February 03, 2011

Laughing at the Apocalypse

Dmitry Orlov has a new video up which is worth watching in its 1/2 hour entirety. I was intrigued to hear him echo something I wrote about a while back in these very pages, the idea that what the United States is involved in now, toying and tinkering while it verges on collapse, is not in any sense necessary or inevitable (a million electric cars by 2015! Now I see what Obama meant by Change! That's nearly 1/2 of one percent of all cars on the American road!). As a uniquely positioned nation, in terms of latitude, resources and relative remoteness, the USA has always had it within its potential to order its economy and political arrangements so that all basic human needs are met. Orlov, in fact, sounds a great deal like Thoreau when he talks in these terms, especially when he describes the "ambitious" human activities that not only are not necessary but actually detract from a worthwhile and enjoyable life. It is all these "ambitious" and grandiose pursuits, such as a world empire and the globalization of the economy, which have led to the precarious position the USA now finds itself in. The video is on Orlov's cluborlov.blogspot.com website, or here in YouTube format:

I'm always amused by Dmitry's deadpan, phlegmatic delivery, which makes Noam Chomsky seem like an ADD sufferer by comparison. The contrast of style with Orlov's subject matter could not be more stark. Who else could calmly discuss a die-off of 5/6ths of the world's population and a reversion of human civilization to hunter-gatherer status without ever betraying any angst? Only Dmitry, I think.

He has obviously thought very deeply about the subjects of global warming and peak oil, and the basic problems he outlines are impossible to rationally dismiss. The calm denial of the human race in the face of what's coming is not so surprising, of course, since it is that attitude which has allowed the problems to go past the point of no return. I agree with Orlov that we're now in the adaptive rather than ameliorative mode. When you get right down to it, that's just how mankind rolls.

February 01, 2011

Welcome to the Midway

Something in a comment on a Zerohedge post rocked my thinking: the United States government is now in a position where it needs to borrow one-half trillion dollars every three months just to stay in business. One arrives at this conclusion by considering that the official deficit is $1.5 trillion, which is the difference between tax revenues and federal outlays, and then noting that the national debt grows by $2 trillion per year, reflecting that the Treasury must also borrow money in order to pay maturing (rollover) obligations coming due, with Niagara-like relentlessness, on an ongoing basis.

When you think about things like that, you begin asking yourself: Does America even have an economy? We may, in fact, have entered a period which one could call the Postmodern Economy, one in which almost all income-producing activity is accomplished by illusion and sleight-of-hand. The fiscal position of the U.S. government, in this sense, is simply illustrative of the underlying reality, or lack thereof. America has become completely dependent on its status as the printer of the world's reserve currency. That is not only our ace in the hole, it is our entire hand at this point.

Consider that the Federal Reserve Bank is now the single largest holder of Treasury debt in the world, bigger than China, bigger than Japan. This fact alone must cause a thoughtful person to wonder just what the hell is going on. How can the Federal Reserve Bank, which is the bank where the Treasury Department maintains the U.S. checking account, and is in some ways the alter ego of the Treasury Department, also be a creditor of the U.S. government, especially when the Federal Reserve Bank is also the entity responsible for creating U.S. money in the first place? How can an entity which creates money at will for the debtor become a creditor of the entity which it creates the money for?

Add to this observation that the "debt" which the Federal Reserve Bank holds is "purchased" by the Bank with money which it creates out of thin air. The Permanent Open Market Operations (POMO) of the Federal Reserve are illustrative of the shell game methods by which this is accomplished. The Treasury auctions off bonds of a certain duration. Among the participants in such auctions are the Primary Dealers (PDs), a group of 18 banks and broker-dealers which are required, in order to avail themselves of the many benefits of being in the In Crowd, to participate in such auctions. Let us say that the PDs take down about 50% of the total auction, and let's say the total auction equals $15 billion. Thus, Goldman Sachs, JPMorgan, Bank of America, et al, pay in $7.5 billion. A short time later, often the next week, the Fed conducts a POMO in which it goes into the "open market" and offers to buy back the same Treasuries which were just auctioned off. The PDs then regurgitate a significant fraction of the bonds which they just bought back at the Fed, often selling at a premium, functioning, I guess, as some sort of reward for their cooperation in keeping the shell game going.

Where does the Fed get the "money" to "buy" these Treasuries from the (very) recent purchasers? It creates the money out of thin air. Now ask yourself a simple question: is there a material difference between what just happened and the Treasury simply buying its own debt? One might point out that the Fed has only purchased a "fraction" of the just-sold bonds. True, but that's for each POMO operation, and the Fed just keeps buying, with at least $600 billion planned for the latest go-round of Quantitative Easing. Another question is equally obvious: would the PDs, the Kool Kids on Wall Street, even bother with these ultra low yield instruments if they did not know the Fed was planning to buy them all back, plus a kicker, in the next week or so?

The Treasury's ability to raise money through bond auctions, in other words, is heavily subsidized by the actions of its own bank in creating an immediate secondary market for the stuff it sells, and that bank, the Fed, creates the money for the secondary market by hallucinating it into existence.

