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Blowing Rainbows

Okay, I'm serious: you need to stop letting people with a vested interest in the stock market, including the President and his economic team, blow rainbows up your ass. This is not the bottom. We are not anywhere near the bottom. If you followed my advice and you've been reading solarbird's journal, and looking up the parts that you don't understand, you know this already. But let me lay out for you the important economic indicators that the news media here in America have completely and utterly glossed over:

The Dollar is doomed. The news media have been full of reports that "the dollar is up" against foreign currencies, as if you're supposed to be reassured by this. If you are feeling reassured by this, let me clarify something for you. Know anything about how the national debt works? The federal government buys money by issuing fixed-length bonds called T-bills, which they auction off. They offer to sell anybody who wants to bid, oh, let's say $100,000 in 10 years: how much will you pay them for it now? Annualize the interest rate on that, and that's the interest rate on the national debt. Still with me? Because they're fixed-term bonds, some of them come due every couple of weeks. And we're obviously not paying off those bonds; the US government hasn't paid a principal payment since the dot-com bubble, when Clinton (wisely) chose to use the capital gains taxes on the churn in inflated dot-com stocks to make payments rather than give Newt Gingrich the tax cuts he demanded. So what they do instead is they sell another bond, and use it to pay off the one that just expired. Now, the news part: about a month ago, so few people showed up to bid that the auctioneer wasn't getting what the government considered an acceptable interest rate. If we kept paying that rate at every auction from now on, our interest rate would have at least doubled, and interest on the national debt is the 3rd largest line item in the federal budget, just barely behind military spending and Social Security. No way we could pay that. So Federal Reserve chairman Bernanke announced that if not enough people were showing up to bid, the Federal Reserve Bank would buy up to $3 trillion (three million million) in T-bills itself. Where does the Federal Reserve get that money? They invent it. This is the reality behind the symbol "running the printing presses." How much is $3 trillion? Well, US GDP is about $10 trillion, so it's about 30% of this year's GDP. Since the GDP is going down, not up by 30%, this means that relative to any actual goods, the value of the money in your pocket just dropped 30% ... if Bernanke has to go through with it. So far he hasn't had to spend the whole $3 trillion to keep our interest rate pushed down, so far he hasn't inflated his way out of our national debt. But he means to, and that is what's behind China's panicky calls for an alternate global reserve currency. What this means for you: 30% inflation, across the board.

Corollary: Too bad we wasted all of that money, we could really use it now. We've spent about $2.75 trillion (counting, but not limited to, TARP) in direct capital assistance to the major money center banks. It's not enough. How much will be enough? I'm reading estimates of $6 to $8 trillion. If the banks are telling the truth, then that $2.75 trillion was good money thrown after bad, because there isn't going to be another $6 to $8 trillion to give them. Which means, among other things, that we're not getting that $2.75 trillion back, but that's not the horror of the situation. The horror of the situation is that when Barack Hoover Obama finally figures out what he should be doing, that $2.75 trillion, plus the roughly half a trillion we've spent in Iraq under the previous administration that was also for nothing, won't be there for him. He'll either have to further deflate the currency, or go without. Either way, we're screwed. How screwed?

Nothing has stemmed the acceleration in foreclosures. I spent much of last month on the edge of my seat, waiting for good news I could share with you. I was pretty sure it would be coming some time last month, because at the end of January, Fannie Mae, Freddy Mac, Bank of America, Citigroup, and Wells Fargo all announced 60 to 90 day moratoriums on foreclosures to wait and see what the new administration's plan for cleaning up the mortgage mess would be. So by definition, it seemed to me, January would turn out to have been the peak for foreclosures ... but it wasn't. Foreclosures went up, not down, in February. I have no idea how, but they did. Then in February the President announced his mortgage rescue plan. Effective March 4th, people who were in danger of foreclosure would be able to get help from the government to save their homes, so we had reason to hope that finally, at least, the March numbers would be better than February's. Well, we won't know the March foreclosure numbers for another couple of weeks, but we already know enough to know that it won't be good news. In the last couple of days, two reports on housing sales came out that usually track within a few percent of each other; this time, there was a huge disparity. One report said that sales of existing houses were way up. The other said they were even or maybe slightly down. What's the difference? The second one doesn't count foreclosures. That the gap between the two reports increased tells us that yet again, despite the President's housing plan, foreclosures went up again in March, not down. Nor is it going to decelerate in April, either. There's a reason for that, too.

