August 07, 2009

There's a Sign Post Up Ahead

In some ways it just doesn't matter why the Dow Jones and S&P are climbing: they are. Various Baroque theories are advanced to explain the improvement. For example, a lot of the trading is actually the result of Wall Street banking institutions playing games in the equity markets with essentially free cash from the Federal Reserve. This one makes particularly good sense. The Wall Street-Washington Axis is now one of the more seamless connections in world finance. It's all manipulation, all the time. One must titter a little at those who are terribly concerned that Obama is a "Socialist." (Even stranger are the claims that he's a Fascist; huh?) Where were such critics when George W. Bush and Paulson held a gun to Congress's head and said, give us the $700 billion or we blow this place up? From TARP to TALF to giving Goldman Sachs a library card as a "bank holding company" so it could have free cash from the Federal Reserve's discount window, the federal government has essentially taken over the financial sector completely. Add that control to its ownership of the military-industrial complex, and what's really left that you would call "private?" Why is what has happened under Obama any different at all from the policies of his predecessor? Okay, aside from the fact that Obama is partly African-American?

My own current obsession is an attempt to understand the Treasury-Fed Reserve-Wall Street shell game. It's fascinating. Is Bernanke conducting business as usual, or is something really funky going on? You have to read around to get any feel for this area. For example, when approaching the latest stats on unemployment from the Bureau of Labor Statistics, you might notice first that Rod Serling, for some reason, is standing on the right hand shoulder of the road. Smoking, of course. "Consider Wally Swimmer, just an average blogger going about his day like any other. Driving down a quiet road, he sees a sign - 'BLS Ahead.' The next stop: The Twilight Zone." (Cut to creepy horn fanfare.)

We lost another 250,000 or so jobs last month, as computed by the Bureau, but the unemployment rate dropped a tenth of a point or so. How can that be? you wonder. Well, hell -- you have to understand "seasonal adjustment" where people get hired this time of year in the auto industry (although they don't get actually get hired, of course), and stuff like "nonfarm payrolls," et cetera and -- just stop asking so many questions. The unemployment rate is better, ok? That's the important thing. The market goes up again. Because of the job numbers? Not really. The pros will tell you all of that has already been "priced in." The market's going up because the market's going up, and if you had invested about a million in the Dow Jones Index in May, maybe you would have made about $350,000 or so by now.

But nah - you're addicted to "conspiracy theories" about Wall Street. Look, just because the Big Boyz are down below with a hand crank and that's what is making the escalator rise doesn't mean you won't ride up with them if you get on board. See? So tell me - why isn't Obama an unqualified financial success? The Dow is going up, isn't it? What happened to all that talk of an "Obama Recession?" Remember? The First Dude was being blamed for absolutely everything before he had a chance to unpack his good suit.

Confusing, isn't it? Infuriating, frustrating? Welcome to The Twilight Zone. What the hell is the Treasury/Fed (Tred?) doing? Paul Craig Roberts, the former Treasury official in the Reagan Admin, has been busting the U.S. pretty good for quite a while about its deficits. His idea: there just isn't enough loose cash in the world to buy up $2 trillion in deficits. So what's the answer? Are Ben Bernanke (BB) and Tim Geithner (Eraserhead) monetizing the deficit? That's another word for printing money and calling it....well, money. (Great line from Danny DeVito in some movie: "Money's really important. That's why they call it money.") The truth is, there have been a couple of dodgy Treasury auctions lately that were almost cancelled for lack of interest. So at a very recent auction, the participating banks (member banks of the Federal Reserve which are required by the terms of their charter to participate in such auctions - the "PBs") bought a bunch of Treasuries of various terms, held them about a week - and then the Fed Reserve stepped in and bought them right back. The same Treasuries, down to the identifying CUSIP number (see? I've been doing a lot of reading for you). Does that make you wonder whether a deal was set up beforehand so it would look, you know, like the auction was real and there were actual banks interested in buying Treasuries, instead of the Fed (the Treasury's bank) bidding on Treasuries auctioned by the Treasury? It made some people wonder that very thing.