We do not need to be detained by shell games, since we are innocent bystanders not directly involved in this conspiracy. We can collapse the process and simplify terms, using Occam's Razor to avoid the multiplicity of entities involved. If we simply equate the Fed to the Treasury and call it the TRED, for example, then we can see that what is really happening is that the TRED, or the Treasury itself, is creating the money to buy its own "debt" to a significant fraction of the total debt issued, probably at least on the order of 50%, and this fraction is increasing. Thus, while Ben Bernanke has sworn under oath that the Federal Reserve would not monetize debt, this, in fact, is exactly what the Fed is doing: it is monetizing America's huge, gaping deficits by printing money and running it through a complicated shell game to conceal just how close we are to the abyss, and to hide the very scary truth that no natural, realistic market for American debt exists at any interest rate which the country could afford to pay for the amounts of trash we need to issue to keep the game going.

An organic, actual economy, of the kind the United States once had, where Americans had real jobs and made real money, and sold actual stuff to foreign markets, and where large percentages of the American populace were engaged in productive activities such as agriculture and building cars and fabricating steel, produces a tax base which allows the federal government to function more or less in balance with the underlying activity. That American economy is gone, hollowed out by globalization and the impoverishment of the populace. About 47% of the American working age population actually has a real, full-time job. All kinds of games can be played with metrics such as U-3 and U-6, with its many categories of part-time, marginally attached, discouraged, etc., but those figures are strictly for the election cycle and for the economics departments of universities with close government connections. They do not reflect the underlying reality in the country. Close to 50 million Americans receive food stamps so they can eat. That is about 16% of the entire population.

Anyway, I think I answered my own question.

January 31, 2011

Strike Two for Obamacare

Judge Roger Vinson's opinion in the Florida case striking down the Obama health care law is a far more serious problem for the Democrats than the previous district court ruling in Virginia reaching the same result. No doubt the case of McCollum vs. Dept. of Health & Human Services was helped along by the forum shopping available to state actions. The Florida Attorney General chose Pensacola, in the Redneck Riviera, as the venue and probably hoped that Judge Vinson, a Reagan appointee, would wind up with the case. All of this went according to plan.

McCollum (wasn't he one of the lawyers who appeared on TV regularly during the Gore-Bush Florida thing?) was joined by 25 other states in challenging the constitutionality of the law. Most of those states are among the group you would expect to join Florida, but there were a few surprises, such as Maine and Washington. The challenges to the law were fairly sophisticated; in addition to the Zen-like question framed in the Virginia case, is the not doing of something an "activity?", a second argument, which I think is actually more compelling, was involved in the plaintiffs' complaint. Namely, if you force the states to expand Medicaid (as the act does) by expanding the boundaries of poverty to include those not currently eligible for Medicaid, but do not provide the funding for the expansion, is Congress engaging in unconstitutional coercion of the states in violation of the Tenth Amendment (the "states' rights" Amendment). I wondered about that myself. Bush's No Child Left Behind program suffered from the same problem - a massive mandate from Congress impinging on local budgetary decisions about schools with no earthly way to pay for it all.

Judge Vinson essentially passed on the "coercion" argument and stated that at the present time it's not possible to tell whether the states will ultimately benefit from Obamacare or go broke trying to comply. Since he was ruling on a Motion for Summary Judgment (a proceeding without a formal evidentiary trial), he gave that one to the DHS on a TKO.

As to the Zen koan, however, Judge Vinson was much more thorough and scholarly than the earlier Virginia judge, and cited numerous Commerce Clause cases which dealt with the "activity-nonactivity" dichotomy involved in Congressional authority to regulate. Essentially, as I read his long, 78-page opinion, Vinson essentially forced the DHS and the U.S. Government to admit (and remember, the U.S. team is ultimately headed up by Eric "Place" Holder, perhaps the most passive Attorney General in the history of the Republic) that there are no cases where Congress regulated what is so clearly a "non-activity" or a "non-decision," and he did a very good job (bordering on masterful) of making ridiculous the DHS's strained efforts to demonstrate that not buying health insurance is an "activity," or that the "activity" can be supplied by Congress fining or penalizing someone who chooses not to buy health insurance. Vinson pointed out that if the second criterion worked under the Commerce Clause, then Congress could regulate anything so long as they attached a penalty to not doing it. Touche, with or without the accent.

Since Judge Vinson found that the plan can't work at all without the individual mandate to buy insurance, he declared the entire law unconstitutional (nonseverable, in law-speak). This again is an extension of the previous ruling against the DHS.

I would say that in some ways the ruling opened my eyes. I did not realize on what shaky Constitutional grounds those hacks in the Democratic Party were operating on in coming up with this massive gift to the insurance industry, the individual mandate requiring the purchase of a private commercial product from a private corporation on pain of a federal penalty. It turns out they were venturing into the unknown in their craven desperation to avoid confronting the real and obvious solution: a single-payer system where you just get rid of this whole merciless, stupid idea of profiting from the illnesses of American citizens.

