Sign posts

Greetings good citizen,

I have long been predicting things will go to ‘hell in a bucket’ and when the breakers are hit, they’ll do it quick!

Well, I’m not the only one who ‘sees’ it going down this way but I digress. I usually report on the news as I encounter it and the first story to whack me between the eyes was this piece from today’s NY Times.

Should Food Be a Right for the Poor?

Should you click through you will observe that the original text reads ‘India Asks’ and guess who the ‘villain’ is in this story?

Yup, it’s the same asshole it always is, the ‘lender’.

Just an ‘opinion’ here but I think all ‘lenders’ should be put out of business! They merely enable producers to reap outsized profits beyond what the market will bear…

Just another way our ‘good buddies’ the shiftless capitalists keep you pinned to the ground!

The long and the short of it good citizen, if you’re too deep in debt the only thing you can ‘cut back’ on is food, thus is the ‘cheaper there’ starving to death.

Did I mention capitalism sucks? (I know I’ve pointed this out in the past but I’m pretty sure I haven’t mentioned it today, at least not to you.)

It is this predatory ‘fuck you, pay me’ bullshit that provides ‘cover’ for the massive mis-management of our civilization, the raping of the many for the benefit of the few.

So good citizen, SHOULD food be a ‘right’? Under a well-managed society it would not only be a ‘right’ , it would also be a benchmark! But that’s not how it works under the ‘fuck you, pay me’ system!

You’re only ‘entitled’ to what you can ‘pay for’ (even though the bounty of the planet is ‘free’ to the ‘owner’, lucky him/her!) Did I mention mis-management? Does anyone else see how warped and twisted our legal system is? Shouldn’t all of these weasels be swinging from the nearest utility pole?

Just saying, you know?

Which brings me to the other ‘semantics issue’ where many pixels are being sacrificed needlessly to make a moot point the ‘end result’ is IDENTICAL whether they print tons or make ‘multiple claims upon the same underlying assets’. A ‘loss of faith’ in the value of currency leaves you just as ‘fucked’ whether it’s from overprinting or an extreme loss of purchasing power.

Which brings us to the next article which reveals more of Mr. Williams’ point rather than quibbling over semantics, read Mr. William’s ‘prediction’ at the end of this Cryptogon post…

Most disturbing here, good citizen, is why all of the indicators are pointing to a ‘crack up boom’?

You can find the ‘short answer’ here in what Jesse calls the world’s ‘second oldest profession’…perhaps better known as the ‘true sport of kings’ (the bastardization of ‘representative wealth’ [money and money-like instruments])

You’d think they’d smarten up after the first few dozen ‘Regicides’ but no, the monkeys are still at it, sticking it to society for as long as they can get away with it.

Guess who is the most ‘shocked’ when what they’ve done all of their lives is no longer tolerated?

Yeah, them!

The big picture is much more disturbing than the ‘inflation/deflation’ debate as ‘worthless is worthless’ no matter how you got there!

Whiskey and gunpowder my friends, invest in ‘tradeables’ (and I don’t mean ‘Beanie Babies!’)

A reliable source of lead will be worth far more than gold because the lead will keep you alive and free.

Thanks for letting me inside your head,

Gegner

Madness!

Greetings good citizen,

The stupidity index gained a few points this morning before it dropped into negative territory, where it pretty much stayed…all by its lonesome, until after the close. The Dow closed down 18.9 points, the S&P was up a fraction and (thank heavens for technology) the Nasdaq closed up a few points.

But, like yesterday, it was not the market’s performance that disturbed me, it was er, ‘non-headline news that I found troubling.

Tonight’s abbreviated first offering is from none other than Henry CK Liu:

The folly of deregulation
By Henry C K Liu

On October 7, 2009, the United States House of Representatives Committee on Financial Services at long last held a public hearing on "Reform of the Over-the-Counter (OTC) Derivative Market: Limiting Risk and Ensuring Fairness".

OTC derivatives are contracts executed outside the regulated exchange environment whose values depend on (or derive from) the values of underlying assets, reference rates or indexes. Market participants use these instruments to perform a wide variety of useful risk management functions. The Bank of International Settlement (BIS) reports that the notional value of all outstanding OTC derivative contracts ending June 2009 was US$49.2 trillion worldwide against a 2009 world gross domestic product (GDP) of $65.6 trillion.