The President has declared the big banks to be above the law. On at least two occasions in the last month, President Obama has announced that his commitment to saving Citibank and Bank of America is "absolute." The stock market is thrilled. You shouldn't be: that's the last nail in the coffin of the President's anti-foreclosure plan. Remember my pointing out that without further bail-out money, they were all insolvent, and under US law, they'd have to be closed? Remember the President saying that he was conditioning any further help for the banks on their participation in his housing plan? Guess what happened in the last week? A report came out explaining that the reason that foreclosures are still rising is that none of the big banks has agreed to accept the "voluntary" interest rate cuts. So, no more bailouts? You wish; where do you think all the AIG money has been going? You were told that, too, remember? So, the President lied. He was bluffing. But remember, there just plain isn't enough money, even the Federal Reserve can't print enough money, to actually render these banks legally solvent under US law. Which means that the President also lied when he promised to faithfully perform the duties of the President of the United States: he is not going to let the FDIC do what the law requires them to do, namely close insolvent banks. His commitment to their ability to continue flouting that law is "absolute." Not only that, he's going to help them violate the law some more.

The SEC is now officially replacing the fraudulent ratings agencies as the fraud facilitator of first resort. This last week, the SEC nudge-and-a-wink outright told the banks how to commit shareholder fraud. Step 1: Price their CDOs at such a high price that no sane private investor would pay that. Step 2: Use the fact that nobody bought any as proof that the markets are "frozen." Step 3: Invoke the SEC rule that lets them use "mark to model" accounting when "markets are frozen." Step 4: Value the assets, for legal capital asset requirement purposes and shareholder reporting purposes, using the same proven to be false mathematical model of what these CDOs "should" be worth. It's working, too; stocks in the big banks were up several percent yesterday. Working for the fraudsters, I should say, not you; those banks are still going to fail, they do not have enough assets to cover deposits, and the FDIC does not have enough money on hand to pay off the default. So the Federal Reserve will have to step in and print that next $6 to $8 trillion, after all. So that 30% inflation? That was just the first bump. It jumps to over 50% when the banks finally collide with reality. And finally:

Your boss already knows all of this. He, unlike you, reads the business pages, and so he knew all of what I just told you already. And he knows what it all means. Which is why, by the same measure of unemployment used during the Great Depression, the real unemployment number, as calculated by Shadow Government Statistics (shadowstats.com), is about 19.8%. Even the only somewhat fraudulent U-6 "real" (but not really real) unemployment number, available on the Department of Labor's website as of last night, looks like this:

(The U-6 has only been available there for about a week. They added it to those reports at my request. No, really; I got an email from the Bureau of Labor Statistics personally thanking me for suggesting it, and they implemented it immediately thereafter. Disconcerting. I wish the rest of the Obama administration was that much on the ball.)

By comparison? As Jess Bachman of the indispensable WallStats.com reminded me, via a poster made for mint.com, at this exact same point in the Great Depression, the unemployment rate was 8.9%. We're only one year into this Depression; it took four years for the Great Depression to reach 20% unemployment. What's more, the rate is constant over the last three months, at about 9/10ths of a percent per month. Which means that we hit the peak unemployment rate for the Great Depression some time around this September. If you look at the county-by-county unemployment map over at the New York Times website, you realize that it's already that bad now in most of Michigan, much of the South, in parts of the desert southwest, and in inland California. Now do you understand why the Southern Poverty Law Center, and the go-to journalist on the subject of militia violence, Dave Neiwert over at Orcinus, have both been reporting increases in recruiting for right-wing militant groups in the US? Including inside the US military? We could see the first mutiny against the federal government since Shay's Rebellion this winter.

