Tuesday, March 31, 2009

G20

This week the leaders of 19 most industrialised nations (plus the EU) meet in London to figure how to get out of the Great Depression Two. In Britain commentators suggest this is Prime Minister Gordon Brown's attempt to boost his poll numbers to permit re-election. In the rest of the world we hear commentators hoping that something more than a gab fest will come out of this meeting. I doubt that will happen. These very important photo-op people have devoted but seven hours to talk about how to fix the planet. That's an average of 20 minutes per leader. What a farce.
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Already French President Nicholas Sarkozy has let it be known that if the US and the UK don't immediately buckle to his views on how to fix the world economy he's opting out of the sand box...Russia and China who are busy signing trade agreements to create their own private economic sphere have both announced they want a basket of currencies to represent world trade through the IMF. They want the dollar gone as the world reserve currency and despite published reports to the contrary US leaders do oppose that suggestion. We would be reduced to third world status instantly when that happens.
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These are early days yet for this Depression and the worst is yet to come but in what form we can only guess. The posturing and anger from all the world's leaders suggest they still don't realise how bad things are going to be, they act as though fundamentally it's business as usual and that attitude will make it all much worse. History shows that to be the case. I watch and wonder how it is that these people are the best the world can produce to lead us all. I keep hoping that after the financial systenm hits rock bottom we can somehow find our way out to a better way of working together. But not with these clods in charge.

Pickwick Papers

I've been pondering the death of several formerly important newspapers, Seattle's Post-Intelligencer, Denver's Rocky Mountain News lately, alongside reported layoffs, financial losses and more impending closures soon. The Chicago Tribune, Chicago Sun-Times and Philadelphia Inquirer have already filed for bankruptcy and the san Francsico Chronicle is said to be on the brink. And the result of my pondering about this sorry situation is: so what? I have a subscription to the Key West Citizen and I very much enjoy reading the paper in its printed version. I recycle it, for what that's worth, and rarely I cut out something and preserve the page for a while. I like reading my printed daily paper, and though the Citizen has it's shortcomings, I find it an invaluable read for local news and the comments of the powerful and connected (the only people that get regular voices in the paper or on US 1 Radio).
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Yet I get most of my commentary and news from the Internet on world affairs. Even I, who am not up to speed enough to take advantage of the latest useless electronic interference (Twitter? Who me? I think not), I read online. My web list on Key West Diary contains many of my preferred outlets but not all of them. I like to wander the Web and use other people's list to carry me into unknown territory from time to time. There is so much out there, and by comparison print has no hope.
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The paradox is that print is the original source material, be it quoted or the subject of virulent criticism, the Web relies on "real" reporters to do the leg work. When I was a public radio reporter I used to get mad at the network ( I didn't blog about it because Tim Berners Lee had yet to invent www.) because the only stories they wanted were stories already reported by the New York Times. In the 1980s NPR was the Times on air and I knew there was more to the world than life east of the Hudson. I was in California after all but they didn't want my stories if they weren't in the Times first. I quit journalism when I decided I was too nerdy and not interested in news--lite. I hate "tips." Tips on "how-to" aren't news in my world, nor are lists of the ten best, ten worst, 500 wealthiest and so on.
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The sad part for me is that newspapers have already lost their raison d'etre, which used to be to "comfort the afflicted and afflict the comfortable" as the saying goes. Instead modern papers became vehicles for profit for shareholders and profit and being nosy don't mix. Therefore who cares if newspapers fade away? Which were the reporters that stood up and said the reasons stated for going to war in Iraq in 2003 were lies? They were obvious lies to me, in Key West, and apparently reporters knew they were lies but were too afraid of being labelled unpatriotic to say so. The loss of backbone in that war and the general folding in the face of authority, the inability to speak truth to power made newspapers redundant. And now their shareholders can't squeeze any more profits out of their soft pron approach to the news, so the papers themselves fold. Other than sentimentality I am spending more time wondering what comes next and hoping for the best electronically, rather than looking back at a 19th century institution that finally succumbs to the 21st.

Monday, March 30, 2009

Auto Bankruptcy

I was driving up to Miami in a rental van to buy a shed at Costco when I heard President Obama's speech on the fate of the automobile companies. He fired the boss of General Motors, who walks away with a 20 million dollar "pension.". Rick Wagoner and announced GM has sixty days to come up with a plan for restructuring he likes and Chrysler has thirty days to firm up it's potential deal with Fiat for a merger. If not, then the federal government won't give them anymore money.
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So. I ask myself why didn't we hear similar harsh words for banskters and re-insurance leaders when they got not a handful of billion dollars but trillions to bail them out? Probably because this is an industry that gives working class Americans well paid work with the security of health insurance and pensions, and banks are run by bubbas of the presidential elites. There is no other explanation.
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I'm all for the government setting tough standards if free market businesses want federal money for a bailout, but I don't see why one lot gets all they want from us and the other lot gets the shaft? Honestly none of these free market freebooters should have got any government assistance. They took the profits when the going was good and they should take the losses now that they aren't but we seem hell bent on saving everyone's ass with taxpayer dollars so let taxpayers set the agenda.
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Instead the taxpayers in Michigan get laid off and the rip off artists on Wall Street gets retention bonuses because they are so valuable. This stuff is horrible. And as I listened to NPR expounding on this issue their insipid reporters (did I ever really freelance for these wimps?) wagged their fingers saying that this "show of toughness" by the President sent a stern warning to the banksters that they have to shape up too. They also said Americans hate Detroit and car workers and are happy to see them go down. I wonder where they got that idea?
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Oh and let's not forget last week things were starting to look up according to the TV faces because the Dow Jones climbed back around 8,000. The end of the "recession" was in sight they said. I'm betting the end of this Depression will only be in sight when we start seeing Americans getting re-hired in the numbers they've been getting fired. Let's hope it's not with the outbreak of War.

