Thursday, October 10, 2013

Hobbling the four horses of the Apocalypse

New unemployment claims jumped by 66,000 last week to 374,000 after months settling down toward 300,000. This doesn't begin to show the real effects of the government shutdown as contractors are only now beginning to kick people to the curb. The effect this will have on the rest of economy will begin to show soon as the lack of spending by those affected by the shutdown starts to mushroom into a reduction in US GDP. This is one of those self reinforcing feedback loops that are commonly referred to as a 'death spiral'.

You see, the problem isn't confined to the simple math of less spending, but is actually multiplied by the fact that the natural mitigators of an economic downturn that we commonly refer to as 'government safety nets' are also being removed. State run programs are running out of 'pass through' money, and the charities will be affected soon. Right wingers are always saying churches could care for the poor better and somehow do it at no cost, but the christian charities get 2/3 of their money from the Feds. With Uncle Sam out the picture, their private donations will dry up too.

President Obama is going for broke, he's told the Republicans he will accept no half measures. They will accept the will of the people as he and the majority of Congress represent it, or they will leave the world economy to be resolved by what ever emergency powers that Obama elects to use.

It appears that Obama is placing his hopes in the Federal Reserve bank to back his play with his announcement of Janet Yellen to replace Ben Bernanke as Chairman. The 'hard currency' crowd is freaked by the nomination of someone even more committed to 'money printing' than the current Chair 'person'. These people don't think that women should be able to vote and wear pants, let allow control the world's reserve currency. All of the gold that they bought from Glenn Beck at $1900/oz is now trending below $1300/oz despite the ongoing Apocalypse, and they know 'girl cooties' have got something to do with their world being upside down. The thing is, once Bernanke steps down, Yellen as his Vice Chairman will assume the position even if the Republicans in the Senate attempt to block her.

It's not incidental that the all of the 'too big to fail' banks submitted their final 'living will' plans as required by the Dodd-Frank Act to the FDIC in the past two weeks. Given a real crisis there will be no one page demand submitted to Congress for trillions in bailout money like during the financial collapse during the final months of the Bush Administration. The heart of billionaire capitalism will simply be broken up into manageable chunks based on this prior disclosure, and put back to work. The shareholders will be wiped out, upper management sacked with no golden parachutes, and the Dept of Justice on speed dial will get the call.

At least this is the plan, we'll find out if it really works, or maybe the Republicans will blink instead. There is still time for them to kick the can down the road to early 2015, and I have been predicting that they will do this. The thing is they might not see any future there with the House almost certainly going to Progressive Caucus. They might opt for the end of the world instead. We'll find out in the next few days how this will settle out.

Twitter @BruceEngerg for the Apocalypse in real time, for the End Times roundup.

Wednesday, October 9, 2013

Just one of the many dangers of a Default

If the US stops redeeming debt or it even looks like they might, the credit rating agencies could down grade the credit rating of Treasury bonds.

Reducing bonds from AAA would require certain funds that hold the bonds to sell them immediately at any price that they can get. This would trickle down to all sorts of debt instruments. Then there are the 600 trillion of derivatives in circulation. It was mortgage derivatives that caused the last crash and this would be much bigger.

Congress could outlaw the rating agencies taking such action or anybody from using this is a criteria for divesting bonds, but that requires the same Congress that caused the problem to act. 

The President could issue an emergency order, but by then it might be too late.

Article 2 gives all the required power to the POTUS since it lays out his duties as if he's actually expected to carry them out. All Presidents have found as much power in the Constitution as they chose to. Passing the ball to Congress is just politics, the President can do anything and everything unless the House is actually willing to impeach him & the Senate convict. Until he is dragged from the White House in chains the President can order any actions that the people of his administration are willing to carry out.