Stop right there! 2007 world GDP was 53 trillion dollars, Um we all know the global economy ‘shrunk’ over the past two years so how the fuck did it grow to 65 trillion dollars!

The only ‘logical’ explanation here is inflation (which has been reported to be ‘negative’) $12 freaking TRILLION DOLLARS worth to be precise!

How the fuck does global GDP increase $12 trillion dollars when the planet’s largest consumer population has slashed trillions in net income from our economy? WTF is this, magic? We have 18 million unemployed in the US and our GDP went up 3.5%…for no discernable reason!

So, there’s no inflation and ‘somehow’ world GDP went up while payrolls around the world are shrinking? There’s something very wrong with this picture good citizen.

Someone’s going to get stuffed but good and you can bet it won’t be those who so ‘richly’ deserve it.

Moving along we arrive at tonight’s second offering for yet another look at an ‘extreme outcome’… [Hat tip: Some Assembly Required]

The Consequences of Underemployment
by: Tom Lindmark December 01, 2009

The next time you hear a politician talk about the number of jobs saved or created by the stimulus package or listen to a commentator on CNBC talking about the improving labor market, hark back to this story. It’s from the WSJ and it’s the unfortunate reality that isn’t and maybe can’t be addressed.

The story talks about a few Americans that have seen their world turned upside down by the recession. Here is one family’s experience:

After being laid off by the New Jersey battery plant in 2006, Mr. Crane took a job stocking shelves at Costco (COST) in the fall of 2006. His pay was $10.76 an hour — the same money he earned when he was hired by Delco in 1983, just out of high school. “It’s sad,” says Mr. Crane, who had been earning about $28 per hour at Delco, before overtime.

In late 2007, he took a job at Lowe’s (LOW) while working at a series of fast-food jobs on the side, as well as a stint at Pathmark supermarket. He still works at Lowe’s, earning $15.96 an hour selling lawnmowers, outdoor furniture and Christmas ornaments. At night, he pumps gas at a Quick Check for $13.70 an hour.

Typically, he works between 61 and 63 hours per week. It wouldn’t be so bad, he says, if the hours were consecutive. But with the gap between jobs, he can only sleep a few hours a night now — sometimes just an hour. Last week, he managed to clock 87 hours and barely saw his son.

Mr. Crane was a heavy equipment operator at a Delco plant earning more than $100,000 a year when he was laid off. [Um, this is pretty extreme considering the true ‘average wage’ for a working male here in the US is right around $30,000 a year…half of all men make more and half make less…which is more ‘typical’ than Mr. Crane’s $100k working a ‘blue-collar’ job. Just to give you an idea of how ‘extreme’ we’re talking here, Mr. Crane’s $100k put him in the top 20% of earners…also known as ‘paycheck peasants’; which is what he has truly become.]

This is the sort of thing that I suspect you like I see every day. People who have seen their standards of living slashed and now work just to survive with little hope of better days ahead. [Uh, You KNOW Mr. Crane has a better chance of meeting God than he has of getting his cushy union job back, that bad boy is gone for good!]

There is an emerging consensus that somehow, someway the government needs to expand the amount of money it collects in order to deal with a deficit that some consider out of control. Honest pundits readily concede that the only way that can be accomplished is to tax more and to tax broadly. That may be a truism from an abstract policy perspective but the reality is that the stones from which those would extract more money are indeed truly quite dry. [You know and I know that taxation is not how the government raises more money, our pal Hill Billy (Clinton) pumped up the economy to the point that he balanced the Federal Budget, not ‘for real’ but he was able to stop digging the hole deeper, an accomplishment in itself. We’ve never faced the problem we’re facing now, where we owe and import so much that it isn’t possible to get ahead of it like they used to.]

Workers like Mr. Crane have no capacity to absorb more calls on their earning capacity whether through higher taxes of any form or sort, increased health insurance premiums or taxes either overt or covert on energy usage. They exist on a razor's edge with no margin for error or any change in the amount of money they now willingly pay. [Yes, good citizen, this is a rare piece that raises issues my readers are already familiar with…]

Americans, no matter how dire the situation may have appeared in the past, have always forged ahead on the assumption that their lot would improve through their own efforts. I’m not certain that hopeful outlook prevails any longer and to the extent that it has diminished the door is being opened to radical social change. People with little faith in the future, particularly those who feel that something has been taken from them, are most prone to favor radical social reordering. How that plays out in a country as individualistic as the U.S. is a question open to a lot of speculation.

