August 15, 2009

Sure, things can get worse

I remain in continual awe of "Tyler Durden" at the zerohedge econoblog, who is an amazingly fecund and trenchant analyst (pretty good adjectives, huh?) of the American economic and financial market scene. Durden (his nom de blogue borrowed from the main character in "Fight Club") does not simply repeat the same tired stats one can read everywhere, e.g., the American economy is 70% consumer spending, we borrow a lot from China, et cetera. By now everyone knows that stuff, and yet blogsters like Jim Kunstler simply use those stats over and over, dressing up the doomsaying with artistic, novelistic writing (entertaining, to be sure) and leave you about where you started.

Not so our man Tyler Durden. His latest Sunday reading (and like many who read his blog, I don't know when the man sleeps) undertakes an analysis of a question I was wondering about: given that U.S. society is now so economically stratified, with both wealth and income so heavily skewed toward a very small ultra-rich investor class, shouldn't any discussion of an American "recovery" take such obvious data points into account? That is, recovery for whom, and how? Tyler to the rescue:

It takes more than one reading, but it's all pretty much there. President Obama and his fearless band of economic tinkerers really have no good options at this point, and it relates to this stratification and imbalance within American society. Things are so messed up, due to the relentless "financialization" of the economy and the systematic destruction of the former middle class, that we've arrived at a point where the top 10% of the population (the Upper Class decile) and the Middle Class (the middle 50%) account for about 42% and 46% of all consumer spending, respectively. The poor (the bottom 40%) only account for about 12% of consumer spending. The Middle Class, however, carries about a 200% leverage of debt to net worth, substantially above the 130% national average, and about 50% of all of the net worth of the Middle Class is tied up in residential real estate, a declining asset base (versus 25% for the upper decile).

Add to these data the observation that it has been the middle and lower end of the residential real estate market that has been hammered most senseless by the economic downturn and you arrive at the salient point: it is really only that Upper Decile which is in any shape whatsoever to "resume" the American consuming orgy which drove the economy in its "boom" years (and made Asia the manufacturing colossus it was). The Middle Class is in deep debt, with heavy unemployment, and with its home ATM system (equity borrowing and re-fi money) completely on the fritz, as larger and larger percentages of Middle Class homeowners see their home values sink below the mortgage debt. The big Obama stimulus was simply palliative, designed to forestall disaster. The stimulus spending and all the bailout money (which began under Bush) do have the implacable effect of increasing the national debt and yearly deficits by trillions of dollars, and it becomes inevitable that at some point Congress is going to have to substantially raise taxes to deal with the deficits, if only to make debt service payments. Yet increasing marginal rates, much as I hate to admit it (being a kind of populist), will slam that Upper Decile where the only slack in consumer spending can be taken up, given the pathetic stratification we have allowed to take hold in this country over the last thirty years or so.

So there are really no good options, which is often where the Designers of Perpetual Motion Machines find themselves at the end of their efforts. The Middle Class feasted for a long time oncheap credit made possible by easy money flowing onshore from Manufacturing Asia and from the Petrostates. That much we know; it is now part of the American Economic Catechism. That game is over; we are fortunate that China and the other investors in Treasury obligations retain any interest at all in buying our mountains of debt, especially at the piddly rates of return available, but they have been captured to a large extent by the huge prior investments they have made in the dollar. But it is simply not realistic to think that the American Middle Class, having lost trillions in equity from the real estate debacle, and with their wages stagnant (a situation which has persisted for a decade), are going to rebound and begin sprees which fulfill their 46% of the national obligation to Buy Stuff to keep the economy going.

I always thought that the MBS (mortgage backed security) disaster, and the "toxic asset" problem generally, was not really the efficient cause of America's economic reversals. More a case of whistling past the graveyard, because if that's all it is, then a few simple fixes (TARP, TALF, some other acronym) would take care of it. Rather, I thought the MBS craze was sort of the final orgy before the lights were turned out. The Middle Class, struggling to survive in an economy that required ceaseless consumption and materialism to keep things going, were given the opportunity by Wall Street Banksters to Go All In, to hock it all, to take debt right up to that ceiling where it was just barely affordable based on income, and then way beyond. The fees and commissions were earned at the front end by Goldman Sachs, Merrill Lynch, JP Morgan Chase, Lehman Brothers, Bear Stearns, Countrywide, Bank of America, Washington Mutual. The pain was reserved for those who signed the promissory notes.