As I said before, who knows what the Supreme Court will do with this thing? Scalia is a "strict Constructionist" so he might favor a narrow reading of the Commerce Clause. Chief Justice Roberts and Justice Alito are corporate stooges who probably like the idea of an expanded market for their friends in the insurance industry. Thomas will do what Scalia does. The rest will probably be pro-government, except not necessarily Justice Anthony Kennedy, who will decide the fate of Obamacare, as he decides the fate of every big decision divided along partisan lines. It all depends on what he has for breakfast the day the case is decided.

January 30, 2011

9 on a scale of 10 sphinxter response


First, an updating of the Riddle of the Sphinx: what walks on four legs in the morning, two legs at noon and struggles on three wheels as it fights for lift-off in the afternoon? Answer: Hosni Mubarak, as a child, as an adult and then as a deposed dictator trying to flee in his Lear with most of the country's gold reserves.

With that out of the way, about this situation in Egypt: first, it's damned inconsiderate of the Egyptian masses to carry on this way because it forces the U.S. government to come up with some way to make glad noises about freedom, self-determination, et cetera, while hoping against hope that in some way or other we can keep our corporate-friendly thug in power so the real business of America, business (Calvin Coolidge said that, I think, or maybe it was Hoover) can proceed as planned. I watched the outgoing Press Secretary, Robert Gibbs, writhe and squirm for about a half hour yesterday trying to find different ways to say "we're monitoring the situation," including "monitoring closely," "following the situation closely," "in regular contact with the situation," and other similar filler. Nevertheless, no one seems to think Hosni is going to survive this uprising, so Egypt's version of Dr. No, Mohammed El-Baradei, is being warmed up in the bullpen so we have someone we can control when the dust settles. You'll recall Ahmed Chalabi, Iraq's embezzler/carpetbagger/Friend of Cheney, who was going to be installed by the Neocons after the fall of Saddam. The best laid plans of mice & men aft gang aglay...

This thing with Mubarak is pretty dicey. You can probably recall President Barack Holograma's speech in Cairo a couple of years ago when he limned the sorry tendency of America to be on the wrong side of history in the Third World, usually siding with the resident Thugocracy instead of the uncontrollable masses. Thus, going with the Shah in Iran instead of their constitutionally elected president, pulling the same trick in Iraq before Saddam, and like that. I remember Charles Krauthammer, he of the train-tunnel-sized nostrils and haughty manner, questioning in the Washington Post whether Mr. Obama was actually fit to be President when he harbored such anti-U.S. sentiments. Now the Egyptians themselves, the very people the O-Man was talking to, are presenting a test of the sincerity of the statements therein expressed.

Iraq was easy compared to this. George W. Bush could sincerely celebrate "freedom on the march" there because Saddam was seriously contemplating getting into oil deals where the euro would replace the greenback as the reserve currency for settling Iraqi petroleum sales. This little move threatened the very lifeblood of American hegemony. Almost any puppet regime, and most certainly Dr. No, a sympathetic crook, was preferable to letting that trend gain traction. Plus, W reasoned he could go the prissy GHW Bush one better by finally toppling Saddam once and for all, and with that cakewalk under his belt (sorry, that's a mixed metaphor worthy of Thomas L. Friedman - well, it is Sunday, and there's no Tom to read because of his book leave) W's reelection would be assured. Imagine W's consternation when it almost cost him the whole deal, but fortunately, George was running for reelection in the United States of America, where scarcely 40% of the populace believes in science. So how hard was it to convince about 79% of them that Saddam had personally planned 9/11 on his Compaq Presario? More cake under W's Lone Star belt buckle. (If Friedman doesn't come back, I think I'm ready to take over.)

Back to the Land of the Pharoahs. Egypt presents a different kind of Pyramid Scheme from the one the Wall Street gangsters (and the U.S. Treasury) have perfected here at home. As the Egyptian riot police fire American-made rubber bullets and American-made tear gas cannisters at the rebels (all this ordnance helpfully stamped with its place of origin, the better to display on Al Jazeera), Obama and his team of corporate insiders feverishly look for just the right way to remain publicly noncommittal while quietly hoping that Egypt, home to half the world's Arabs, settles back into a nice, quiet, dependable tyranny, where a friendly guy who manages to win 99.9% of the vote every few years, and has been doing so for 30 years despite the overwhelming opposition of the electorate, can find a way to hang in there until this whole thing blows over, the way it did in Iran. Because now things are beginning to heat up in Jeddah, and while losing Egypt to democracy could probably be folded into our globalist scheme, the idea of the Ghawar reserves, the longest-tusked of all the Elephant Oil Fields, falling into hands other than the bony grasp of the gerontocrats who rule Saudi Arabia (described by one Berkeley prof as "less a country than a family-owned filling station")...is just too much to bear. The world is at oil equilibrium about now, no doubt we're at peak, and any sizable disruption (and the Saudi contribution would certainly be that) would expose the terrible miscalculation of the federal government in not switching to a non-oil-import paradigm for American transportation a long, long time ago...about when Jimmy Carter gave his famous speech about energy independence.

Things could get very interesting indeed if that happens, and it probably will. Do we then invade Saudi Arabia to save a dictatorship? If we don't, are we all going to wind up walking...like an Egyptian?