Thursday, May 16, 2013

A new Strain of Rot

New unemployment claims increased sharply last week reversing a multi-week downward trend, but it's still not so high as to cause any real concern, yet. Other economic indicators support the notion that we're not actually losing jobs.

Have you noticed that most Republicans aren't talking about the deficit that much anymore? That's because it's disappearing out from under them like Arctic ice under a Polar bear, and they are forced to cling to any ginned up scandal or half-baked conspiracy theory that comes floating by.

The original Simpson-Bowles plan called for a Federal budget deficit equal to 2.3% of GDP in 2015, largely by starving grandma and achieving magical economic growth rates by cutting taxes on the 'job creators'. Instead Obama chose to keep feeding the 47%, raise taxes on the 'job creators' and maintain most spending as it is. The result of this 'socialist Kenyan' plan is that the deficit is now half of what it was when he took office and is on track to hit 2.1% of GDP by 2015 or two tenths lower than Simpson-Bowles demanded.

Let's not start popping the champagne corks though. We've held the austerians at bay, but the underlying rot is still doing its work on the economy. A new twist on the old Con revolves around the housing market. It's been noticed for several years since the Bush Crash that about 25% of home sales have been for 'cash' meaning investors, and not home owners have been buying them. It turns out that it wasn't small local investors or house flippers buying bargains, but large scale private equity firms that have been squeezing out the little guys. They've buying as many as 40% of houses being sold in some markets.

Remember when Mitt Romney said Obama shouldn't be getting in the way of foreclosures? Let people with money buy up these houses and put them out for rent. Yeah here we come.... Sounds like the evil banker from 'It's A Wonderful Life', doesn't it? Only he was an amateur. What these pirate equity companies are really about is they are bundling these properties together and creating IPOs to sell to investors. Some fund managers that have been approached with these offers are saying that they are making some sketchy claims about the returns on investment.

Sounds exactly like the sort of Ponzi scheme they were running on securitized mortgages that were issued on these same houses before the last crash. And they're pushing hard to move it all before anybody catches on to how bad these investments really are.

Is this enough to collapse the economy again? No, probably not. The problem is this is just one of many crooked schemes Wall Street is running. The Commodity Futures Trading Commission has just backed off from a relatively strict rule on Derivatives that would have required five banks to compete on any derivative being marketed or it couldn't be sold. None of these things should be sold, they used to be illegal for good reason. So we still have 600 trillion dollars (ten times world GDP) of these things in circulation just waiting for the next big screw up to create another banking collapse. And those 'too big to fail' banks from the last crash? They're much bigger and are steadily gobbling up the small banks every day.

Something will trigger a complete collapse in the next couple of years unless something is done. Republicans are successfully blocking the implementation of the modest reforms of Dodd-Frank so we are really worse off than we were before. It all hinges on next year's election, the only good news is the Republicans are being seen as less competent by the voters, the bad news is they still have all the money in world to simply buy elections.  Twitter @BruceEnberg  Facebook Prairie2 News   'Dead Drop' under the third bench in the park.

sun spots


Anonymous said...

While talking economy the deficit this year is projected to be 600 billion dollars. The improving economy is contributing by increasing tax revenues but a large contribution is health care inflation is approacing a reasonable figure. Three parts of "Obamacare" are moving down costs for everyone including the Government. The three things are lower Medicare and Medicade claims, limiting the insurer's cut of the health care dollar to 20%, and computerizing health care records is cutting duplicate testing and facilitating health care cooperation amoung providers to the same paitient. The re-admission rate of Medicare patients to hospitals and medical errors are dropping by a large amount. Congress voted today to repeal "Obamacare", it passed by 100 votes.