So that's now where we are: the Morning After the Party, and the floor is littered with empty bottles and there are plates of guacamole going bad and the sink is filled with dishes and there's a Repo team out front hotwiring cars. The Middle Class folks are tapped out, the poor were never much in the game to begin with, and the Upper Decile are simply playing games with all the taxpayer money they were given in an effort to swipe what's left. Bernanke's liquidity injections (money printing) have found their way into the stock market, but this isn't real prosperity and it will not endure past the end of "Quantitative Easing" (QE) which ends next month, according to Bernanke, because of all the "green shoots" in the housing sector (uh-huh, right). At some point we have to deal with the reality that the Recession may be "over" in the sense that GDP stops contracting, but that only means that the economy has reset at a substantially lower level of activity and prosperity. It does not mean a return to things as they were in mid-2007. Meanwhile, the banks are zombified with bad debts (held at unrealistic mark-to-fantasy levels to conceal the truth, FDIC is bankrupt, and the Fed and Treasury are scrambling desperately to keep the T-Bill auctions going (playing all sorts of games in the process) to hold the creditors at bay.

The situation is simply too tenuous to imagine that more rude shocks are not in store. It's indeed possible that in a year or so we'll see where we are now as the Good Old Days.

I think we're going to be stuck in the doldrums for a long time, until we recognize we can't get out of a gimmicky economy with more gimmicks.

August 13, 2009

No Honor Among Thieves

This is pretty hilarious stuff, the news that Dick Cheney is starting to bad-mouth W about Bush "going soft" and paying attention to irrelevancies like "public opinion" and the sentiments of the American people during his second term. Dick was always the True Believer: a thoroughly corrupt and manipulative schemer who used his office to enrich Halliburton and KBR, who disregarded any law he found inconvenient, who walked roughshod over the Constitution. It took quite a while for Bush, never that intellectually quick, to realize how much he had been pushed around by Cheney. The wars, the Unitary Executive, the high crimes, the treason of disclosing a CIA operative's identity, the war profiteering. Cheney always figured he could play his ultimate trump card at the end and assure himself and his henchmen of a Presidential pardon that would leave them free to enjoy their wealthy retirement beyond the reach of the law.

The W went wobbly on him. Bush's failure to grant a full pardon to Scooter Libby (as opposed to the commutation of sentence) meant that Libby remained a convicted felon, disbarred, his civil rights impaired. To Cheney that was a bad sign. Bush was beginning to talk against the Family. Then Bush started rambling on a lot about the "judgment of history," his legacy, his library, his freedom agenda. Cheney must have thought: WTF? Who is this guy?

So it must have come as no surprise to Cheney, but a rude moment nonetheless, when Bush decided against what I called the pardon pas-de-deux, where Bush would pardon Cheney, resign, and accept Cheney's pardon in turn. It had the elegance, the outrageousness, the contempt for public opinion that Cheney prized above everything. And Bush wouldn't do it. So Cheney, who knows that bum ticker in his chest could tock for the last time at any moment and has the recklessness such a condition begets, began a program of telling anyone who would listen that Bush himself authorized the torture regime, that he was in on the ground floor. It was almost like listening to Sammy The Bull on the witness stand, taking the Mob down with him.

Which brings up an interesting misconception. Indoctrinated as we are with "Godfather" myths, a lot of us operate on the assumption that mobsters conduct themselves with some sort of courtly honor, high integrity and a somewhat admirable philosophy of simply doing what's necessary - the other side of the street from the power structure, which, in their self-serving view, is just as corrupt. It makes good fiction. But if you've ever read any of the many accounts about actual life in the actual Mob, it becomes apparent that the personalities, of course, are really detestable scumbags - sociopaths, characterological misfits, liars, betrayers without any sense of personal loyalty, who (when the FBI listens in on wiretaps) talk about other mafiosi in the most profane, gossipy, disloyal way imaginable. I mean, how could it be otherwise? These are people who routinely use violence and the threat of violence to get what they want, who have no respect for organized society, who look with contempt on the honest strivings of decent people and see them as suckers. Public enemies.

And so we find out now, as we were bound to find out, that Bush & Cheney also detested each other. I'm inclined to think that W was more the dupe and Cheney more the master, but there wasn't a whole lot to choose between the two. They were both hugely and proudly indifferent of all the suffering they caused, too cynical even to count the civilian dead in Iraq or to assess the effects of the endless deployments to war zones required of the soldiers unfortunately trapped under their command. Fighting utterly useless wars concocted solely for BushCo aggrandizement. They paid no attention as the nation's economy went down the crapper, then mortgaged the country's future while they got out of town before the roof fell in, leaving America a smoking ruin.

And now Cheney turns on Bush. Almost too good to be true.