Was that a case of the snake eating its own tail? Does this indicate that the famous Chinese, Bank to the Americas, were losing interest in this low quality scrip that pays virtually no interest? I ask questions - you decide. BB (no doubt with Eraserhead's concurrence) announced just now that the Fed would cease its purchases of Treasuries in September, no doubt to mollify our Dragon-Country Bankers who are wondering about the bona fides of this cannibalistic financing we're doing. You know, they're doing what I'm doing - not reading the New York Times, but behind-the-scenes stuff to try to figure out just what the hell we think we're doing. I mean, isn't this a shell game? If we're financing our own debt by printing money and using it to buy our own Treasuries, isn't something a little shaky going on? Wouldn't that dilute the hell out of the dollar, and is that related to the dollar slump?

Well, maybe not. The Fed always buys Treasuries - it's one of the ways it stabilizes interest rates and maintains a market. Yeah, but the way it gets the money these days is by, is by...

Sorry, it's only a half hour show. Tune in next week when Wally Swimmer sees a carousel and realizes for some reason not only is everything black and white, it's 1955.

August 06, 2009

The Credulity of the Birther Morons

Why won't Barack Obama release his "long form" birth certificate from Hawaii? I've been thinking about that, and I've come up with two reasons, equally plausible. Indeed, they may both be in play.

First, authorizing the release of the LF certificate dignifies an entirely specious and racist "controversy" with no basis in fact. The President has a right to privacy, a right which George W. Bush certainly took to heart when he did everything possible to protect his AWOL records from disclosure, and I'm almost certain none of this "birther" stuff would be happening if Obama's name were Adam Smith and if he were completely Caucasian.

The second thing is that there may be something in the long form version which Barack would simply prefer to keep under wraps. Not his citizenship, of course, but something else, probably about his parents. He comes out of an unusual, very difficult background, and it's possible that for political reasons Barack sanitized or sanded off some of the rough edges in one of his two books about himself, things that might be somewhat contradicted by the long form cert. That's just surmise on my part; I don't care, really, not at all. The circumstances of my birth in rural Alabama were not exactly regal, and I instinctively empathize with an individual who can, through amazing diligence and persistence, rise to the heights he has achieved against very formidable odds. His election speaks well of a certain slim majority of the American populace. They looked past his exotic name, his unusual background, his race and numerous other things which are not in the "mainstream" of American politics.

The "birther" movement (and the Tea Baggers as well) remind us that a return to modernity and prosperity is not going to be easy here in the USA, the Land of the Free and the Home of the Booboisie. According to a Pew poll recently, 28% of Americans believe there's been "too little coverage" by the mainstream media concerning Obama's "foreign birth." 39% of self-identified Republicans hold this view. I don't think it's a huge leap of faith to surmise that when people complain there's been "too little coverage," what they're really saying is that the media are covering up Obama's Kenyan birth. I mean, that's what I'm talking about: my utterly crackpot country, right or wrong. It goes right up there with the Gallup finding that only 39% of adult Americans "subscribe" to the theory of evolution (figures on subscription to the theory of gravity were not immediately available at press time.)

Which is probably another reason Obama does not release the long form cert: what's the frigging use? Despite his sunny affability, Barack has traveled this country more than most people and I doubt the Pew or Gallup findings would surprise him. No doubt he has internalized a pretty accurate sense of the dimness of the wits of his not-so-loyal subjects. We just ain't the brightest people in the world, when all is said and done. Barack Obama is trying to lead a technological revolution in a country where only 39% of the populace actually believe in the most basic tenets of modern science. Good luck with all that. Can that actually work?

I suppose the lingering viability of the Republican Party is that they never make the mistake of overestimating the intelligence of their cadres. The Tea Bag Movement, as it applies to health care reform, attempts to convince its drooling foot soldiers that Medicare is not a government program, or that the Veterans Administration does not provide socialized medicine. And they get away with this stuff, easily. How much easier to "prove" to these people that a guy named Barack was actually a Muslim born in Kenya. True, he has a Hawaiian birth certificate, which the state of Hawaii stands behind. The Honolulu Advertiser and Bulletin published a notice of his birth in 1961 and stated that his parents lived on Kalanianaole Highway, which I can not only pronounce but know the exact location of. As Vincent Bugliosi wrote in describing the overwhelming evidence against O.J. Simpson, this is the sort of corroborating evidence that just doesn't happen "in the real world" unless it's true.