The situation with underemployment did not arise solely from the recession. It is the product of a conscious decision of a large portion of corporate America to outsource jobs to less expensive locals. On its face, it made business sense at least from a short-term perspective. Long-term, it may turn out to be a decision of colossal negative implications for those who profited including the political class that traded its obligation to protect the populace for campaign cash. [Pauperizing your own society is NEVER a good idea, even on a short-term basis. Strangely, those who have done us in think they can ‘escape’ by leaving the country…reality says there’s nowhere to run, nowhere to hide.]

Consider Mr. Crane’s current ambitions as you ponder the implications of underemployment. Men and women with this view of the future tend to listen attentively to promises for a better tomorrow no matter how radical the road plan for getting there might be.

Mr. Crane no longer sees his new life as temporary. He no longer dreams of going and fixing equipment at the factory and operating big machines.

“My new goal is to become a manager at Lowe’s,” he says. “That will pay $17 an hour. I’m hoping this happens in the next couple of years, by the time my son is in high school.”

At least Mr. Crane has woken up to the fact that he can’t keep putting in 80-hour weeks without his health suffering. Worse, job performance suffers as well.

Our Mr. Crane was either an extremely frugal individual and he banked a goodly percentage of his former pay or he has suffered some serious setbacks in his family’s lifestyle. Most of us wouldn’t survive a fifty-plus percent pay cut without having to sell off assets at stiff losses.

To ‘re-cap’ we have the criminal conspiracy that operates above the law manipulating the numbers so vigorously they have produced inexplicable outcomes. Then we have a ‘not so average’ citizen kicked severely in the gonads by cutbacks in the automotive industry…which brings us to our final offering and the ‘fuck job’ perpetrated upon the ‘buy and hold’ long term investor… [Hat tip: Jesse’s crossroads café]

America's Lost Decade in Equities

For the first time since the 1930's this decade represents negative returns for the SP500. Remarkably this chart represents nominal total returns. [Follow link to view chart]

Adjusted for the weaker dollar and inflation, the 'buy and hold' philosophy, especially for those nearing their retirements, has been a disaster. But it has been great times for speculators and insiders and the productive economy.

Part of the problem is with the 401k concept as a supplement if not replacement for pensions and savings, as well as portfolios for educational purposes. Their implementation offers too few choices for the average person. Do you wish to buy corporate stocks or corporate bonds? Or money market funds where the value is not guaranteed? Short term Treasuries, if you are fortunate.

The piling into corporate bonds in the US today may be in part driven by this lack of genuine choice, the seeking for 'conservative choices' and is setting up the many for staggering losses in the event that stagflation does indeed occur. Bond funds are no safe havens.

Two tax reforms, or at least stimulus, that the US might consider is increasing the annual allowance of $3,000 which the taxpayer may claim from prior capital losses against current income. The amount has been the same for many years, and an increase would help the average person clean their books up a bit. A second program might be stimulus, in allowing the average person to take for example $10,000 out of their IRA or 401k tax free for one time.

The Reformer [Guess who?] will not do anything that does not benefit Wall Street, but if the US wishes to obtain some serious reforms in its financial system there is a rich ground to sow the seeds of renewal, given the neglect and abuse of the last twenty years.

The banks must be restrained, and the financial system reformed, and balance restored to the economy before there can be any sustained recovery.

Any of you old enough to remember can still hear Saint Ronnie promising us that we we’re all going to be millionaires if we’d just feed our 401k’s as much as we could spare! Understand, the goal wasn’t to make YOU rich, it was a way to pump a steady stream of cash into Wall Street…and the fucks used your retirement money to send your job overseas…talk about ‘double fucked!’.

I’m not crying because I never fell for that bullshit…I don’t have a 401k so I didn’t get screwed. Flipping that rock over, I know people that have lost millions!

Um, Jesse’s heart is in the right place but a vast majority of small companies have never offered 401k’s. I believe the estimated participation rate is still below 40% and that isn’t enough to ‘stimulate’ the economy as most people who have them have tapped them already. There simply isn’t $10,000 to take out or the accounts are ‘dormant’ because neither the company nor the worker can afford to contribute to them anymore.