August 10, 2009

Senator Feinstein Answers the Mail

I mentioned a while back that the ACLU, famed for their championing of the Blacklisted and other undesirables, urged me to write to President Obama about the "indefinite detention" policy under consideration by his Administration, whereby detainees who cannot be convicted (because there is either no evidence they've done anything illegal or the evidence does not amount to a prima facie case) can nevertheless be held forever because they might be a problem in the future. Prez O himself did not respond, but I guess the ACLU, always hard at work perserving my and your freedoms, sent copies to my Congresspeople.

Senator Feinstein's computer took the time to respond. My comments in blue.

Dear Mr. Swimmer:

I want to thank you for contacting me to share your concerns about indefinite detention and the U.S. policy for holding suspected terrorists. [Not at all. It was my pleasure.}

President Obama has ordered that the detention facility at Guantánamo Bay, Cuba be closed within a year. [Actually what he said was, "Within a year of taking office." That obviously won't happen.] He has also established task forces to review U.S. interrogation and detention policies and evaluate how individuals currently held at Guantánamo should be handled - whether to prosecute them, transfer them to the custody of other nations, or continue to detain them in other circumstances. [It's actually the "other circumstances" that I was writing about.]

I support the President's efforts and, as Chair of the Senate Select Committee on Intelligence, believe there are sufficient and secure alternatives to holding detainees at Guantánamo. For example, individuals could be tried in civil or military justice systems and held in maximum security and super-max prison facilities. Federal courts are capable of prosecuting individuals who have violated U.S. criminal laws and have successfully handled international terrorism prosecutions in the past. The President has also indicated that a fair and reformed military commission system, consistent with due process laws, may allow the U.S. to prosecute individuals who have violated the laws of war. [Every successful terrorist prosecution has been conducted in open federal district court, from the Blind Sheikh to Timothy McVeigh to the Shoe Bomber to Ramzi Yousef to Zacarias Moussaoui. Why do we need a parallel kangaroo system? To convince Dick Cheney we're tough? If you're concerned about terrorists "in our midst," do you want to take a look at the twelve million illegal aliens in the country and see if any of them pose a problem? They're "in our midst" and we have no idea who they are. Otherwise, it seems kind of like scaremongering to impress the Right Wing.)

The Administration has signaled that the U.S. may consider prolonged detention as an option for detainees who are determined to be too dangerous to release. According to the Administration, any such system would be required to have Congressional authorization and would include periodic reviews to evaluate the national security threat posed by detained individuals. [Okay, see - that's sort of the problem. You cite as authority, "According to the Administration" and "Congressional authorization." What I was actually writing about was the United States Constitution, and specifically the Due Process Clause. “It was not left to the legislative power to enact any process which might be devised. The [due process] article is a restraint on the legislative as well as on the executive and judicial powers of the government, and cannot be so construed as to leave Congress free to make any process ‘due process of law’ by its mere will.” Murray vs. Hoboken Land (1855), U.S. Supreme Court. And while I'm sure you need no reminding, what the Due Process Clause actually demands is that no person be deprived of life, liberty or property without a judgment following a fair hearing before a neutral judge on the basis of evidence introduced according to the fair procedures. The Founders adopted the Fifth Amendment's Due Process Clause from Magna Carta (1215) and King John's edict to the same effect. Also, you may have noticed that since the Supreme Court handed down the Boumediene case and allowed Guantanamo inmates the opportunity of habeas corpus (which your Senate unconstitutionally wrote out of existence in the Military Commissions Act), 28 out of the 33 inmates who have brought peititions have been exonerated by the courts, and many of the judges ruling on the habeas petitions have been conservative, even Bush-appointed judges. Which gives you an idea of how pathetically weak the cases are against these detainees. If the same percentage applies against those held forever without a case the feds can prove, then about 85% of them will be innocent people locked up forever in a cage waiting for a "review" to set them free.]

I am following this review process closely, and I am committed to working with the President to carefully evaluate these alternatives and what changes in law may be needed. Please do not hesitate to be in touch with my Washington, D.C. office at (202) 224-3841 if you have any questions or additional input. Warm regards. [Right back atcha, but if you're going to change the law and operate under the Constitution, then I think you need to float a Constitutional amendment repealing the Fifth and Fourteenth Amendments.]

