Friday, August 7, 2009

The elephant in the room

Greetings good citizen,

It would be so easy to just accept what the pundits tell us and expect everything to turn itself around over the next couple of months…if the pundits hadn’t been singing this exact same tune for the past two years.

More troubling is nothing has materially changed over that same period of time. Real Estate is still in the toilet and so is the job market. While the pundits like to call unemployment a ‘lagging’ indicator, you should recall that the number of help wanted ads fell dramatically long BEFORE the crisis hit.

On the surface is doesn’t seem credible that our civilization is only months away from collapse. In fact, on the surface, it certainly appears to be a rather ‘reckless’ statement to make. So you have to ask yourself a question: If the world were about to end, do you honestly think they’d tell us?

Maybe we need to add a qualifier to that question, if the world was about to end AND it was their fault, would they tell us? Somehow, I don’t think so. Just as there was no ‘official warning’ of the crisis (even though they could see it coming) it isn’t likely there will be an official warning ahead of the collapse of civilization either.

Like the crisis, they will all play ‘stupid’…’who coulda known?’ will be regurgitated repeatedly when that outcome is already visible if you know what you’re looking at.

Just like when everyone was mumbling to themselves ‘Who the hell can afford these prices’ when real estate ‘peaked’, it wasn’t a matter of ‘who knew’, everybody knew but nobody (of consequence) was admitting that anything was amiss!

Understand good citizen that there is a quadrillion dollar elephant in the room but nobody is acknowledging its presence…and that’s what’s going to ‘do us in’.

So we arrive at tonight’s offering for a considerably more honest look at our current situation than we’re being fed by the corporate owned MSM.

US Consumer Demand Off a Cliff as the Crisis Deepens

[purloined from: Jesse’s Crossroads Café ]

As we said, we would be taking a closer look behind the headline GDP numbers recently released. The advantage of procrastination is that eventually a capable person will chart up the data which you have been studying. So thank you to ContraryInvestor for his excellent charts. His site is among the best, and we read it regularly.

The big story is the collapse of the US consumer, unprecedented since WW II, and possibly the Great Depression. This is apparent in the numbers despite the epic restatement of GDP having just been done by the BLS in their benchmark revisions.

If the Fed and Treasury were not actively monetizing everything in sight, we would certainly be seeing a more pronounced deflation as prices fall WITH demand. And if they continue, we may very well feel a touch of the lash of that hyperinflation that John Williams is predicting. We still think a stiff stagflation is more likely, but are allowing that the Fed and Treasury may indeed be 'just that dumb enough' to trigger something less probable.

Until the consumer returns to some semblance of health, there will be no sustained recovery. It really is that simple.

The Fed will have to stop artificially draining credit supply by paying such a high rate of interest on reserves. They know this. It will stimulate lending, even to less worthy borrowers. But this is not a cure. It is one of the paths to more inflation, fresh asset bubbles, and the devaluation of the dollar. And 'stimulus' handouts are no better. Healthcare reform is a step in the right direction. The US consumer pays far too much for the same (or less) level of care in most of the developed nations. But that is not enough. [Insidious how Jesse is kicking gaping wholes in all of the ‘life rafts’ but that doesn’t make it any less true…]

The cure will be to increase the median wage, and to stop the transfer of the national income to fewer and fewer hands. For that is how the system is set up today. It is not the result of 'free markets' but a sustained transfer of wealth through regulatory and tax policies, and a pernicious corruption of the nation most significantly starting in 1980, although a case has been made for 1913.

It is an ironic echo that our inexperienced, badly advised President seeks to place more and broader powers into the hands of the Federal Reserve and its owners, the banks, in the spirit of Woodrow Wilson. [What did ‘Woody’ get for his troubles? He got his puss on the hundred thousand-dollar bill! You don’t suppose they were mocking him, do you?]

Obama needs to bring in fresh thinking. Volcker and Stiglitz would be a step in the right direction, but it is ironic that they are much older than the Bobsey twins, Geithner and Summers. Bobsey being, of course, Bob Rubin. They should be sacked.

The problem as we see it is that Obama is hopelessly over his head, and failing badly. His stump speeches to admiring crowds, as the most recent in Elkhart, Indiana, ring increasingly hollow. Granted his situation is difficult to say the least. He reminds us increasingly of Jack Kennedy in his first year in office, and his manipulation by 'handpicked advisors.' Remember the Bay of Pigs? He did manage to find his own voice, and was beginning to make his own way. There is still some hope that Obama can find his, but the trend is not hopeful.

Look for several third party candidates to rise in the next election, as both the Democrats and the Republicans fail to deliver an honest performance for the country. The problem is that at least one of them will be a toxic choice, probably the one that is most narrowly financed.

It does not look hopeful at this moment in history. But tomorrow is another day.

Anyone who wishes to be taken ‘seriously’ fails to acknowledge that quadrillion dollar elephant in the room. It is fairly obvious that we have no way to pay it down, equally as obvious is that it isn’t going to ‘disappear’ either.

The part that is truly hilarious is while it can’t be paid down, it can be ‘erased’…but as long as we have our current banking system that’s not going to happen either.

Erase the ‘mountain of debt’ and you’ll erase roughly 1,400 billionaires along with it. You’d also send the Dow back under the 2,000 mark but that wouldn’t be a matter of serious concern for most of us.

Also part of tonight’s offering is the following quote by Abraham Lincoln…most of you should recognize it.

Jesse's Café Américain

[From the header]

“I see in the near future a crisis approaching that unnerves me and causes me to tremble for the safety of my country. Corporations have been enthroned, an era of corruption in high places will follow, and the money-power of the country will endeavor to prolong it's reign by working upon the prejudices of the people until the wealth is aggregated in a few hands and the Republic is destroyed.” Abraham Lincoln

Lincoln is the greatest Republican this nation has ever known. It is speeches like the one above that makes us wonder what happens to political parties over time.

You’d be hard pressed to find a card carrying Republican today that wouldn’t denounce this speech as being ‘socialist’. (You’d be equally as hard pressed to find a Republican who was aware of who spoke these words…)

Thanks for letting me inside your head,


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