This naturally brings us full circle with the issue of what does our corporate sector owe us regarding our future economic security. Are we idiots to slave our lives away, making the ungrateful rich while they have no obligation to us?

As we often encounter, the way things should be are not the way things are…and we have to wonder why? How do employers continue to shirk their responsibilities? Is THAT what all of those ‘campaign contributions are all about?

Anyway,

Thanks for letting me inside your head,

Gegner

'Safe as Houses!'

Greetings good citizen,

I’ll spare you the report of how the only economic indicator we have performed today because if you aren’t rich, it doesn’t matter.

Although how the market performs influences which stories I select. When I logged on this morning the markets were down, not a lot, but, as it turns out, they stayed down all damn day.

Naturally, I look for a story (headline) that might contain the answer for why the market is performing the way it is. In that respect, you really have to hand it to the MSM. They aren’t very good at reporting the truth but damn it, you can’t fault their readiness to provide simple, speedy (even if they’re dead wrong) explanations.

Sadly good citizen, I’ve charged off the reservation and provided you with the wrong first impression of tonight’s first offering when tonight’s second offering contains the explanation (regardless of how implausible) for today’s market performance…

US Home Building Unexpectedly Slumps in October

By JAVIER C. HERNANDEZ
Published: November 18, 2009

New home construction slowed unexpectedly in October to the lowest level in six months, the Commerce Department said Wednesday, resurrecting fears that the housing market may be slow to recover. [Um, Jesus, what’s so ‘surprising’ about this? Over 90% of the country is headed into winter, what the hell do they expect? Worse, it’s not like we ‘need’ the houses!]

A separate report showed consumer prices inched upward in October, but not enough to make inflation a concern even as the dollar weakens and interest rates remain at historic lows. [ya know, ‘interest rates’ don’t have anything to do with inflation yet our pal ‘Ben-Ber’ keeps pointing to low interest rates as the reason he’s confident we won’t experience runaway inflation…no, it’s not ‘interest rates’ that cause inflation, it’s ‘devaluation’. As your money becomes increasingly worthless, you have to print more to buy less shit and viola! We have inflation!]

The data on home construction showed a decline in the rate of single- and multiple-family homebuilding, contributing to an overall decrease of 10.6 percent in housing starts from September. In total, construction was at a seasonally adjusted annual rate of 529,000 housing units in October, falling short of the 590,000 predicted by analysts. Building permits, an indicator of future construction, declined as well, to an annual rate of 552,000 from 575,000, also falling short of forecasts. [Predicted by ‘analysts’…the fuckers are forever wrong so the only ones ‘surprised’ by their missed predictions are the freaking clueless media people!]

Apartment construction slowed to a historic low, dipping to a seasonally adjusted annual rate of 53,000 in October. Analysts attributed the decrease to the reluctance of banks to finance large construction projects and lackluster demand for rentals as vacancies remained abundant. [Stop right there good citizen…this is another seriously ‘bad’ indicator that nobody is paying attention to…where the fuck are all of the people who are losing their homes going if they aren’t renting apartments? Some of them, not many and certainly not most, go ‘home’. If not to their parents house then to a sibling’s residence…but isn’t not having enough money/credit/’fill in the blank’ to rent a stinking apartment make matters that much worse?]

Part of the overall decline in housing construction might be explained by the uncertainty in October over whether Congress would extend a tax credit for first-time home buyers. Earlier this month, lawmakers voted to extend the credit through April, but builders may have been reluctant to begin construction in October without assurance that homes would be bought. [As many besides myself have pointed out, using taxpayer funds to ‘subsidize’ the purchase of a new home (especially when those homes are still at inflated prices) doesn’t help anyone but the bankers]

The revival of the housing market is considered crucial to reviving the economy. Construction adds jobs to the economy, and once a home is sold, consumers typically go on spending sprees as they stock up on furnishings like televisions, refrigerators and sofas. [Um, missing from this cozy little tableau is the ‘true’ value of the property. Home situated in present or future ‘economic deserts’ have no chance of being sold for a profit no matter how long you ‘hold on’ to them. Until our economy is straightened out, buying a home is an exercise in futility…]

“These figures can be pretty volatile from month to month, so it may just be a blip,” Paul Ashworth, senior United States economist at Capital Economics, wrote in a research note on Wednesday. “Nevertheless, taken at face value it suggests homebuilders are still uncertain about the sustainability of the rebound in home sales.” [For pretty much the same reasons I lay out above.]