Sincerely yours,

Dianne Feinstein
United States Senator

America Calms Down Just in Time for Fall TV

I guess the recession is over indeed. Everyone is saying so. In truth, I was wearying of the Armageddon/End of Days talk on Zero Hedge, Mike Whitney, Clusterf**k Nation, Peter Schiff and the rest. It's boring to admit, but as Paul Krugman writes today, the administration actually managed to maneuver the U.S. through the shoals and submerged reefs of financial calamity and avoided Great Depression II. James Kunstler, at Clusterf**k, has been reduced to bringing out W.B. Yeats and his "rough beast slouching," this time in the form of U.S. Treasury insolvency. When a Peak Oil guy has to resort to the same line of attack as Pete Petersen and his hysterical crew, you know he's running on empty. I'm just not impressed.

Yes, it's true the United States is in hock up to its eyeballs, but oddly enough this is also true of most modern democracies. That might surprise you, but the CIA (always our first line of defense) maintains figures on the public debt of other countries, and the U.S.A. is pretty far down the list when you measure our public debt versus our GDP. Japan is much worse, Germany and France are not as well off as we - and Zimbabwe? In a class by itself, fortunately. Now it's true that in absolute numbers the United States owes more than anyone (the "biggest debtor nation"), but after all - our GDP accounts for about $14 trillion of the world total of $55 trillion. We're bound to be bigger in every category than everyone else, including, of course, the sheer mass of our people - we're the fattest people on Earth, too. Well, obesity (historically) has been associated with prosperity, instead of diabetes and heart disease; we've just decided to give it a bad rap.

As usual in such discussions, it's important to define terms and know what the Central Intelligence Agency (and it's cool the spooks actually publish such useful stuff on the 'Net) means by "public debt." It's not money a country owes itself. The U.S. owes a tone of money in the form of "intra-governmental" obligations, such as the Social Security Trust Fund. Once upon a time, the idea was that S.S. would sustain itself by current FICA payments until 2017 or so, but the Recession (and it has been that) has probably moved that date up to 2013 - which, of course, is really not so far away. Resort will then have to be made to the "Trust Fund," which currently has zero dollars in it, and will have zero dollars in 2013 as well. That is because Congress spent the Trust Fund surplus over the last 26 years or so. People with lively senses of humor talk about Congress's sacred commitment to "honor" the Trust Fund and "redeem" the "bonds", and I just wish they wouldn't do that when it makes coffee splurt out of my nose.

But I'm just not in the mood to crack on the White House, and not only because I don't want to be reported to, Obama's snitch line for those spreading "disinformation." A threshold question always arises - who determines what "disinformation" is? The Bureau of Labor Statistics - should they be reported? You see how easy it is to fall into negativity and wind up being denounced. Do I have to remind you that Guantanamo is still open for business?

So in years like 2013, we'll have some adjustment problems, I think, but look at it this way: just because 2013 arrives doesn't mean that suddenly Social Security will have no money. There will just be a shortfall. At first Congress will borrow the money "from abroad," or the Federal Reserve will lend it to itself, or whatever. The details are not as important as realizing that the U.S.A. is a country of immense resources, and we'll figure something out. Such as telling people who don't need Social Security they can't have it anymore. That's known as "means testing," and it will become a happening thing.

The other thing Kunstler was complaining about again today was ugly suburbia. He's got this thing about the hideous appearance of Subdivision America. Well, okay - it's not so great, I'll grant you that. It so happens I grew up in a kind of West Coast Levittown (orig. NY version pictured above) - actually, a lot more than "kind of." Such places drive the Clusterf**k Man up a wall - sanitized, amenity-free, uniform, boring, etc. Well, look - you're only going to grow up once. Should you really spend your adult life hating your hometown? And here's another question - did you see "Slumdog Millionaire"? Neither did I, because I can't stand Indian cinema, but nevertheless - I'll bet you the conditions in Bombay or Mumbai or whatever where all these slumdogs live are just atrocious, and I can personally attest that the slums around Mexican cities like Guadalajara are unbelievably primitive and depressing - so was it so terrible to grow up in a housing tract where the sewage system worked, we had running water, reliable electricity and plenty to eat? Only if you're like Kunstler and want to complain for a living, and that's only because his novels don't sell.

So "Curb Your Enthusiasm" starts next month and damn if I'm going to spend my time worrying about an economy that's well on the road to recovery, thanks to the steady hand of our surprisingly boring new President. It's okay to be boring, Barack. Ike was boring, too, you know. You will preside over a country where the standard of living has locked in at a level considerably, noticeably, definitely lower than we thought it was about three years ago, based on the consumption levels made possible through 133% household debt-to-asset ratios. The 33% is gone, that's for sure, so settle in, choose your premium channels carefully, and thank your lucky stars you don't live in Bombay. Or Mumbai, or wherever.