Keep in mind, I'm not predicting a successful overthrow of the US government this year. Neither the Banker's Plot, nor Huey Long's Poor People's Army, nor the CIO's general strike, were successful in overthrowing the US government during the Great Depression. Also remember that one of the biggest places we're hiding unemployment people from the U-6 unemployment estimate is on SSDI for mental illness, which was already increasing in membership by 40,000 people per year before this year; the bad news, we can't go on like that, the good news, for as long as we do, it staves off riots. Call it another couple of months to a year before the threat of violence gets really serious. But nothing I've seen in the last two months has given me any reason to think it will take any longer than that before we have mutiny, insurrection, secession attempts, runaway inflation, brownouts or blackouts in the power grid, and conceivably even scattered food riots by late 2010.

I could be wrong. We could wake up on Monday morning and find out that Bernanke, Summers, Geithner, and all the rest of the Bush administration/Democratic Leadership Council holdovers in the Obama administration have tendered their resignations. Next Friday evening, the FDIC could borrow additional manpower from the US Marshals Service and actually obey US law, actually close down Citibank and the rest of the corporate scofflaws and stop the bleeding, selling the assets they're servicing to banks that will go along with the President's mortgage foreclosure mitigation plan, for whatever we can get; even if we have to loan them the money, it'll be cheaper than continuing to bail out the existing banks. (This is not a radical suggestion. This is US law. This is routine procedure when the law is being obeyed. Under routine procedure, it should have happened no later than 90 days after the banks were notified they were out of compliance with their capital asset requirements, back in April of 2007. They've been getting away with evading US law that long, under now two Presidential administrations.) And if the gods are truly kind to America, somebody could actually get through to President Obama and to the Democrats in Congress that the absolute last thing Americans of any social class need right now is another hand-out; what we need are jobs, even if the government has to print the money to hire us; if they're going to print the money and hand it out anyway, shouldn't the taxpayers get some work out of those of us, myself included, who are getting it?

But you'd be an absolute total idiot to assume that any of that is going to happen, let alone all of it.


( 34 comments — Leave a comment )
Apr. 4th, 2009 10:09 am (UTC)
A nit to pick: Neiwert's excellent writing is to be found at http://dneiwert.blogspot.com/ and http://firedoglake.com/author/18/, but not at hxxp://www.orcinus.com, which appears to be a domain-named squatter. More's the pity.
Apr. 4th, 2009 10:16 am (UTC)
URL corrected, thanks. That's one of two or three I put in from memory instead of copying and pasting. Sorry!
Apr. 4th, 2009 12:38 pm (UTC)
Sorry, nothing - as far as informing people about the world, you're still beatin' the NYT on several axes.

Also, getting letters back from people is great. A library once earned my undying loyalty when I wrote to the librarians and said "are you planning on getting this book?" and they wrote back "that's a great idea, we're going to get it now," then followed up with another once they'd actually acquired the book (Beautiful Evidence).
Apr. 4th, 2009 05:48 pm (UTC)
I'm glad but unsurprised that you're a reader of David Neiwert; I think people like to underestimate the spread and influence of what he writes on.
Apr. 4th, 2009 12:50 pm (UTC)
Two questions:

1)What do we do to prepare?

2) As bad as an Obama administration may be, wouldn't (would) a McCain administration have been worse?
Apr. 4th, 2009 03:26 pm (UTC)
1. read the archives of this guy's blog for a good start.

2. yes. but we will ALL pay for not voting in Ron Paul or some other guy who would, well, have 3/4 solved this problem already instead of helping Wall St. run the country further into the ground.
Apr. 4th, 2009 05:30 pm (UTC)
I can't believe it's 2009 and this is still necessary
Ron Paul wants to define life as starting at conception, build a fence along the US-Mexico border, prevent the Supreme Court from hearing cases on the Establishment Clause or the right to privacy, permitting the return of sodomy laws and the like (a bill which he has repeatedly re-introduced), pull out of the UN, disband NATO, end birthright citizenship, deny federal funding to any organisation which "which presents male or female homosexuality as an acceptable alternative life style or which suggest that it can be an acceptable life style" along with destroying public education and social security,, and abolish the Federal Reserve in order to put America back on the gold standard. He was also the sole vote against divesting US federal government investments in corporations doing business with the genocidal government of the Sudan.

Oh, and he believes that the Left is waging a war on religion and Christmas, he's against gay marriage, is against the popular vote, opposes the Civil Rights Act of 1964, wants the estate tax repealed, is STILL making racist remarks, believes that the Panama Canal should be the property of the United States, and believes in New World Order conspiracy theories, not to mention his belief that the International Baccalaureate program is UN mind control..