Celia Chen, senior director at Moody’s Economy.com, said demand for homes would likely remain weak into 2010. [But what does Celia Chen know? Nothing! What you can count on is come 2010 and housing demand is still in the doldrums, you know Celia will revise her prediction into 2011 or 2012…]

“The housing market is still very fragile,” she said. “It seems that the market has bottomed in terms of sales and starts, but that stability can be easily broken, even if affordability is very high.” [Um, affordability is ‘relative’. People who can easily afford an expensive home don’t hesitate to purchase two or three, but those people are rare (and the ‘utility’ of having/maintaining more than two homes is what prevents people from ‘accumulating’ them by the dozen. If you have that kind of money, you usually don’t have the time to ‘make use’ of more than two or three ‘bases of operation’.]

The Labor Department’s report on consumer prices showed the Consumer Price Index climbed 0.3 percent, slightly above analysts’ estimates of 0.2 percent. The index measures the changes in the cost of a bundle of goods for consumers — everything from cooking oil to airplane tickets to medical care. [Naturally the big problem with CPI is it ‘ignores’ food & fuel, rendering its ‘usefulness’ as a measuring tool moot.]

The increases came because of rising energy and motor vehicle costs, the report said. When the government excluded the cost of food and energy, which can be volatile, prices rose 0.2 percent. [Two hundredths of a percent isn’t much but it is well known that the current method of computing CPI grossly understates the real rate of inflation…]

The prices of cars and trucks showed steep increases. Analysts said that could be a side effect of the government’s popular cash-for-clunkers program, which depleted the supply of both cheaper 2009 models and used vehicles, driving up prices. [Um, you don’t suppose the need to pay back the government subsidies has influenced the price of US assembled/sold vehicles?]

The small increase in consumer prices signaled that inflationary pressures, by and large, appear to be in check, restrained by the nation’s high unemployment rate and significant unused factory capacity. On Tuesday, a report on wholesale prices showed similar results, though there were signs that higher prices might be on the horizon. [I’ve noticed this low inflation ‘meme is getting a lot of play recently, especially in light of the fact that the dollar is plummeting relative to other ‘world currencies’. The dollar is sinking like a rock and it will soon take more of them to purchase the same basket of goods…a basket of goods that will be getting lighter as ‘food insecurity’ becomes more severe.]

“Effectively, this gives the Federal Reserve a checkered flag to keep rates exceptionally low for an extended period of time,” said Brian Bethune, chief United States financial economist for IHS Global Insight.

Um, since ‘A’ leads to ‘B’, food insecurity will lead to other kinds of insecurity as the tempo of crime accelerates to plug the gaps left by the slowdown in ‘the productive economy’.

Worse good citizen, we’ve been here before. It wasn’t that long ago although people under fifty might have a hard time remembering what it was like back in the Seventies. Anyone who remembers the premise behind the ‘Death Wish’ movies knows they were ‘reality based’. (Which is a bit misleading, We aren’t talking a real incident but the situation the movie described was what you’d really experience if you ventured alone, unarmed in the dark places of the ‘concrete jungle’)

Not only was ‘mugging’ a commonplace event that could strike anywhere, but it also wasn’t unusual for muggers to murder their victims.

Strangely, many of the muggings were blamed on welfare recipients, not something that was actually proven but you know how politicians are…they don’t want to solve a problem as much as they want to ‘appear’ to be doing something about it. It’s an appeasement thing politicians love to embrace.

Anyway, they finally got the muggers off the streets by turning them into cops…but that’s another story.

So we arrive at tonight’s http://www.nytimes.com/2009/11/19/business/19markets.html?ref=business/> second offering which, as promised, speaks directly to today’s lousy market performance.

Stocks Off to Sluggish Start on Wall Street

By THE ASSOCIATED PRESS
Published: November 18, 2009

Stocks were lower Wednesday in early trading on Wall Street after a report showed housing starts dropped unexpectedly in October.