Doesn't matter. The Birthers can refute all that. The Obama family, the State of Hawaii, the Advertiser and Bulletin are all in on the same conspiracy. Trying to convince them otherwise is actually proof they're right - otherwise, why would you be arguing so strenuously on the basis of such "old" evidence (you know, the original, true stuff)? They will outlast you every time. You might have all the facts, the evidence, the plain common sense, but they have something more sustaining - their rabid hatred. One of my favorite writers, Michael Shermer, editor of Skeptic magazine and author of Why People Believe Weird Things, puts it this way:
"There’s no amount of evidence or data that will change somebody’s mind,” says Michael Shermer, who is the publisher of Skeptic magazine and a columnist for Scientific American, and who holds an undergraduate and a master’s degree in psychology. “The more data you present a person, the more they doubt it … Once you’re committed, especially behaviorally committed or financially committed, the more impossible it becomes to change your mind.”


August 05, 2009

Go Big or Go Home

I suppose one problem about hanging out in the Grand Ballroom of the Titanic post-collision is that the issues to which I might bring more familiarity (such as civil liberties questions regarding America's POWOTS (prisoners of war on terror) recede into the background as the deck begins to list heavily to starboard. It is, indeed, the Economy, Stupid. The economy all the time. Well, as I've noted before, Walden's longest chapter was about the Economy - it's basic, and Thoreau reduced it to its basic basics: maintaining one's vital heat. As I've noted before, the U.S. is actually one of those countries (unlike the Sudan, for example) which could actually maintain the vital heat of its entire citizenry without importing anything. Not saying it would be the most interesting or creative of existences, but it could be done. We could feed everyone and supply the basic energy for keeping warm, which would include insulated residences. As Thoreau warned, we decided instead to use solutions which are more complicated than the problem itself ("to speculate on the world market to buy one's shoelaces"), and through the mechanisms of capitalism some people became as rich as Croesus and others became too poor to own a pot to piss in. And guess which side America's Christians tend to be on (no fair peeking)?

I watched the O Man in Indiana, and he hit the right notes. He was talking to all the out-of-work factory workers about the need for America to build its own electric cars, devise its own hi-tech batteries, build its own wind turbines, and for the government to invest in all these things. Right on! Along such paths America's future prosperity lies. Seriously, no irony for a moment. O's problem, naturally, is that there is a serious competition for scarce resources - the money to keep people afloat who are unemployed and broke now versus funding the future salvation through a new energy regime and domestic manufacturing. Where we are now, of course, is at the starting line of a race we should have begun about 20 or 30 years ago, but we didn't do anything because, to the extent that Congress had anything to do with it, they always think like undisciplined teenagers (boys, in fact) with no thought for the morrow, no planning, spending their entire allowance and borrowing against the future (stealing from the Social Security trust fund). So here we are, with a collapsing economy and with the real solutions years and years off, but with the problems on top of us now. For example, David Rosenberg, Chief Economist at Merrill Lynch, describes it this way:

The details in today's report left something to be desired. Consumer spending came in at -1.2% annualized, twice the decline expected by the consensus. This occurred in the face of gargantuan fiscal stimulus and leaves wondering how this critical 70% chunk of the economy is going to perform as the cash-flow boost from Uncle Sam's generosity recedes in the second half of the year. Imagine, government transfers to the household sector exploded at a 33% annual rate, while tax payments imploded at a 33% annual rate and the best we can do is a -1.2% annualized decline in consumer spending in real terms and flat in nominal terms? What do we do for an encore? In the absence of the fiscal largesse, it is quite conceivable that consumer spending would have shrunk at a 10% annual rate last quarter! Nonresidential construction action sagged at an 8.9% annual rate and this was on top of a 44.0% detonation in the first quarter. Ditto for equipment & software 'capex' spending, also down at a 9.0% annual rate and this too followed a 36.0% collapse in the first quarter. Residential construction slumped sharply yet again, this time at a 29.0% annual rate. These are the guts of private sector spending and collectively, they contracted at a 3.3% annual rate -- the sixth decline in a row. So while there are many calls out there for the recession's end, it remains a forecast as opposed to a present-day reality.