Saturday, March 28, 2009

National Bankruptcy

I have been struggling to come to terms with what exactly is meant by national bankruptcy. It seems very likely that the Us is headed that way and I'm trying to understand what the future looks like, and try as best I can to get ready for it. The interesting thing is that all the stimulus money being thrown around by the Treasury Department is making things look better and yet no one I've spoken to that thunks about these things holds out any hope that the future will see a sustained improvement. Economists are arguing over how long it will take for world's reserve currency to exhaust all it's crazy lending practices and fall to its knees and default on the trillions in debt that have been run up.
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Firstly it seems clear no one has a clue exactly what will happen so it's possible some deus ex machina will descend from the clouds, enter stage left and extricate us from our predicament. More likely is that fact the pursuit of yet more deficit spending on top of all the debt that we have run up to get us to this incredible situation will destroy the dollar. And when, not if, that happens, what happens next no one knows. The problem simply put is that since Lehman Brothers went bust last year our fearful leaders have done everything in their power not to admit that every other major financial institution is bust also. This has put them and us into the impossible position of spending vast sums of public money to sustain these "zombie" banks. No one knows exactly how much has been spent or promised by the amount could be as much as 12 trillion dollars. The national domestic output of the us is 15 trillion dollars annually. World GDP is 50 trillion. That's how screwed up this problem is.
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Commentators in the blogosphere (not the corporate media) compare our future to that of Russia when the country first started down the capitalist path and essentially imploded, or Argentina which wrecked it's currency less than a decade ago in wild debt oriented spending. In both cases ordinary people suffered the torments of the damned, failed systems, lack of supplies, inability to make money. Which will be bad enough in a nation used to getting what it wants when it wants it. What's worse is the impact the failure of the dollar would have on every other currency in the world that trades in and depends on dollars. No one knows what happens then.
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It seems impossible to imagine, the US defaulting on it's obligations but the numbers don't lie. Common sense tells us you can't borrow your way out of debt, and the real question now is whay don't our goddamned leaders admit they know thuis as well as we do and it's really past time for a change. Pretty soon, perhaps by this fall, we won't have an economy left.

Friday, March 27, 2009

Refinancing

We are puzzled why Wells Fargo bank isn't interested in refinancing our home loan. We put 25 percent down, we make our monthly payments, fixed at 5.8% and we have asked our mortgage broker to seek a refinancing package at the current lower rates. You'd think securing us a smaller monthly payment would be in Wells Fargo's interest to help keep our loan current in these parlous times. Apparently not, and I had thought that Wells Fargo might be dragging it's heels fearing an inflation upsurge and preferring to hold out for highest dollar return in the face of likely interest rates in the double digits. I expect huge inflation in the near future worse even than that of the early 1980s...Perhaps my view was too narrow.
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The New York Post is reporting that Citi and Bank of America are using bail out monies to buy distressed mortgage securities back from the Federal pool! It's totally crazy and the banks justify it, when caught, saying it increases liquidity in the mortgage pool which is true possibly to some small degree but it not what the stimulus money was for! These banksters are gamblers with a problem. Instead of betting more money at the Alt-A tables and the subprime market they should be using the stimulus money for old fashioned ground up, modest profit interest rates.
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Imagine loaning Uncle Harry X thousand dollars to pay down his gambling debts from a trip to Las Vegas. Imagine Harry books a flight back to Vegas, forgets to pay down his debt and puts your money back on the tables, arguing he will be able to win enough to pay off his debt to the tables and to you and come away with a tidy profit for himself. Nice plan no? Uncle Harry is really grateful for the loan and he has every intention of paying you back. How does that make you feel? Like trusting him? Like it was good use of your savings to bail him out?
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Uncle Obama needs to understand that these financial institutions have systemic problems that can't be solved by trying to "save " them. They need to fail, we need to go back to modest banks with modest goals. Local economies are the way for us to go in the US. The mega corporation model has failed us.

South Carolina's Dilemma

Governor Mark Sanford (Republican) of South Carolina makes a strong case for using his state's share of stimulus money to pay down state debt. He argues that using that South Carolina spends eleven percent of it's budget servicing debts of assorted varieties and he fears that funding programs with Federal stimulus monies means that in two years when the stimulus is scheduled to run out the state will be back where it is now, if not in worse shape.
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His idea is to use the Federal funds to free up South Carolina from its debt burden releasing monies back into the general fund. The problem with this approach is that if the state's budget structure isn't also changed the debt will slowly return and Sanford suggests, in a news release from his office that he would do that:
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Here's the background: Before the stimulus bill passed, I asked for states not to be bailed out. After it was signed into law, I said that a state bailout would create more problems than it solved, and that we shouldn't spend money we don't have. That debate was lost, so I looked for a reasonable middle ground. I asked the president for his support in using the $700 million to pay down state debt.
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If we're going to spend money we don't have at the federal level, it becomes all the more important that our state balance sheet is in good order -- particularly if this is a protracted downturn. But many people do not realize that the stimulus money runs out in 24 months -- at which point South Carolina will be forced to find a new source of funding to sustain the new level of spending, or to make sharp cuts. Sure, I could kick the can down the road; in two years, I'll be safely out of office. But it would be irresponsible.
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If South Carolina could use stimulus money to pay down debt, in two years we will be able to spend, cut taxes or invest even if the federal government can no longer provide more money -- not a remote possibility. In fact, paying debt related to education would free up over $162 million in debt service in the first two years and save roughly $125 million in interest payments over the next 13 years -- just as paying off a family's mortgage early frees up money for other uses.
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Sanford goes on to suggest that party politics are in play and the Democratic National Party is directing the President to say because he is a Republican. Whatever the case a debate on a sensible proposal like this would show the President cutting across party lines and entertaining ideas. God knows what happens when the stimulus runs out in one year or two because nobody at the top is restructuring anything and all these debt chickens are going to come home to roost one way or another.