The Commerce Department said construction of new homes and apartments fell 10.6 percent in October to a seasonally adjusted annual rate of 529,000 units. Economists forecast a rate of 590,000.

A report on inflation showed prices at the retail level rose 0.3 percent last month, slightly ahead of the 0.2 percent economists’ expected.

The fall in the housing starts could stoke concerns that the economic recovery in the world’s largest economy will not be as strong as many in the markets have been predicting. Stock markets have rallied strongly since March as investors reined in their economic doomsday expectations partly because of a recovery in the property market. [Um, notice they are still talking up how the US is the ‘world’s largest economy’…what are they going to say when it isn’t anymore? I’d say it is already factually untrue to label the US as the world’s largest economy although US multi-national companies are among the world’s strongest, the question is how much the US is involved in making them strong…I’d say not so much.]

The Dow Jones industrial average was down 16.86, or 0.2 percent, at 10,420.56. The Standard & Poor’s 500-stock index was down 0.88, or 0.1 percent, at 1,109.44, while the Nasdaq composite index was down 5.17, or 0.2 percent, at 2,198.61. [While the ‘stupidity index’ didn’t finish in positive territory, it did close higher than these pre-noon figures indicate.]

European stocks were higher.

In Europe, the FTSE 100 index of leading British shares was up 15.43 points, or 0.3 percent, at 5,361.36 while Germany’s DAX rose 40.30 points, or 0.7 percent, at 5,818.73. The CAC-40 in France was 28.75 points, or 0.8 percent, higher at 3,857.81.

The dollar mostly fell against other major currencies, while gold prices rose, touching a new record high. Gold rose $8.10 to $1,147.50 an ounce, after rising as high as $1,151.00 earlier in the day.

Traders are keeping a close eye on the dollar, which has a major impact on the movement in commodity and energy price stocks, as well as any suggestions that borrowing costs will be rising sooner than anticipated.

The dollar won a brief respite over the last couple of days after the Federal Reserve chairman, Ben S. Bernanke, and the European Central Bank president, Jean-Claude Trichet, seemingly tried to talk up the United States currency, which has slid to multiyear lows against the yen and to near 15-month lows against the euro.

Some of the gains made in the early part of the week were lost Wednesday as the euro recovered 0.4 percent to $1.4934 and the dollar fell 0.1 percent to 89.18 yen.

“The dollar downtrend remains intact despite the increased volatility seen over the past week,” said Hans Redeker, global head of foreign exchange strategy at BNP Paribas.Earlier, Japan and Hong Kong led the Asia’s declines, with Tokyo’s Nikkei 225 stock average losing 53.13 points, or 0.6 percent, to 9,676.80 and Hong Kong’s Hang Seng shedding 73.82, or 0.3 percent, to 22,840.33.

Markets in Indonesia, Singapore and Thailand also fell.

Oil prices rose further, closing in on $80 barrel after an unexpected drop in U.S. crude supplies suggested demand could be improving. Benchmark crude for December delivery was up 48 cents to $79.62 a barrel in electronic trading on the New York Mercantile Exchange.

Dunno why the lying bastards bought up oil prices, which remain stalled around $80 a barrel, where they’ve been for the past two months.

The last time the Dow made it to the 10,400 level it ‘masturbated’ in this range for close to a year before (inexplicably) bounding higher…talk about funky little tidbits that ‘stick in your head’.

Hard to say what’s more frightening, the widespread ‘dis-information’ being spouted about the causes of inflation or the fact that those in charge of ‘repairing’ the economy are the ones spreading these fairy tales!

Hell, stocks are going up as the dollar dives! In fact, the dollar has lost what, 18% over the past few weeks alone? We have absolutely no clue as to why this is happening (now instead of months ago) but we do know nothing is being done to reverse the slide…which isn’t very surprising, considering who is in charge.

Left unanswered is whether or not you will ‘eventually’ need a wheelbarrow full of cash to purchase a loaf of bread and it is my opinion that you will, regardless of what the pundits think.

Thanks for letting me inside your head,

Gegner

Free Lunch?

Greetings good citizen,

The markets are enjoying another ‘big’ up day, this time because month-over-month home sales have increased. Citing a combination of depressed prices, government incentives and loosely defined ‘first time buyers’, not only have sales picked up but so have housing ‘starts’.

