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.