Thursday, March 26, 2009

A Short History

I was reading some comments by one Douglas Rushkoff, not an economist but something of a historian and author and that vague anomaly known as a media critic. His comments appeared in a site called Arthur Magazine, a media website and I was captivated by his long view of the history of the economic fiasco. Rushkoff makes the case that monopolies first developed in the middle ages and started us down the path of monopoly contracts and the creation of surplus wealth. The idea he suggests was created by Royal Charters wherein sovereigns gave certain merchants the right to trade in a monopoly provided the sovereign got a cut of the action. This legal constriction killed innovation he says and prevented development through competition.
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The notion of "inappropriate surplus wealth" is not viewed terribly favorably in the US, a place where accumulation for its own sake is viewed as the natural order of things. The fact is that, as Rushkoff points out American colonists were penalized by the system of forced sales to specific markets so they rebelled and created their own anarchy- which worked very well for them. They sold to whomsoever they pleased and bought from whomsoever they pleased. No longer were American raw materials required to be shipped to England to supply British factories in a monopoly trade that saw those same finished goods flooding the US market at the expense of other sources of supply.
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Things got complicated and more muddled up as time went by thanks to the expansion of industry and the modernization of trade. However we now find ourselves at the mercy of giant conglomerates of monopolies that treat us as mere colonials and consumers. The idea behind the monopoly culture first created by Royal Charter was to prevent local business from flourishing and to extract wealth for distant benefactors. Rushkoff's position is that we need a stronger local economy and less centralization. Speculation is born of centralization and wealth creation by accumulation of capital is more productive than wealth creation by work. When you stop and really think about it, it makes perfect sense.
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Do I contribute more to my community by working in the community or by collecting dividends from my stocks and bonds? The answer is so blindingly obvious it demands a human being pause and question the whole structure of capitalism and investment living. It is such a powerful notion it is scary. Rushkoff gets attacked quite virulently for his historical analysis and he spends a great deal of time explaining that which he does not believe in to support his perspective. To me, seeking a common sense approach to economics it makes perfect sense. I encourage anyone to google Arthur magazine and type Rushkoff into the search feature on the home page, then try reading and thinking and wondering.

Cassandra's Back

The stock market has been going up and we here that home purchases have been on the rise and thus the talking heads boldly announce the end of the crisis is in sight. People I meet and talk with in daily life bring up, from time to time, the notion that perhaps things aren't all right and are going to get worse. The rise of the cost of a barrel of oil has been noticed by some- above $50. Predictions that oil might drop to $20 have not yet come to pass. The Baltic shipping index, a previously obscure measure of the cost of renting a freighter has started to rise a little indicating to the optimists that trade is picking up. The pessimists argue that China has been importing and stockpiling steel, accounting for the very modest rise in the cost of ship rentals.
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When our leaders announced the multi trillion dollar efforts to sustain our banksters it seemed to me, in my modest capacity as man in the street, that the "stimulus" might keep our chins above water for a few more months and allow our rivals in misfortune, the Europeans and the weaker Asian nations to sink and allow us to stand on their shoulders for a while. I think that may be what is happening, but unfortunately for us, those very same rivals have seen the effect and are getting pissed off. They view the stimulus efforts in the US as bad for the world economy, not good. The calls are starting to go out demanding the US dollar be replaced as the world's reserve currency. Oh dear.
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The problem is one of fundamentals. By papering over the banking failure, by trying to buy off ruined assets and treating them as objects of value we are postponing the day of reckoning and not dealing with the fundamental problems. Inflation is our enemy and inflation ruins currency value. The rest of the world is getting anxious about the value of our currency and we should too. Instead we keep on throwing good money after bad.
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The stimulating efforts have now surpassed the value of all primary residence mortgages in the US. Had the president decided to give everyone in the US a free home we would have had more stimulus and less stark poverty and more unemployed banksters. Instead we have a debased currency, plunging confidence and enriched crooks in power in our financial system. Things are going to get worse, not better but not everyone wants to understand this.
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A look back at the true trajectory of the Great Depression shows it was not a vertical plunge but a series of jagged lurches to the bottom. Our economy is zigging up, in a holing pattern right now, but common sense tells us the fundamentals are skewed and another zagging lurch down is only a matter of time. I am not optimistic and I might as well go on the record as such.

Monday, March 23, 2009

Toxic Purchases

The US Government has published a bizarre plan to encourage the private sector to get involved in the disastrous mortgage business that effectively destroyed the US economy. And private involvement requires no risk at all- for the private sector! Treasury Secretary Timothy Geithner (pictured here in a BBC photo) announced the plan today suggesting this will kick start the world's economy. Stocks obediently tried to push uphill a few points.What I find so bizarre about the plan is that US taxpayers, who let's remember are not responsible for the mortgage fiasco are once again on the hook for these so-called "toxic assets" that Geithner wants to stick on the taxpayer. His plan assigns an arbitrary value to the garbage, for if it had value it wouldn't be "toxic"! -and offer sit for sale. A private investor ( not the likes of you and me!) puts in a million bucks, we that taxpayers put in nine million. Any resulting profits from this fiasco go to the private investor, any losses, and i can't possibly imagine how toxic assets could engender losses! - will be picked up by we the taxpayers.
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This plan becomes less ridiculous and bizarre when you remember where this 37 year old spawn of Satan called Geithner came from. He is a product of the Hank Paulson/Goldman Sachs investment banking school of rip-offs but the big problem here is that he has President Obama's backing. To say my two votes for President Obama are starting to taste like ashes in my mouth is putting it very mildly indeed.
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I lay no claim to a background in economics, though I did get out of the stock market in 2000 so I hold to the line that common sense tells us what should be done with toxic assets. Banks should, in the time honored fashion, write them down. If they go bankrupt so be it, we all suffer some chaos and confusion for a while then the small local banks and credit unions that didn't play silly buggers with their money take over and we take off again, perhaps more slowly and more regionally, but we re-start the economy using real numbers. This policy of trying to fake our way out of this crisis will kill us, our economy and our currency. I am really starting to think we are going to see a Depression of epic proportions even by the standards of the misery engendered in the 1930s, and I'm just some dude sitting on the sidelines praying my police job pays me enough to continue paying my mortgage.
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I am so frustrated I find it hard to express. No one around me wants to hear it, daily life in the Keys trundles along. Spring Break is over in Key West far sooner than usual, tourism is down, spending is down, foreclosures are only just starting to appear in the real estate market. Even the experts predict a worsening situation through 2009 and right now they can predict recovery in 2010 because it seems a long way away. 2010 seems like it will be the first full winter millions of unemployed Americans may be living in tents. God help us all.