Naturally, a single month of data does not a ‘recovery’ make, especially in light of the looming problems in the auto industry.

The housing markets are nowhere near the bottom (price wise) and building more homes when there is so much unsold inventory on the market is ‘speculative’ at best, nothing to get excited about.

Sadly, ‘good news’ is where you find it…even if you have to ‘spin’ it yourself.

With that said there is a rather ‘diverse’ set of offerings on tap tonight. We begin with commentary from someone we haven’t heard from in a while…

The greatest cost
Commentary and weekly watch by Doug Noland


An astute analyst posed the following question last week: "The current debate is centered on whether the US Federal Reserve can take back the liquidity in time in order to prevent inflation. Suppose it can. Suppose they execute this perfectly. But if the Fed is able to flood the system with the liquidity (thus reducing the severity of the downturn) and take it back before it causes inflation, it seems there is a free lunch. We get something for nothing. So, assuming a perfectly executed game plan by the Fed, is there a cost? Do they keep rates low for a time, only to raise them a lot a year down the road - is that the cost? Or is there another cost?"

I'm short on time today, so I'll attempt a brief response.

First of all, while it often appears otherwise, finance provides no free lunch. The mis-pricing of credit and misperceptions of risk in the marketplace have deleterious effects, although their true impact may remain unexposed for years. Indeed, the more immediate (and always seductive) consequences of loosened financial conditions tend to be reduced risk premiums, higher asset prices, and a boost to economic "output". Conventional analysis of monetary policymaking still focuses on "inflation" and "deflation" risks. I would strongly argue that our contemporary world has already validated the analysis that acute financial and economic fragility are major costs associated with market pricing distortions.

When the Federal Reserve collapsed interest rates following the bursting of the technology bubble, the results seemed constructive. Stock and real estate prices inflated; a robust economic recovery ensued. [But only or traders, the ‘real’ economy continued to languish.] There was at the time some recognition of the potential for real estate excesses. But this was seen as such a small price to pay in the fight against the scourge of deflation. It was not until 2007 that the nature of the true costs of a massive "reflation" began to come to light. [I would add that this was due to the failure to incite a ‘corresponding’ economic expansion in the ‘real’ economy.]

Many would today argue that it was simply a case of the Fed's failure to take the punchbowl away in time. Such analysis misses a key facet of bubble dynamics. Once the mortgage finance bubble gained a foothold, there was absolutely no way policymakers were going to be willing to risk bursting such a consequential bubble.

I see ample support for my view that bubble dynamics have taken root throughout government finance. This unprecedented inflation includes Federal Reserve Credit, Treasury borrowings, agency debt, mortgage-backed securities issued by government-sponsored enterprises (GSEs) such as home-loan guarantors Fannie Mae and Freddie Mac, Federal Housing Administration and Federal Deposit Insurance Corporation insurance, massive pension and healthcare obligations, the myriad new market support programs, and so forth. This government finance bubble is domestic as well as global. Amazingly, the scope of the unfolding bubble dwarfs even the mortgage finance bubble. And, importantly, it is reasonable to presume that the Federal Reserve will find itself in the familiar position of being trapped by the risk of bursting a historic bubble.

So I see the probabilities as very low that the Fed will reverse course and impose tightened liquidity conditions upon the marketplace. Actually, reflationary pressures may force the Fed to increase its Treasury holdings in an effort to maintain artificially low interest rates. At the same time, I don't see higher inflation as the greatest cost associated with this predicament. Much greater risk lies with the acute systemic fragility that I believe is inherent to major bubbles. [What he’s saying here is the global financial system will still be in danger of collapsing…and when it does, hyperinflation will be the least of our problems.]

Similar to mortgage finance 2002-2007, the marketplace is significantly mispricing the cost - and failing to recognize the risks - of a massive inflation of government finance. And while every bubble has its own dynamics and nuances, the unfolding government finance bubble has even more precarious Ponzi finance dynamics than the mortgage bubble.

The markets are on track to accommodate US$2 trillion or so of Treasury issuance this year. This incredible amount of debt creation is in the range I would expect necessary to temporarily stabilize the US ("services") bubble economy. Importantly, this amount of new finance both plugs financial holes and works to stabilize inflated income levels. From last week's income data, one can see that personal income was up 0.3% year on year to $12.04 trillion. And while 0.3% is very meager growth, without massive government fiscal and monetary expansion (inflation) the economy would have suffered a destabilizing income contraction. Keep in mind that personal income has inflated 65% since 1998 and 33% from 2003. [So, while overall income is ‘growing’ on paper, it is the failure of this income to be distributed where it is needed that will result in ‘systemic collapse’.]