Ron Paul wouldn't have "3/4 solved this problem already"; beyond the fact that he was knee-deep in the militia movement of the 90's- the one that reignited the very second Barack Obama won the election- his economic theories are batshit insane nonsense that has been debunked for decades.
Apr. 4th, 2009 06:04 pm (UTC)
oh but it is
He's 90% wrong, don't mistake me. Politicians in general are asshats and he is no exception. I would even say he is wrong about MORE things than Obama is. But on this one very important thing he has demonstrated incredible foresight. see:

Although I may agree with your stances on the issues you mention, I believe that people of good conscience can disagree on your links #'d 1, 2, 4, 5, 7, 8, and 9. 3 and 6 would require Constitutional amendments and good luck with that. 10 is a little gross but I've voted for politicians who have done worse; he probably has some ideological reason for his vote there that I disagree with but is at least part of a principled and consistent worldview.

I will ignore your ad hominem attacks because they bore me, except to note that I also think it was dubious to give the Panama Canal away and that my worldview includes agreeing with some things you would calmly slur as "conspiracy theory lol".

his economic theories are batshit insane nonsense that has been debunked for decades.

I think you don't know as much about economics or history as you think you do.
Apr. 4th, 2009 06:10 pm (UTC)
Re: oh but it is
My favorite political forum originated as a place to shunt Ron Paul threads into from other related forums back in 2007. It was a place where Paulestinians could be rounded up and mocked, and their arguments debunked time and again. When Paul's public profile dropped precipitously after the 2008 primaries like Nader's after the 2000 election, it became a more general politics forum and lost some of its charm. You are bringing back so many memories. :D
Apr. 4th, 2009 06:31 pm (UTC)
Re: oh but it is

you seem pretty cool, nothing personal. I want to see how your opinions change after the effects of printing money equal to half our GDP this year catch up with us though, I bet you might have some different things to say about the Federal Reserve. I don't quite understand how they convinced everyone that Jefferson and Jackson were so wrong on the subject...
Apr. 4th, 2009 06:33 pm (UTC)
Re: oh but it is
You lack any knowledge of history; you very clearly don't know why there's a fed. Go spend the next year or so reading about the Great Depression and come back when you're on the level of everybody who has any business discussing the topic.
Apr. 4th, 2009 07:34 pm (UTC)
Re: oh but it is
no but nice try.
Apr. 4th, 2009 07:38 pm (UTC)
Re: oh but it is
Hey, I tried. I'm not all that invested in you getting an education on how the financial system works that isn't from people who have every reason to lie about it, but you would probably benefit from it.
Apr. 4th, 2009 07:46 pm (UTC)
Re: oh but it is
I suppose if I start taking advice from someone who claims the Great Depression (1929-) had anything to do with why we have a Fed (1913) then I might have cause to be worried about how educated I am.
Apr. 4th, 2009 07:46 pm (UTC)
Re: oh but it is

Both of you. Neither one of you's writing anything of substance, you're just taking turns condescending to each other. Say something actually useful or knock it off.
Apr. 7th, 2009 11:25 am (UTC)
...silly me forgot to look to the second page of the Salon article before claiming to have read it all. Funny, but sad....

On the other hand, what exactly is wrong with the gold standard? you prefer inflation? I may not be sure what's better than the Fed, but I am sure that their personal savings and livelihood won't be wiped out by their mismanagement, and that's all the Fed seems to be good for.
Apr. 4th, 2009 03:33 pm (UTC)
Hitler would have been worse. How much of a consolation would that be?

In this regard, since they seem to have the same economic policies, it would seem to be fair to say that McCain would have been the same.
Apr. 4th, 2009 06:24 pm (UTC)
1) I'm working on that article.

2) Absolutely. While McCain would have avoided that god-awful stimulus bill, he would have instead funneled that same amount of money into even more counter-productive tax breaks for rich people, and he would have been even more determined to defend insolvent megabanks. And unlike Obama, he wouldn't even be trying to do the right thing in Iraq or do the right thing about health care.
Apr. 5th, 2009 03:07 am (UTC)
Thanks for the response (on both counts); I'll look forward to the next installment.
Apr. 4th, 2009 02:33 pm (UTC)
I'm not seeing the end of this anytime soon, either. I was listening to the radio when some twerp proclaimed that the 'bottom' was March 9. I actually yelled at the radio! No, we're nowhere near the bottom!