The Fed

I have never been much for conspiracy theories and anti United Nations nutters, or One World Government theorists have never done much for me. For the longest time I wondered why people were so worked up about the Kennedy assassination until I met a researcher,a housewife really, called Mae Brussell who looked into that stuff and taught me the value of scepticism. She showed me also how post World War Two politicians actually made room for Nazis left over from the conflict. None of that stuff was ever mentioned in my "conventional" textbooks...
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I remained sceptical of opponents of the Federal Reserve and proponents of the gold standard, both which sounded rather quaint to me.I wondered why people would spend so much time worrying about the Second Amendment and not enough about the strength of the Fourth and Sixth Amendments which struck me as equally important. I still wonder about that one and why the need for automatic weapons outweighs all other needs. I doubt even the most determined homeowner would e able to fight off the Tenth Mountain Division no matter how well armed.Besides I have my doubts that US military could be induced to kill US civilians, but I've been wrong on all other conspiracy theories so ...
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I remain dubious about the One World Government and anti-United Nations theories but I have reluctantly come around to the Gold Standard Theory and I am getting positively freaked out about the Federal Reserve. Members of Congress have been asking the fed to explain it's latest proposals and getting stonewalled. The Fed is off on it's own planning to essentially print money and buy Treasury Bonds. $300 hundred billion worth of Treasuries.This inflationary proposal is designed to maintain the value of the bonds to induce foreigners to keep buying them. Foreigners would have to be fruit loops to support such crazy monetary policy and they are in fact starting to baulk. It must look weird and crazy to anyone who is thinking about it, to see the US Central Bank creating money out of thin air to buy up US Government debt.
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Having said that there appears to be nothing to be done about this admission of imminent economic collapse. The bank support structure has done nothing to create a fresh start in the economy at large and we as a nation have poured all remaining wealth into the hands of the diabolical Fed and private corrupt bankers. The Obama administration is facilitating this massive transfer of wealth instead of stopping it and bankruptcy stares us in the face. And the fed keeps on keeping on, doing everything it can to reduce us to a peasant society.
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Unemployment continues to rise, poverty stretches out further and further across the country and yet there is no resistance to this blatant theft. So what happens next? We go like lambs to the slaughter i suppose, well armed thanks to the Second Amendment, sceptical thanks to the likes of independent thinkers like Mae Brussell, but impoverished beyond measure thanks to the Fed. I guess that's one more conspiracy theory I am forced to swallow whole: the Fed is bad. I'm rather ashamed it took me so long to figure it out. Better late than never certainly does not apply in this case.

Sunday, March 22, 2009

An Oligarchy

We've heard for some time how money has been the defining influence in Washington D.C. and we've known about the power of lobbyists for lo these many years. The thing about the lobbying was that competing interests knew the rules of the game and that made it easier for us, the sheep, to go along with the lobbying and the money influence. We could, however stupid it was, justify it to ourselves. Nowadays the influence peddling is getting a little too brazen.
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For me the influence of money became an issue in my head when my wife and I spent a couple of years sailing through Central America. We spent quite a lot of our time in the company of North Americans, people like ourselves, taking a sabbatical and sailing relatively expensive boats on voyages of inner exploration. We witnessed many round table discussions about our host countries as we travelled and we saw many criticisms levelled at the tiny little nations and their level of corruption. North Americans enjoyed the superiority of belonging to a caste system that allowed for upward mobility. As I sat there and listened to the denigrating remarks I was forced to look closely at my own political navel and acknowledge our system of lobbying as one more rung in the ladder of world wide political corruption.
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Thus it is that I wonder how much stomach we the people have for the naked power grab currently being enacted by the merchant bankers and power brokers who are brazenly taking our public monies and using them to fund their own private power bases. This privatizing of public money is a power grab and the consolidation of an oligarchy in the United states that is reminiscent of fuedal serfdom at worst and railway robber barons of the 19th century at best. The loss of public wealth has bene staggering and the funneling of public money into private hands has made a mockery of the refusal of our leaders to fund any public works or social programs over the decades (how could single payer health care have ever been too expensive compared to this bare assed theft of public money called a bail out?).
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The oligarchs of Latin America, he controlling families of the banana republics have always earned our scorn for putting themselves far above the public interest in their countries. Now we find ourselves impoverished and facing fewer choices,more virtual serfdom and more blatant oligarchs and we do...nothing?

Friday, March 20, 2009

IMF Fortune Telling

The International Monetary Fund is trying to predict the future of the world's economy and like all other human endeavors, looking into the future is not what it does well. The funny thing is the IMF prefaces it's latest report by noting that..."the prolonged financial crisis has battered global economic activity beyond what was previously anticipated". Thus it is that having failed to predict the current fiasco, and ready to admit that failing the IMF still ploughs ahead and predicts a turnaround in 2010. However for the remainder of this year the IMF charts a safe course and predicts massive contractions in the world economy. That one seem a safe bet. The notion that things may get better in 2010 seems odd to me.
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However the IMF remains cautious and hedges the 2010 prediction by noting that if governments fail to sort out the banking crisis contraction might be the order of the day in 2010....Therefore Conchscooter's prediction, coming from one who despises claims at prophecy(!) is lots more pain for the foreseeable future. In light of the fact the foreseeable future doesn't exist, as explained above, I feel my prediction has a one hundred percent likelihood of being accurate.
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The recent blip in the stock market with Mr Jones' basket of shares rising to somewhere north of 7500 has done lots to make people start asking for more predictions of good times ahead. "Have we bottomed out?" the mainstream press asks. And just like the IMF's predictions, the question is based not on gauges of actual numbers but on what we want. We'd like this to be the bottom of the fall in economic activity, no doubt about that...but what we like and what we get never will match if we base our hopes on predictions. Common sense tells us to look at the numbers, but that's too scary for most people.
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In decades past when predictions came spewing out of the mouths of oracles in the press and big business it was just another irritation in a world dominated by television. These days with the whole order of our world tilting it seems irresponsible, to put it mildly to make predictions. Looking at the numbers says everything that needs to be said, there are no predictions required, unless they are to calm everyone's nerves. Debt is sky high and increasing, industrial output is slumping everywhere, political leaders have exhibited no cohesive unified strategy to deal with a world wide crisis and confidence is in the toilet. Does anyone need a prediction to explain that the future looks increasingly grim? Why should all this turn around next year? Because we want it to is why, and for me that's just not good enough.

