a bell rings, another angel gets his wings"

Bad news for the one percent, Swiss banks are getting close to settling a sweeping U.S. criminal probe of offshore tax evasion by paying billions of dollars in penalties and handing over the names of thousands of Americans who have secret accounts. The Swiss government is pushing for the settlement that will include all Swiss banks in a bid to keep their traditional secret banking system intact even though they have already settled in a similar manner with EU regulators. Presumably the secrecy will still be maintained for third world dictators and drug lords.

Eurozone negotiators have asked (or rather demanded) that holders of Greek debt accept a 60% hair cut in the face value of their bonds, this requirement far exceeds losses agreed to in a deal between private investors and eurozone authorities three months ago. Bond traders claim that a 60% cut in face value would really be equivalent to a 75-80% reduction in current value.

Coincidently Bank of America recently transferred $75T worth of derivatives based on things like Greek bonds and such from its Merrill Lynch holdings to its insured deposit division. This was over objections from the FDIC that would have to cover those deposits after the bank is looted of assets by a collapse of the derivatives being held by BoA. This was the downfall of Lehman Brothers that precipitated the 2008 banking collapse.

In theory the International Swaps and Derivatives Association’s determination committees could rule on such a “credit event” after they are asked to intervene. If they determine that debt holders agreed to take losses then derivative contracts wouldn‘t pay off. Germany is pushing hard for this sort of outcome rather than triggering the end of civilization. The bond holders aren’t happy of course, “There are limits, however, to what could be considered voluntary,” said Charles Dallara, managing director and chief negotiator for the Institute of International Finance, representing bondholders.

Closer to home, insurance regulators in Arizona have seized the main subsidiary of private mortgage insurer PMI Group Inc. and regulators will begin paying claims against mortgage insurance by creditors at just 50 cents on the dollar and may stop paying them all together. The company had been skating along by denying claims from banks because they were presenting sketchy paperwork, but they have finally been overwhelmed by the collapse of the housing bubble.

President Obama went to Nevada today to announce the liberalizing of the standards for refinancing homeowners that are underwater. He’s doing this by Executive Order and so it’s only a partial fix at best, since any real reform would require an Act of Congress. The White House won’t say how many homeowners might be helped, and while it could be millions, the program is strictly voluntary from the stand point of the bankers. So the really number is probably zero.

Snidely Whiplash, I mean Mitt Romney, criticized the President for “letting the housing crisis go on too long”, not that more help should go to home owners, but rather they should all be foreclosed on much faster. “Get the houses into the hands of investors that could, you know, fix them up and rent them out”. You know like Romney’s Bain Capital did for our manufacturing base. Mitt sounds exactly like the evil banker in It’s a Wonderful Life, the question we need to know the answer to is Obama’s angel going to get his wings?