Friday, December 4, 2009

Controling the "real" economy with the "not real" economy

The cheap Dollar policy has started to pay off for the Obama Adm. with job losses way down for November. Cheap Dollars make sending jobs out less attractive but also good deal of the reluctance to move jobs comes from a crack down by China on factory expansions after Obama slapped their wrists with a 99% tariff on steel pipe to curb below cost dumping into the US market. This has brought out-sourcing to a stand still for now but the very real risk of total market collapse is rearing its ugly head.

The markets reversed early gains today on fears that the Fed will raise interest rates as they did under Greenspan to control wage inflation. This caused the Dollar to strengthen dramatically as investors became fearful of the over inflated markets worldwide. Gold dropped almost 5% today priced in USD and the Dollar gained dramatically against the Euro. If this panic continues Monday it could cause a worldwide sell off as investors try to move into cash and force margin calls on huge blocks of traded... well, stuff (they’ve been driving up the price of everything across all markets with cheap Dollars) A selling panic could easily bring about the mother of all market crashes.

It’s difficult to know what is really going on in the markets as an ever increasing amount of trading is being done in Dark Pools. This is where the large banks run their own private exchanges for the big market players and none of this becomes public. The small investor is left in the dark until it’s much too late for him to do anything but take the loss.

Even if the market bubble does not burst this time we are by no means out of the woods since we need at least 150,000 new jobs every month just to keep up with population growth. The new year will bring a new crop of commercial loan defaults with this type of loan on a five year cycle at least 20% are due and deep underwater. Add to this an ever increasing number home foreclosures. With declining wages and no credit available, a lack of consumer demand will continue to drag down the economy.

Six more banks were seized today at a cost of 2.4 billion not counting at least 3 billion in bank assets the FDIC couldn’t sell and probably never will. This does not include the shareholder and bond holder losses or any depositors in excess of the insurance limit.

Obama has declared himself a deficit hawk saying the 1.5 trillion that the budget is already in the red precludes any new stimulus. Any sort of crisis is likely to dramatically drive up the interest the government must pay on its debt. Currently we are paying only 200 billion on a 12 trillion Dollar debt by putting most of it on 30 day notes at zero or even negative interest rates as bond holders look for security rather than return on investment. Just a return to "normal" bond interest rates would make interest the single biggest item in the budget and interest would probably not stop going up at "normal".

The stupid thing is that none of this is the real economy, it’s just paper. But they hold the rest of us hostage and determine whether we have a job, what our house is worth, the price we must pay for everything or if we even have anything to eat. Feudal serfs had more security.

Thursday, December 3, 2009

No Jobs Here, Keep Moving

The White House jobs summit didn’t do well on its price point evaluation and production is being outsourced to China.

Obama said there will be no government money to create jobs but he will cut red tape on exports anywhere he can and expects that to create 200,000 jobs. What red tape? Does he mean on technology transfers? The Bush Crime Family simply ignored that law. China has the best guidance systems that Boeing could develop and can pick which window of the White House they want to put an ICBM in through.

Even if the 200,000 jobs was to materialize from cutting red tape it won’t offset the 30 million jobs lost. The only thing more pathetic was Newt Gringrich’s counter summit where he promoted more tax cuts for the rich. He wants to cut the corporate tax rate too, no matter that 2/3 of corporations that do business in the US pay no taxes already.
New jobless numbers came out today. Great news! The initial claims were down for the fifth week in a row! New claims dropped by 5000 BUT continuing claim are up by 28,000 this week alone. And of course they don’t count all the people who aren’t eligible to claim. The government now admits the real number is 18% but even that is well below the real number.

We have Depression Era unemployment already but safety nets intended to help the poor are keeping the middle class going too, but this can’t last. Add in the trade deficit with China which is keeping up the appearance of prosperity and that will end when it either suits China or if the China bears are right will end suddenly with China’s collapse. Then you will see scenes from the Great Depression and worse, much, much worse.

Wednesday, December 2, 2009

Jobs Summit, Bah Humbug

Thursday is the big White House jobs summit, yawn. Everybody will be there except the people with the answers. Business wants their taxes cut, they especially want to quit paying into social security and cut the minimum wage so they can hire more slaves (I mean workers). Not that they would, they'll just pay the ones they have less. They wouldn’t mind a hand out from the government directly or at least cut the capital gains tax, 15% is too much they say, when they sell their factory to China they want it to be completely tax free. Unions will be there but you’d need someone who can talk to ghosts to hear anything they have to say.