Thursday, March 19, 2009

Euro Stress

A European group of analysts based in Holland, with something called Global Europe Anticipation Bulletin is warning the world that we all need quick action to start a slow recovery. The euro analysts suggest that if the G20 summit next month can't get it together and sort out a new currency exchange for the industrialised nations this meltdown will drag on for a decade or more with the consequent strains and risks of conflict.
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Well, given that no one is talking seriously about a do-over for the world economy or exchange rates or re-evaluating anew Bretton Woods agreement, it seems likely that late 2009 will bring us to our knees if this lot and their predictions are to be believed. what exactly a collapse means no one knows and why these angry Europeans should be believed I don't know. They explain too why they are angry.
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Their Bulletin #33 which warns of approaching unspecified catastrophe ( a known unknown perhaps?) also discusses their view of Anglo-US attempts to divide Europeans against themselves. they talk with contempt of a rift between old and new Europe, a term coined by the Bush administration in it's attempts to round up Balkan and ex-USSR states and have them rally alongside the US against Russia. Now the New Europe, from Latvia to Moldova have become a crescent of failures according to some, who will destroy the euro zone banking system.
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GEAB dismisses such talk as posturing by Anglo Saxons (is US/UK) opposed to a united Europe. They argue that the eastern states have GDPs that barely mark a ripple on the economies of Old Europe and thus present no threat to France/Germany/Italy et al. They say the British and Swiss and Americans are raising the specter of New Europe imploding and dragging down Old Europe to distract the world from the view of the US going bankrupt in spectacular fashion, and possibly before the year is out.
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GEAB says the G20 summit April 2nd is the last chance to save the world from languishing in a decade long depression. The lines are drawn. I propose to enjoy the summer as best I can, viewing this as being, in economic terms, quite possibly the equivalent of July 1939. One hopes it isn't, and if it indeed is not I shall be delighted. On the other hand, if it is, I shall be as prepared as I can be.

US vs China

Remarks recently by the Chinese government suggesting their investments in US debt may not be as secure as they might like have been reported widely in the mainstream press. However it has taken the commentators on the sidelines to connect Secretary of State Hillary Clinton's visit to China to consider more profoundly exactly what the purpose of her visit might have been. I read an article in goldseek.com that addressed this issue. http://news.goldseek.com/GoldenJackass/1237406187.php
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The suggestion is that massive amounts of money flowing through what are rather broadly described as "Caribbean Banks" (Bermuda and the Bahamas are not in the Caribbean, and neither for that matter are the Florida Keys) are actually secret attempts by the US and the UK to create fictitious purchasers of US bonds to sustain the bond market and keep the cost of US borrowing low. At first blush it seems impertinent for a mere web site to suggest such impropriety by central bankers but we are it seems in a brave new world here as well. We all know central banks screw up, look around! We know governments lie, the list is endless, so combining the too shouldn't be an excessive leap.
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The problem for the US/UK syndicate is that if China finds out is being duped, and who knows perhaps they have, and if China decides to act on that information, confidence in the US and dollar debt will plummet, and to induce people to invest in bonds will require a massive increase in interest rates. Which means inflation for us, and that leads to fears of runaway inflation and devaluation of everything.
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The problem is that the US needs vast quantities of debt to cover debts outstanding, itself an unlikely solution to the overall problem, but the path the government is hell bent on, whether it succeeds or fails, will require creation of lots more debt. If the Caribbean Scam goes mainstream we will not be spared. Already the Fed has announced a buy back of some 300 billions in debt, which is far less than the two trillion estimate dto have been the amount moving through the"Caribbean " banks, and not officially accounted for.
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It is entirely possible China is as aware as the lowly bloggers of the Caribbean Scam, and knows the US is buying its own debt to keep yields down, but China is to some extent stuck in our same nightmare of being afraid to let things fall where they may. The "Too Big To Fail" syndrome seems to affect our debt as well as our financial system. Perhaps China's leaders, busy coping with internal problems that make our tent cities look as nothing, would rather continue the pretense that our bonds are secure. At least for now they will. what happens later we will find out and probably not enjoy one bit.

Sunday, March 15, 2009

Commercial Debt

Collateralized Loan Obligations, the third leg of the sub-prime/credit fiasco are now starting to come home to roost according to Bloomberg's news service.

CLOs, a type of collateralized debt obligation, pool below investment-grade loans and slice them into securities of varying risk and return. The leveraged loans are rated below BBB- by Standard & Poor’s and less than Baa3 at Moody’s and are defaulting at a 4.5 percent rate, the fastest since November 2002, according to data from S&P’s LCD.

Our surviving investment banksters want the Federal Governent to back these failed pieces of paper before they support consumer loan failures which are supposed to be next on the list. The desire is accompanied by a threat of course; we are getting used to the threats of financial Armageddon from the cretins and thieves that got us into this mess- and they say that if the government doesn't bail out Collateralized Loan Obligations bankruptcies will sweep the land as business will find it harder and more expensive to get loans. The problem as always is presented as a book keeping difficulty.
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The common sense approach to this problem is that if companies can't stay solvent they need to go bust. If we support them with public money we turn the entire nation into a zombie, a 21st century version of the Soviet State, where the workers pretended to work and the government pretended to pay them. This crisis is more than just an accounting glitch, it's serving as notice that our system has failed and we need to start again. We can start again by getting together as nation as and people and discussing the future civilly or we can go nuts one more time and start lobbing bombs at each other. But first we all have to admit the awful truth- our system has failed.
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I am one of those that feels that lack of oversight allowed the failure to occur, others say it was poor people taking out loans they couldn't pay (which gives the poor the greatest power they've never had throughout history!) and while I'm all for revenge as I watch people's lives become a torment to them, the first thing I want is an acknowledgement that we are screwed. Then the rebuilding, and the Nurnberg Trials can begin.
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Banks themselves claim profits after receiving billions in taxpayer hand outs and then protest if we demand pay cuts and firings! Corporations who have made their managers wealthy on the free market principles of yesterday claim the right to wealth on today's brave new socialist principles. They are crazy and we are crazy to let them think that one penny of our money will go to saving their backsides without we get a say in their management. You want free markets? Take the ups with the downs, no more n o less.