Things are not working out. One problem is that I think Obama picked up the bad habits perfected during the Bush Years - specifically, you can say anything whether it makes empirical sense or not, and if it's what people want to hear, it will go unexamined. "We're fighting them over there so we don't have to fight them over here." This never made any sense whatsoever. Chances are that fighting them over there increases the chances you'll fight them over here. Similarly, borrowing a lot of money to disburse to the general populace is a nice thing to do, and it's what Paul Krugman wanted you to do, and it pushes the problem off for a while so your first year in office is not enjoyed several thousand feet down in the cold North Atlantic. But it does not solve anything long term. It simply inspires Happy Talk from Larry Kudlow & Co. about "green shoots" and the "end of the recession," and they talk that way because they're trying to get suckers back in the market.

Forget about "ending the recession." This is simply a meaningless milestone indicating that the economy has temporarily suspended its contraction because it's been flooded by government handouts. The huge government deficits are sinking the dollar, driving up the cost of imported oil and food, and getting us nowhere.

A few modest suggestions for Prez O:

1. Do one of two things with your hairstyle: Grow a 'fro or shave your head. Stop looking so non-threatening. Start puttin' it to the Man.

2. Start using some in-your-face terminology. The Wall Street Banksters, for example, should be called part of the "Traitor Class." They insist on greed while 95% of the populace suffers. Why such deference to these creeps, Barack? They're part of the "multinational cabal" (feel free to use) that does all that business with China (& Asia generally) even though China violates every worker's right in the book, cheats on patents and copyright, and uses protectionism to guard its key industries from import competition. Let's impose tariffs to protect our own nascent hybrid and battery-powered vehicle industries, and our wind turbine and solar industries. Stop pussyfooting around. America First, goddammit.

3. End those stupid wars and cut the Pentagon budget in half. Do I really even have to explain it?

4. Bag the Bipartisanship. Look, there's a very ugly segment of this society, probably 20% in number, who are racist to their bone and are never, ever going to give you a fair shake. How would I prove my American citizenship? The same way you have, but they don't care. Look at those Tea Baggers! Their faces are contorted in the same twisted hatred we saw in pictures from the Southern integration fights of the 50's and 60's. They're all still around, as you know better than I. Write them off. Don't water anything down anymore. Win with your majority or lose, but don't lose by giving the game away before you start.

O Man, you're pretty much where Butch and Sundance were in Bolivia. It's going to get ugly, and to switch metaphors, you can either quietly and politely help the stewards and mates with the deck chairs, while everyone blames you for the disaster, or you can begin separating yourself from the causes of the problem and at least begin the American Renaissance. It won't work to play politically correct games of doing acceptable things which are guaranteed to fail. Go Big or Go Home.

August 04, 2009

Schiff's Jeremiad, or a Voice Bumming Us Out in the Wilderness

I don't know why, exactly, Peter Schiff is so right all the time - but he is. Is it just because he's a Cal man? There must be more to it than that. In some respects I suppose his politics are different from mine, but maybe in a collapsing economy the apparent differences are narrowed to triviality. Once the government runs out of options, it doesn't much matter whether its comprehensive bankruptcy prevents it from pursuing liberal or conservative policies - it can't really pursue either one.

I never really bought into the idea that took the basic form, "well, the American economy is bad, but the economies of foreign countries are much worse." It seemed like way too much of a coincidence. One can understand why the American economy would grind to a halt - it's based on personal consumption, which was fueled in large part by debt, which in turn was financed by lines of credit and inflating housing prices. So when the preconditions were removed (the housing market always goes up!), it makes sense that what Peter Schiff calls our "phony economy" would collapse. That has now happened. But our misery-loves-company argument smacked of the usual American Exceptionalism and arrogance. Schiff sets the record straight on that score - the sag worldwide owes to the intricate interplay between foreign economies and ours (such as buying all that bad paper based on securitized mortgages), but that does not mean that all foreign economies suffer from the same underlying malaise of bubble economics.