This summit will be largely kabuki theater because the only thing that would bring back jobs is a complete reversal of every thing that has been done by the government since 1980. But Obama’s advisors that were recycled from the Clinton Adm. believe in doing everything with monetary policy. The big advantage is that almost nobody realizes what they are doing. They may be able to produce a large prosperity bubble like Clinton did although it will be much more obvious how hollow it is. Indeed job losses are starting to ease but the boom and bust cycles come faster every time this is done.

They seem to think all they have to do is convince people that everything will be all right. We aren’t in free fall in US retail sector right now largely from pent-up demand. Electronic sales are up as the people who still have money are making replacement equipment purchases that they had been putting off. But sales of everything else are flat at best and most sectors are way down despite a massive campaign by retailers to lure shoppers.

The Federal Reserve is running PSAs on the responsible use of credit cards, as if people still had any credit line to spend. State and local governments are forcing unions to take pay cuts to maintain full employment. The Republican talking point is that unions will expect something in return and that jobs should have been cut instead. Fire them on Christmas Eve if at all possible, bah humbug.

Tuesday, December 1, 2009

The Bear Dances on One Foot

The Dollar resumed it rapid descent against anything of real value while China holds fast to its direct peg to the Dollar. This caused world equity markets and other risky investments to continue to inflate. Vietnam entered the fray by formally devaluing its currency by 5%. This move has the rest of the countries who compete with Vietnam to provide cheap labor to consider making similar moves to keep from being overwhelmed by the surge of cheap Dollars and the corresponding cheap Yuan from China.

Conservative economists are decrying this break down of free floating foreign exchange as the precursor of protectionist tariffs. (if only we could be so lucky) In reality every country in the world but the US already has some sort of tariff scheme to protect their vital industries. If not out right tariffs and import bans like China then some sort of value added tax as the Europeans do.

Gold had dropped in price due to the Dubai panic as investors feared a strengthening Dollar but Dollars continue to flow like water and gold has resumed its climb. Even oil is going up again despite a lack of demand as anything that is not USD is considered a good bet.

The Fed is continuing to let it be known it intends to be ready to take liquidity out of the market by "buying" money in a scheme called "reverse repos" to take up surpluses from the big banks if needed to maintain stability. When the bubble bursts this is about as likely to work as expecting Smokey the Bear to pee on the forest fire. Saying that they are prepared to control the call flow this is just what is needed to pump up the irrational exuberance in the markets still higher so it can fall even harder. The bear looks nervous and is dancing on one foot.

Monday, November 30, 2009

Building castles from sand

The Dubai World Company who is currently unable to repay some 60 billion in loans had the equity markets wound pretty tight Friday but everything seemed to settle down Monday. However the overnight markets indicate that Tuesday could be a rough day. If you’re not familiar with Dubai World they have the giant palm tree sand sculpture that you can see from space. Built to service the pretend economy created by the financial services industry it will probably go down in history as a giant white elephant that you can see from space.

You may remember one of their sister companies, Dubai Ports World, a favorite of the Bush Crime Family to take over all our major seaports. The ones not already controlled by Red China.

Dubai World is not however the worst threat to the world economy and not the largest over leveraged entity likely to fail. A ridiculous amount of money has been created out of thin air by the world’s central banks in an attempt to keep up with the Federal Reserve’s wholesale printing of money over the past fifteen years. Everything is leveraged to the hilt and any deflation will drag all those debt laden companies under.

In a world where everybody works for a corporation, the fallout will be severe.
Already in the US one in eight adults and one and four children receive food stamps. Only 2/3 of those eligible receive nutritional assistance and although reformed in 2007 is still not adequate and food banks are struggling to keep up. In really blighted areas, 50% of residents receive food aid.

Pontiac Michigan has 35% unemployment and standing in the line to sign up for food stamps can take all day. Massive layoffs of city workers including about half the city police force. The governor has declared a state of emergency and replaced the city’s officials. The population of Pontiac is about 700,000 and so probably has about 280,000 people who have or would like to have a job. This is about how many jobs that are officially being lost each month in the US.... Pontiac syndrome is slowly spreading across the country.