Saturday, March 14, 2009

Good News Not Enough

A friend of my wife's asked her if I was being less gloomy about the economy since the stock market started to go up a few hundred points. "Not a bit of it" my wife told Kathy. And why would I be? The fundamentals haven't changed one bit. Trade, credit and business fundamentals are in the toilet the whole world over and just because Citigroup and Bank of America claim a profitable quarter doesn't mean a thing. especially since these crooks took billions in taxpayer dollars to prop up their dysfunctional institutions and both corporations have a history of doing little better than cooking the books.
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The Federal government has to be tired of getting financial advice from everyone everywhere but they know what needs to be done to see the people right in this country (and elsewhere) but President Obama, the agent of change he says, apparently feels in thrall to the crooks that funded this crisis. So we have to do everything wrong and throw the last of our money after the lost funds that have already disappeared so that ultimately we will be...what? bankrupt.
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I figured the stimulus would have to do something positive and apparently it has given the zombies a breather but it hasn't started us down the road to recovery. The fact that the dollar remains the world's reserve currency boggles my mind. How bad can the rest of the zombie planet be if they can see no better reserve than our failing currency? China has started to express some public doubts about the worth of US government bonds but they appear to have no choice but to swallow the toad and keep on buying them to sustain their over valued currency. This is a weird and unsustainable situation.
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Life in the US continues on a normal path for those of us with jobs, electricity flows, television spews it's inanity, restaurants remain open and grocery shelves are stocked. Yet all this normality is under pinned by the unveiling of a catastrophe so gigantic it threatens all this normality. I still can't really grasp the possibility that an apocalyptic Mad Max future lies within our grasp. It's hard to picture my meaningless little life as a movie script out of all proportion to my daily and so far very pleasant routines. Yet such an outcome is not beyond the bounds of possibility.
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I listen to my neighbors confidently predict what they will be doing in a year from now and this hollow feeling of doubt won't leave me. My wife has slowly decided it's worth humoring me in case my worst case scenario could come true so we quietly navigate the path to try to be prepared and open to the idea that normal life could change drastically. Unlike the survivalists in their fortress mentality ready to deal with the catastrophe I have enjoyed being a bourgeois middle class drone. I spent my youth being footloose, and I wanted a more settled middle age. Not to be it now seems quite likely. Even with the stock market trying to stage a rally of a whole 300 Dow Jones points, so little able to produce so much euphoria! That has to be a sign of worse to come.

Thursday, March 12, 2009

On Clearing Debt

So far the plan for recovery seems to be throwing good money after bad in spectacular fashion and then sitting back and hoping for the best. The notion that we are unable to pay back these loans is unthinkable.The problem with the Obama approach at the moment is that timidity is going to make the problem sink deeper into the muck of indebtedness. The call has gone out for the Administration to bring us bold thinking, change, a new approach! Instead we have more of the same to contend with.
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I read an interesting suggestion regarding getting banks and trust going again and the idea was to clear the debt that is essentially unpayable. Senior debt becomes equity and home mortgages get written down to no more than 80% of current value. The idea is that fake debt doesn't sit on the book pretending to be an asset. Fake debt is debt with no prospect of being repaid and mortgages that are about to turn into foreclosures aren't real assets at all. The banks want to keep the mortgages on the books to make it look like they have more assets. It is weird when banks start acting in public like school boys.
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It will take a leader with courage to tell the banksters that their scheme is finished and taxpayers aren't going to save their hides anymore. I like President Obama's moves towards funding stem cell research, ending torture and closing Guantanamo Prison Camp, but on the economy he needs to get with the program and stop faking it.

Paying The Piper

I find it interesting that with the recent announcement of a quarter in the black from Citigroup there has been no clamor requesting enlightenment. How is that a bank that had to take billions in Socialist handouts simply to survive now claims a profit in the last quarter and no one notices the...shall we be polite? and call it an Irony! Here's another interesting tidbit reported today. The brass at the corporation shorted their own shares to the tune of six million dollars and reaped a profit of nearly two million. They bet against their own poor performance as a corporation and made enough money for you and me to retire on. There is something very wrong, systemically wrong with all this. Not least that all this public funding of private corporations hasn't produced a single job, rather it has produced unemployment at the rate of 600,000 a month!
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While President Obama continues down the path of forking over trillions of our money while requiring no accounting he also promises costly social reforms and work programs that will improve the quality of life for "working" (ie: currently unemployed) Americans. How can he offer to spend trillions more when the first tranche of government support has been blown directly on the banks? Where will the money come from? Michael Chossudovsky of Global Research has an answer, one I don't much like.
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He suggests government will privatize. Sell all its assets, devolve. Which prospect a decade ago sounded pretty good to supporters of globalization and believers in the Big Lie that government is bad. "Government should be run like a business," the suits used to tell us with a sneer. Well, thank God it isn't run as a business else we would be bankrupt. Oh wait a minute we are bankrupt! So now we can sit on the sidelines and watch our government sell off the freeways the parks, the research facilities to the highest bidders to pay off our national bankruptcy. Naturally the corporations managing the sell off will be the banks, the very same banks that survived thanks to taxpayer largesse. There's an irony!
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The Key West city commission manages a 50 million dollar annual budget and faces a growing deficit. Initially the 2009/2010 budget looked like it might be short three quarters of a million dollars, then one pint two and now as much as two million dollars. Tot their credit commissioners are dealing with the problem and at a recent workshop made a radical suggestion- instead of cutting services or jobs they suggested raising taxes and fees. Normally the sheep start braying against taxes but so far there hasn't been a bleat. In a city like Key West the specter of joblessness is the specter of being forced off the island and that is the equivalent of exile for those who grew up here and even for those of us who have come to make this place home. Tax increases mean people keep their jobs on an isolated island where there are no alternatives.
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It seems unlikely to me that we the people will allow our government to be dissolved by the crooks who reduced us all to penury. At some point we all will remember that it is working together that we will get ahead, just as the people of Key West struggle to straighten out a budget deficit by keeping their eyes on the main prize: employment. Sooner or later we will all remember that work is what sets us free, proper work properly paid, and in my brave new world after the dust settles I'd like to see work rewarded and speculation castrated. My, I sound like a Marxist. That would be another irony.

