Saturday, December 17, 2011

Tar baby

Senate Democrats caved to Republican demands and allowed the Tar Sands pipeline to remain in the budget bill. Obama had vowed to veto this, but has relented because the compromise doesn't force the construction to go ahead. The bill only requires Obama to decide the issue in 60 days instead of waiting until 2013. Republicans think they can't lose, Obama is damaged if he does or he doesn't. His safest move is to approve it, unless the liberal base makes enough of the right kind of noise about it, so that Obama benefits from killing it.

Update: Obama is now suggesting that putting a sixty day time limit on his deliberative process may force him to reject the pipeline.

Some pipeline facts: There are lots of pipelines although this is a large one, in itself the pipeline is not the problem. The company that is buying the oil has its refineries in a tax free "trade zone", the US will get no revenue, just the pollution. They are only going to make diesel fuel as the sour crude isn't good for anything else, this means very few refinery jobs and there is no need for the diesel in the US anyway. There is the small matter of burning four times as much Natural Gas equivalent to the oil being extracted to separate the oil from the sand. Why do this? There is no demand for more natural gas and it's available on site for practically free. It's like killing buffalo for the tongues.

Thursday, December 15, 2011

We are worth 58% and are being marked down for clearance

Initial unemployment claims were down again for last week by 19,000 and the raw numbers unadjusted for seasonal factors dropped 95,000. Now that claims are “only” 366,000/week we should see the hiring trend pick up. This improvement wasn’t simply because of seasonal hiring, remember it’s adjusted for the season and major retailers did not do a lot of temp hiring this year. Retail sales aren’t really up much and it appears the Black Friday hype has also generated a huge number returns especially in big ticket items. Buyers are realizing they really can’t afford to spend the money, and this is going to impact final sales figures.

Some new numbers have come out from the conservative Financial Times pointing to why the US isn’t recovering. During normal times since WWII the worker share of business income has been 63% with 37% going to investors and management. This has been eroding since Reagan of course, but has dropped sharply in the last ten years.

During past recessions the workers’ share of income has always risen as profits were curtailed and would decline after recovery. During the current Depression however the exact opposite happened with worker share falling sharply in 2008. When the companies recovered back to normal operations the workers’ share continued to fall and is now down to 58%.

The difference between the historical norm and today is $740 billion or about $5000/worker per year. This is five percent of GDP and doesn’t take into account any multiplier effect from workers spending this money.

The new numbers on CEO pay at the top companies show a 37% jump for last year, and across a broader survey of 3000 companies the number was up “only” 27% on average. This is where the trillions are going and really I don’t think the numbers from the FT are adequate to describe what the 0.1% are really doing. They have become very skilled at hiding profits overseas that don’t  show up in these statistics.

The long term damage to the country isn’t counted either. Crumbling infrastructure and the exporting of our manufacturing base are the things you can easily see. We are losing our skilled labor as they grow old and aren’t replaced, and all across the spectrum the educated people needed to have a first world country we are losing skills. All manner of engineers, medical researchers, architects and anything else you care to name is being outsourced, or the jobs simply disappear as demand shrinks.

More importantly our young people aren’t being trained or educated but are left to languish. American universities are granting half of their advanced degrees to foreign students to keep their own cash flow up. Republicans constantly harp that we should give all these graduates green cards so they would stay here and build America. This is just another hollow talking point, there are no jobs for them here, American professionals with decades of experience are going overseas to find work if they can.

The so-called skills shortfall talked about in media is simply a fabricated excuse to bring in more foreign educated workers who can afford to work for less as they don‘t have student loans. This in turn forces American graduates with student loans to take much less than adequate pay. That is if they can find work, half of recent grads are unemployed or working a jobs that don’t require any college.

New Census numbers show that nearly half of Americans now live below 200% of the official poverty rate. Republicans point to Census data that shows that a high percentage of these people own cars, have TVs and many own homes. No matter that they acquired these things when they made twice as much money as they do now and can never replace them as they have little chance of ever earning that much again. Their cars are essential as mass transit is cut back further to “save money”, and their house is under water. College for the kids is out of reach, and the near poor in this group don’t qualify for food stamps or Medicaid even if Republicans aren‘t successful in further cutting the safety net programs.

For the working poor, that $5000 per worker ($10,000 for a couple, maybe more for multi-generation households), that money being hoarded by corporate American and the greedy bastards that control everything would go a long ways. This is even without the economic boost putting the money into circulation would give. This would drive wages up still more as America became productive again, but that’s not the plan.