The foreclosures will continue to come in waves- and we're going to start seeing foreclosures as a result of unemployment and tapped out savings now, rather than bad mortgage choices.

And I am not surprised by the militia mention, either- it chimes with what I've learned from some very reliable sources. My state is one of the hotbeds for such groups, sad to say.

Yesterday, a 'states rights' resolution came up before my state House. The argument for it was stuff like resistance to Real ID, and No Child Left Behind. The argument against it was the knock-on effect of lower tier governments doing the same to the state government, and the federal government giving us the kiss-off were we to have another disaster. The resolution was introduced by freshmen Republicans. I am very happy to say that it was soundly rejected. Sanity still rules- but for how long?
Apr. 4th, 2009 03:32 pm (UTC)
Hear, hear!
Apr. 4th, 2009 09:30 pm (UTC)
"...selling the assets they're servicing to banks that will go along with the President's mortgage foreclosure mitigation plan..."
Are you sure they will, or have they already?
It's possible (I can hope, can't I?) that he's waiting to get some banks to agree to things (in writing) before he grabs and sells the big bank assets to those banks he gets to go along with him. I think he's proven that he's sometimes wiley.
Apr. 4th, 2009 09:44 pm (UTC)
No, I'm not sure. The optimistic scenario here is painfully unlikely, and even more so with Republicans successfully filibustering cram-down legislation in the Senate. So, no, it's far more likely that foreclosures will continue to accelerate for the rest of this year. Which will further depress demand. Which will further exacerbate unemployment. Which will further depress bank assets. Which will result in the Fed printing more money to prop up those banks. Which will result in further inflation. That's the way you should bet.
Apr. 4th, 2009 10:40 pm (UTC)
The sooner we clear out the foreclosures (allow them to happen) the sooner we can build back up.

Have you not taken state and community banks and small businesses into your account? State and community banks are doing fantastic and are taking avantage of these times to expand, but doing so in a responsible manner - as they always have. They have money to lend, but they have been tight because insurance tripled on them in one year so it costs more to loan than they can make on the loan. But they got the news that the rates for them will be going down. If that does happen - money will loosen up and credit will flow.

Small businesses are the first lay-off, but the first to re-hire - they also empoy more people than large corporations. Talking with the small business associations, they are hearing more members talk about hiring in the next 6 months than laying-off in the next 6 months. That wasn't the case before January. Serious blood-bath before then.

The only reason we should devalue our money is if China turns into totoal pricks and we need to make what they are holding worthless. Dangerous, but we could buy back the debt and then bring our $ back up.
Apr. 5th, 2009 01:30 am (UTC)
You mean like these state and community banks? Sorry. We found out over a month ago that the smaller banks jumped into the subprime mortgage backed CDO market just as deep as the big banks did, and jumped later, so they bought worse garbage and paid more for it. Don't count on them rescuing you. Don't count on the government rescuing them, either; Geithner and Summers actively support letting the big banks get bigger by using your tax dollars to buy them up.

With the decline of those small banks, small businesses are losing bridge financing. They also typically had fewer cash reserves and fewer backup lines of credit, so they're suffering even more than big businesses are over declining demand. I don't know who you're talking to, but in this area, the small businesses are folding faster than the medium to big ones.

And you're just plain wrong about devaluation. Barack Hoover Obama is not some Republic serial villain, to tell you he's going to devalue the currency if there's any chance that he could be stopped. He's already done it, by letting Bernanke run the printing presses. The only reason you're not seeing it yet in the currency quotes is that other currencies are getting hit just as hard, but pay more attention to your grocery bill. All of the staples in my diet except for milk, especially bread and canned vegetables and dry cereal and meat and soup (including ramen, for crying out loud) have gone up in price 20% to 50% since Christmas, and that's not counting the fact that quantity per package has gone down 5% to 15%.