Wednesday, March 11, 2009

Good News

Citibank claims a profit for the beginning of the year which seems hardly surprising in light of the -what is it?- 45 billion of taxpayers cash to help them along. This splendid news has a knock on effect at a time when there is no good news and so we have pundits and talking heads announcing the beginning of the end of the "downturn." Once decent claim by Citi and the Depression is over. A likely story.
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A quick perusal of the history of the Great Depression can leave one thinking that the decline was sudden and the reversal was inevitable, but October 1929 was only the beginning. We are in the equivalent of 1930 right now, just six months since the start of our own crash, and though it takes just a couple of pages to read through six months of tribulations it takes a full six months to live through it. We are living through it now, week by painful week, and a sudden jolt to the stock market of just 300 Dow points doesn't mean our home values will be back in the stratosphere by Christmas.
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I thought the news was good and felt relieved for about 15 minutes, but when I read the fudging of the numbers, no real accounting at all of where the profits actually came from, I have to wonder what sleight of hand this good news story is supposed to provoke as Citi slides towards involuntary nationalisation...I asked myself if we are witnessing the temporary effects of the stimulus shower, but I am forced to the conclusion this is a maneuver to avoid talk of nationalisation. I surely don't trust the bank to tell the truth, do I?
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Talk of a Great Depression Two is much more widespread than even a month ago, yet there remains the attitude among many experts that the numbers in this recession/depression are lower than they were in 1982 or 1930 therefore this downturn isn't as severe and certainly a profit by a moribund bank may shore up that opinion. The problem is, no matter what they tell us, this downturn is nowhere near ended, so the likelihood increases that this will be just as bad as the 1930's and sooner or later no minor blip on the stock market will change that.

Tuesday, March 10, 2009

Bleak House

These are schizophrenic times for anyone paying attention to what is supposedly going on with the world's economy. On the one hand a person who wants to live in the modern world, and enjoy the conveniences and culture of an industrial life style doesn't want to acknowledge the imminent end to said life style. No one who likes the modern conveniences wants to step back into a cave just becaus esome banksters blew up the world. On the othe rhand said modern human is going to be forced to deal with the fact that world's economy is melting down and is likely to produce a major disruption to our comfortable way of life. what to do?
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What I do is walk a tight rope. I take no joy in a survivalist lifestyle. If I did, I would have spent my money buying a ranchette in Idaho and equipping myself to live off the grid, a lifestylei find repugnant. I grew upon a farm and take no joy in remembering the slaughter of animals, the effort required to grow food and te dullness and repetitiveness of day-to-day living .I lived off the grid while out sailing and a very satisfying life it was too, but that was because I was on the road living off capital and not required to live the stres sof a workaday life. To have to hold down a job and maintain the systems needed to be off the grid would be Hell.
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So nowdays as I go about my normal middle class life and I worry about the failure of that very grid to support me, I have to consider what steps I should take in the event of societal collapse, while at the same time going to the movies, eating out occasionally and commuting to work...I try to grow my own vegetables,I contemplate buying a weapon, I invest in gold bullion, fearing the worse for my currency. I keep a small stash of currency against a run on the banks, I ordered some freeze dried food against a failure of the delivery system down Highway One and I find myself unable to imagine a break down of daily life as we currently know it. what a brain teaser this situation is.
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So on the one hadn we make plans, we fix up the car, we buy toilet paper. On the other we contemplate armageddon as a posisbility and wonder how our soft flabby yuppie asses will cope. I will look back in a year, I hope, and perhaps I won't feel too bad about the choices I made. That would be nice.

Monday, March 9, 2009

Paying Debt With Debt

With massive debt already accumulated and observers speculating how close to a Great Depression Two we are, it seems very odd that the official policy is to increase the debt load of this nation to spend our way out of a credit crisis. It pushes even a sceptic like me to imagine that there is a real chance that these crazy moves are deliberate and a conspiracy of sorts is in play. Why else would our leaders do that which is obviously not in our best interests? But it is in the banksters best interests apparently to take our money to pay themselves for screwing everything up.
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I find the theft of public funds, the raids on the public treasury to be so blatant I can hardly believe it's really happening but there seems to be no denying it. when asked for an accounting of the disbursement of asset reief funds officials led by the Fed Chief have simply said: "No." weird but true. Now we find ourselves pledging trillions in public funds to supposedly spend our way out of this Depression that no wants to admit is an actual Depression. How we are supposed to solve our problems by making them worse isn't at all clear to me.
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Unemployment is rampant,trust is on the skids and public funding is wiped out. So instead of allowing bankrupt businesses to go under we prop them up and allow their managers, the manufacturers of the implosion to stay on the job and award themselves outrageous pay and perks. And we aren't supposed to get upset? It's got to be obvious to the people at the top that the credit bonanza can only be cleared by clearing out the failures. Instead we prop up a zombie economy by wasting trillions more of public money. It's enough to make anyone into a conspiracy theorist.

Mr Gloom and Doom

I got miffed at my wife this weekend, she brushed me off in front of our friends calling me out for being constantly downbeat about the economy. I asked her to find any evidence, any at all, that a turn around is imminent and she shrugged her shoulders and told me that people just don't want to hear it. "There's only so much..." she insisted. I think that is the basis of our difficulty in forcing a recovery. The news is uniformly bad, there are no indicators of a turn around, so instead of preparing for the worst we fake nonchalance. It's weird.
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I have never lost sight of the fact that the end of this journey is death, extinction, a lesson brought home to me by my mother's sudden death when I was a boy. I decided there and then that I would live as many lives as possible in my lifetime. Consequently my choices were viewed with scepticism and some scorn by people around me. In looking back I am certain I made the right choices for me and at this stage in my life I feel lucky to be content to be settled in one place dealing with the daily reality of commuting and working and coping with a relatively settled life. This economic crisis hasn't deprived me of goals traditionally set aside for the retirement years. I have, in effect lived my life backwards, which has worked out well for me.
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Now I am doing my best to educate myself on a situation that is unprecedented,in our life times certainly and to some extent in several life times.My intent is to treat the economic melt down as a threatening hurricane- some people ignore hurricane threats, others like me feel better if they've done what they can before the storm hits. In the same way I want to do what I can to prepare for possible economic catastrophe before it hits.
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The problem is that no one knows exactly what happens when an economy implodes completely. We have a couple of recent precedents in post Soviet Russia and in Argentina when the peso took a deep dive, but what is likely or even possible in the US is completely unknown. Thus it is no mean feat to try to figure out what I should do to prepare. My theory is we could do a lot worse than band together as friends with a common goal, but our friends think I'm daft for imagining such an impossibility. Thus we have an impasse. Unless my wife gets on board I am forced to retreat into my own head and hope for the best which is a choice that makes me queasy. Standing around,hands in pocket waiting for the train to wreck. what a prospect.