Wednesday, December 14, 2011

Follow the money

The Federal Reserve came out again this week saying they are committed to keeping interest rates near zero until at least 2013. It doesn’t seem like much of a commitment if they need to reassure us after every Fed meeting that they haven’t changed their minds. The problem is that the Republicans and their own flat earth economists keep screaming about run away inflation being just around corner (be afraid, be very afraid and buy our gold). They don’t get it, or choose not to get that since we are de-leveraging a couple of trillion dollars of debt each year, and will for years to come, inflation just can‘t happen.

Speaking of the gold you bought on the advice of Glenn Beck or Ron Paul, it’s down about $150/oz since Friday. Gold funds are dumping their holdings to raise cash in order to cover margin calls. Most other non-food commodities fell more than 5% today as well, the stock markets were down for the third straight day.

European banks with branches in the US are experiencing a good old fashioned bank run as the Euro problem is not being solved. Bank of America has been hemorrhaging depositors as well. Some 99% protesters have been transferring their accounts to credit unions, but any large depositor would be nuts to stay with BoA with its $75 trillion of exposure to derivatives.

“Only” $47 trillion of BoA’s derivatives have been transferred to its banking division from Merrill Lynch, but this is putting the FDIC on the hook to cover the insured portion of depositors accounts. A big depositor would take a loss on the balance of his account not covered by the FDIC. Every time BoA gets a credit downgrade it has to post more collateral on those $75 trillion in derivatives. Their banking division has a higher credit rating than Merrill so this has held creditors at bay, but another downgrade will likely do in the bank. That is unless the Fed intervenes, they can and have simply printed money to bail out the big zombie banks in the past.

Remember the Bankruptcy “Reform” Act that Republicans passed a few years back? Besides screwing consumers, it moved derivative contract holders to the very top of the list to be paid from any bankruptcy filing, customer deposit accounts are far down the list. This explains why a bank with a sixth of all US deposits would be able to cover the margin call on $47 trillion in derivative contracts, at least for now. This may well be where the $1.2 billion “missing” from Jon Corzine’s MF Global went, but they’re “still looking”. A Republican member of the Commodity Futures Trading Commission said today that its auditors have know where the money went, but they aren’t saying just yet.

The Census Bureau has come out with some numbers: homelessness among children continues to increase, up nearly 40% from three years ago; the Census also reports November retail sales were up 6.7% from last year. This is the sixth straight month of increased retail activity, but the increase from October was only 0.2%. Black Friday, as I predicted, turned out to be largely hype. We are seeing some pent up demand released as consumers are spending on things they have been putting off, and the rest is price inflation from fuel cost increases as well as food commodity speculation. Realistically, the trend in actual goods being sold is probably flat at best.

China is about to put a 21% tariff on the importation of cars from America. No matter that a large share of the parts came from China, or maybe the tariff would be higher except for the credit we receive for “domestic content”. Keep in mind that we are already at a 40% price disadvantage from the undervaluing of the Renminbi enforced by China. Remember how “free trade” was going to open up a huge market in China?

The USD dipped to under a $1.30 per euro today as the specter of austerity creeps across Europe’s economy. Hard right political parties are gaining new traction in some countries even to the point of creating paramilitary wings reminiscent of early in the last century. Of course their uniforms are probably made in China just like American flags.

Sunday, December 11, 2011

Frat boy

Mitt Romney showed Rick Perry whose class is in charge. When Perry threw out a "fact" from Romney's book that was somewhat mangled (Perry likely doesn't read his 3\5 cards, let alone books), Romney responded like a frat boy putting down the rube. Mitt offering to bet $10,000 to shut up the hick wasn't just a rhetorical flourish as corporate media is willing to call it, but a Freudian slip. That's the amount of money it take's to get Mitt's attention. In a recent campaign stop a small boy wanted to trade dollar bills with Mitt in order to get a personal souvenir, but Mitt didn't have anything smaller than a hundred. That's tip money for Mitt, he probably can't remember what a dollar bill looks like.

A guy like Mitt has servants to do the shopping and never sees the check when he goes out. Contrast this to the real America where the median worker's pay is barely 25,000 per YEAR. Two thirds of Americans don't have a $1000 cash to cover an emergency. Mitt's footman probably puts more than that in his $3000 suit when he lays it out.

It looks increasingly likely we won't have Mitt as a candidate, but instead a corrupt politician that had to disclose having a $500,000 tab at Tiffany's.  Newt left the House in disgrace after paying $300,000 fine to avoid criminal charges. He was able to bounce back though, taking $2 million from Freddie Mac and something on the order $8 million from health insurance companies as an historian. Nancy Pelosi is rumored to have all the dirt on Newt that we haven't heard yet. Maybe Ron Paul will be the last man standing.