I'll try to explain my belief that dangerous Ponzi finance dynamics are in play with the current course of policymaking. First, I view panicked policymakers as seeing no alternative than to try to sustain the current (deeply maladjusted) economic structure. A more natural course of economic adjustment - from finance and consumption-driven bubble economy to a more balanced system - was going to be much too painful to endure. So a massive government inflation was commenced in desperation - with the grandiose objective of revitalizing securities markets, housing prices, and the overall US economy. I just don't see how this reflation goes much beyond stoking a susceptible artificial recovery. [Which is shorthand for saying we will once again experience another ‘recovery’ that is ‘transparent’ to the ‘real’ economy.]

First and foremost, with government finance now completely dominating the credit system, I can't even begin to contemplate how this process might nurture an effective allocation of financial and real resources. [Read: jobs and wealth creation.] Indeed, I see today's manifestations of credit bubble dynamics as an extension of similar mispricing, misperceptions, and over-issuance that led to last autumn's near financial collapse.

Admittedly, the massive extension of government credit and obligations works wonders in stabilizing a devastatingly impaired system. Inflationism is always seductive; trillions of dollars worth is absurdly seductive. Yet this extra layer of debt does little to effect change to the underlying economic structure. Actually, a strong case can be made that it only delays and sidetracks the necessary adjustment process. And, importantly, this enormous additional layer of system debt exacerbates system vulnerability. [We’re talking ‘wringing moisture from dry towels’ here good citizen…and guess who gets to be the ‘towel’?]

At the end of the day, a system is made or lost on the soundness of its underlying economic structure. I posit that a sound economic structure is reliant upon only moderate credit growth and risk intermediation. Our system requires massive credit expansion and intensive risk intermediation. I would also posit that there are no benefits - only escalating costs - to throwing massive credit inflation upon an unhealthy economic structure. And, returning to Ponzi dynamics, one of the major costs to such inflationism is a massive expansion of non-productive credit – obligations that are created without a corresponding increase in real economic wealth producing capacity. The debt can only be serviced by the creation of more debt obligations.

The danger is that markets too easily and for too long accommodate massive credit expansion during the boom. Federal Reserve policies are fundamental to this dynamic. But at some point and out of the Fed's control, as Wall Street learned, greed inevitably turns to fear and a reversal of speculative flows marks the onset of the bust. And it's the massive inflation of non-productive credit that ensures the unavoidable crisis of confidence. Can the underlying economic structure service the mounting debt load or, instead, is it the massively inflating debt load that is sustaining a vulnerable economy? And it is in this vein that I fear the government finance bubble is on track to destroy the creditworthiness of the entire economy. And this Ponzi dynamic is the greatest cost to what I fear is a continuation of unsound policymaking.

In keeping with the theme of my past few posts, no nation ever succeeded in inflating its way to prosperity. If we keep waiting for the adults to finally show up and put their foot down, we’re going to be waiting a long time.

Someone has to step up to the plate, say ‘no’ and mean it! The debacle that is playing out on the global stage right now is due to the bad kids getting in one another’s face and screaming ‘fuck you, pay me!’

Instead of saying ‘no’ and giving these kids the spanking they richly deserve, the ‘government mommy’ has retired to the kitchen to try make enough brownies to keep these brats ‘happy’, while the little kids are stuck out in the backyard in the pouring rain…because nobody is watching out for them.

One need not be a genius to see that this won’t end well.

I’m not a ‘goldbug’, I’m more a Whiskey and gunpowder type, however here we have another disturbing development courtesy of The Mogambo guru

I also highly recommend that you take the time to consider the implications of this piece.

Logically, our collective fortunes are based on the overall prosperity of the society we belong to, simply put, there is no way for the individual to ‘escape’ times of financial reckoning .

If everyone does well, so will you. If only the connected prosper, everyone else suffers, something that will inevitably be visited upon the temporarily prosperous…

Thanks for letting me inside your head,

Gegner