And there absolutely is worse to come. If you want to bet your and your family's health, comfort, life on this being over in 2 to 6 months, I can't stop you. But I think you're being deeply delusional.
Apr. 5th, 2009 02:17 pm (UTC)
I note that the most recent bank closure in AR (ANB National Bank in Bentonville) is the only bank in the only part of the state that caught the housing bubble. It is also the only part of the state with extensive foreclosures (they had a brief boom, and a lot of immigrants). Makes me wonder if there was a connection. There's another small cluster of foreclosures in one of our poorer counties, and our AG is investigating whether aggressive sub-prime mortgage lenders were responsible.
Apr. 6th, 2009 06:49 am (UTC)
Yes, I've noticed that. I've seen a lot of people complaining about it in line as well. I had a certain expectation of how much things were going to cost me, per month, which has been totally skewed by this.

When a friend was visiting, she complained we'd be better off buying fast food. Real food was too damn expensive. Have to agree, the cost per calories for something like Taco Bell is impressive. Except it's not good to eat.
Apr. 4th, 2009 10:31 pm (UTC)
Bottom reached in 2 to 4 months.

*Very* slow, even recovery, but not all the way back to pre-December 2007. That's my prediction. If we hadn't gone Obama's route (and Bush's stupid ass stimulus as well) we would have a quicker, steeper recovery.

However - this could change depending on what other stupid ideas Obama and Congress can impliment.
Apr. 6th, 2009 05:20 am (UTC)
Your boss already knows all of this. If bosses (or the people at the tops of companies) had a habit of keeping careful track of the economy, we wouldn't be in this mess. And I think that if they agreed with you about what was coming down, there'd be even more layoffs.
Apr. 6th, 2009 06:47 am (UTC)

Also seeing things, like the You-tube patriot blogger and the White House. The Chicago stock exchange from a few weeks ago, etc.
Apr. 6th, 2009 11:31 am (UTC)
What I want to know is... when it's all finished breaking, and everyone is miserable and job/house-less but we're really sure that there is nothing else that going to break on us (economically speaking) and if, at that point, we still have a government capable of governing (your government is not my government, but are in a similar hole wrt entire economy failing). When that's happened...

What should we put in the smouldering crater where there was an economy? Obviously we need to have something there, because people are still (some people, somewhere) producing stuff that they want to trade part of for other stuff that they don't have. Do you have a good suggestion for what we could do to make sure it doesn't all explode again? Do you think that it's possible that such a suggested thing (supposing it exists) will be implemented. Or are we just going to start over with a system that is simply not long-term stable?
Apr. 6th, 2009 08:24 pm (UTC)
I obviously have some thoughts on the subject. And I'm working, longish term, on a series called "Lessons Learned," the things that I hope that we as a civilization take away from this disaster. But first, I must say this: step ONE in an aviation disaster is to try to land the plane with the fewest possible casualties. Only after that do you go on to step two, bring in the accident analysis teams to find out why the plane crashed and, step three, write the action plan for how to prevent future crashes of the same type. For now, let's concentrate the bulk of our attention on getting our governments out from under the control of the same Wall Street figures that created this mess and into the hands of people who aren't beholden for their livelihood to the very people that are making things worse. The recovery can not begin while Geithner, Summers, Bernanke, Paulson, and other Wall Street insiders are in charge of it, or, more to the point, in charge of preventing it.
Apr. 9th, 2009 02:04 pm (UTC)
I think what gets me most, is looking back, the unemployment numbers are at their lowest in late 2000, right before things began to unravel for the 'mini' recession of '01. Even at their best, at the height of what's called the housing bubble but seems now like it might be better to call it the derivatives bubble, they were a full point higher than in late 2000. So even though the market was way up over 2000ish, the employment situation never did quite recover.

Granted that full employment doesn't necessarily mean everything is great, but if our margin for violent revolution is only 10-15% over what holds as historical norms for the last decade or so, this isn't something to screw around with.
Jun. 18th, 2009 07:27 pm (UTC)
This post is among many signs that I saw that made me concerned about inflation, but Paul Krugman disagrees that inflation is a problem, and he has more Nobel prizes in economics than the two of us put together. I presume you've given thought to the liquidity trap argument that the dollar will likely see a bit of inflation when we finally do pull out of the current spiral, but not at the scale that you and I fear?
( 34 comments — Leave a comment )