If Schiff sounds over-the-top, bear in mind that he hasn't really been wrong yet. Ben Bernanke, on the other hand, has been so wrong over the last few years that it would be hilarious if it were not so horrifying. Schiff believes that the desperate attempts by the political establishment to stave off the day of reckoning, when we come to terms with the essential phoniness of an economy based on borrowing vast sums of money in order to buy things from each other, most of it imported, will simply make the problem worse. This was my essential problem with Obama's stimulus package. What happens when the money is gone? And what is the effect on the deficits and the increased need to borrow even more when federal tax revenues are falling off a cliff (down 18% over the last year)? Advocates for stimulus, such as Paul Krugman, never answer that question, so mesmerized are they by Keynesian thinking. But Keynes was not writing about economies which were past their prime and sustained by life support - he was writing about cyclical downturns.

The dollar is sinking, foreign investment in U.S. Treasuries is drying up, and we're running out of gags to keep the circus going. The dollar is losing its former sheen. And manipulating the Dow Jones, like the patriotism of another era, is probably just the last refuge of scoundrels.

August 03, 2009

Audit the Fed?

Friday's Happy Face entry was, I guess, somewhat satirical. Actually, I simply do not see how the United States economy can recover in anything under a decade or so. The interesting part for me is the study of the various components, or shells, under which the Powers That Be are hiding the grim truth from their subjects. In this regard, the "Audit the Fed!" Brigade forming in Congress strikes me as a kind of Suicide Cult. It's borderline treason, in fact, for otherwise estimable pols like Ron Paul to suggest we really, really ought to kick over the slimy rock called the Federal Reserve Bank and see what slithers out. I'm pretty sure we don't want to know.

We don't want to know because the only thing actually propping up the American economy at this point is the ability of the United States Treasury to issue the world's fiat currency. The consequences of losing that capacity, or the worldwide, coordinated denigration of that ability, would spell almost instantaneous disaster. The Fed and the Treasury are playing an elaborate game of creating money out of thin air through the interplay between the two institutions. It is made deliberately complicated and confusing by the principals involved. The last thing they want is clarity. I heard Bill Maher the other night on "Real Time" express his fundamental inability to understand "how it all works." Bill's a smart guy, so you can rest assured he doesn't understand it because no one who could explain it wants him to understand it.

Who or what is propping up American consumer demand? Who or what is propping up the Dow Jones Industrial Average? Who or what is filling in the massive shortfall called the American federal budget deficit? Is the recent stock market rally (March to the present) the result of an improving economy? If it is the American public actually investing in the stock market, why is it that there is no apparent significant transfer from savings (such as money market) into equities?Of the $2.7 trillion runup in the stock market since March, only $400 billion can be traced to transfers from money market and savings. So the balance of $2.3 tril is coming from...? The usual place: the bailout money, laundered through financial institutions which turn around and invest in order to drive up the value of their own equities. And the bailout money comes from? Borrowing?

The surge in the GDP? Well, government spending is up 11%, and government spending (as faithful readers know) is one of four parameters used in computing the GDP. And half of all government spending is borrowed money at this point. So 5.5% of the increase is actually a non-offset liability which is being counted as a positive sign of growth.

The stimulus package (borrowed money) is temporarily boosting consumer activity, somewhat. And when America's payday advance runs out?

Are foreigners actually buying U.S. Treasuries at this point, or has the Treasury/Reserve figured out a way to create the illusion that they are to disguise the Fed's own purchase of America's own debt (through straw men, through compliant foreign banks, through...look, quick, over there!) ? As Dmitry Orlov says, have we moved from IOU to I-Owe-Me? Do Bernanke/Geithner have the fastest set of hands in the history of all shell games?

So where do all these illusions come from? I suppose from the usual source: the inability of the political system ever to admit how dire things really are. We've "stabilized" the banks by allowing them to mark-to-fantasy all those trillions in toxic debt (mortgage-backed securities, other flimflammery) stuffed away in their reeking vaults. It allows them to pretend they are solvent when they are not, to use fraudulent accounting to impress federal "regulators" who are all too willing to believe in the first place.

Audit the Fed? I don't think so. Move along. There's nothing to see here. We're in the middle of an amazing rebound, that's all. Without really dealing with anything (because we can't), we've managed to solve everything. Do you believe it? Good, glad to hear it. Really, that's all we were after.