Saturday, March 7, 2009

Foreign Policy

It has occurred to some observers that the US ability to be the world's policemen is being impeded by the lack of money. It has long seemed to me that the best way to impose one's will on others is by having money, it's one of the pleasures of being rich and it applies to people, corporations and nations alike. The unhappy fact is that we lack cash right now and depend on people who be our enemies to buy our debt and keep us afloat. How long will that last?
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There are numerous examples throughout history of empires imploding for one reason or another and usually it can be defined at the very end by a lack of money. Poverty requires retrenchment, for families as well as empires. The second Iraq War was sold to us as a self financing venture, remove the dictator, free the people and Iraq's oil would pay for reconstruction. And now the US is out some 5 trillion dollars in that effort.
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With massive deficit spending going ahead at home it seems very likely that at some point soon our imperial adventures and massive military spending will be curbed if not shut down. That notion raises an outcry from the thoughtless, but when programs at home face extinction the mind becomes amazingly focused, and keeping roads and bridges operating at home will take precedence over US bases in Korea and Britain. There is in fact a great deal of diplomacy going on right now as though to prepare for wholesale US withdrawal.
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As the crisis progresses and stocks lose value and corporations eliminate workers it gets harder and harder to find anything good in all this. Perhaps ending US military excursions around the world might be a good thing, keep our military safe at home to defend us in an increasingly bizarre world and let the rest of the world sort itself out.
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Then again who will protect US economic interests around the world? So we will cut domestic programs to keep foreign oil coming home to the US. Difficult choices, but inevitable at the rate public debt is building up.

Friday, March 6, 2009

Lenders and Borrowers

Taking out a loan is generally an adversarial relationship.The saying goes that banks only lend to people who don't need the money and that has generally been the way of it until recently. Bankers are also well aware of the saying that if you owe the bank ten million you own the bank, but if you owe the bank ten thousand the bank owns you. These axioms have held true in the West since banking as we know it reared it's head when traders were trading in Babylon and Peking. The thing is these truths that seemed self evident fell apart during the early part of this century and the results have been spectacular.
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There are voices in the US today who want to blame the poor for the banking crisis that has led to the implosion of our financial system, Certainly it is a politically inspired position as it renders more palatable the notion that it wasn't the Republican Administration that was at the helm when the credit crisis made itself known, it was poor people taking out excessive loans that precipitated the crisis. This is weird, and because it is white right wingers propagating the blame on unqualified lenders (through Fannie Mae and Freddie Mac), it sets the stage of targeting the poor when the economic situation calls for blaming scapegoats who can promptly face lynching.
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The idea that banksters made loans to people without proof of assets or income without being aware of the consequences is ludicrous. The idea that first time home buyers should be smart enough to reject a loan when that symbol of propriety, a bank ferchrissakes!- offers them money at an affordable rate; that these people should be wiser than the banks throwing the money at them, is just bizarre. Marketing is what America used to be all about and if one looks around with no great effort one will see the effects of marketing everywhere. It is irresistible, even for those of us who think we are better able than most to resist the blandishments of the advertisers. Their great skill is the ability to sell and they employed that skill to deadly effect with banks and bank customers.
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The other reason why the poor aren't to be scapegoated for this crisis is because this isn't simply a mortgage or housing crisis, as bad as that is. This is a credit crisis and credit is evaporating in front of a nation addicted to easy and widely available credit. Industry and business need credit and it's gone. Trust has vanished and poverty is upon us. And the noisy angry hordes think the poor caused this cataclysm? I see marketing at work still, and very effective it is too.
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At every turn President Obama's financial advisers make moves to help banks and banksters, and the wealthy. The new investment vehicles to get private capital involved in the need to rebuild credit has private hedge funds getting a nine times multiplier effect from government (taxpayer) backing, and if the fund makes a profit keeps it. If it makes a loss the government ( the rest of us) take the fall. All this in an effort to get the credit system functioning.
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Once again the rewards go to the people and institutions that created this very crisis. And the weird thing is, there is a vocal segment in this country that still insists on blaming the poor for our problems. These are the same people who clamored for Republican economic policies in the belief they would become wealthy like the people the policies were designed to benefit. They haven't yet learned their lesson and thanks to effective marketing I doubt they will ever learn to think for themselves.

Thursday, March 5, 2009

Good News Fugue

The Associated Press has issued a report noting that recent unemployment figures in the US show signs of good news. It turns out that reported new unemployment claims last week aren't as high as they were expected to be. The experts had expected 650,000 new claims instead there were only (their word) 639,000. The previous week the number had been 670,000. So in this upside down world 639.000 making their first application for benefits in one week is a good number.
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I keep hunting for good news and there is none. Interest rates are as near zero as possible, central banks are printing money and handing it out to the perpetrators of this chaos and much to the experts amazement there is no confidence in the system, The stock market is down, the Dow is around 6700 and if anyone thinks there is anything good to report about anything anywhere, they are keeping it to themselves.
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GM appears likely to go bankrupt and no one has a clue what exactly that means, nor how many people will lose their jobs throughout the auto industries. China is admitting openly it is struggling with hundreds of thousands laid off and civil "unrest" fully expected...Meanwhile the US announces plans to increase efforts in Afghanistan (too late, too late the phalarope!) as Pakistan starts to slide down the throat of the Taliban and Iran seems to be the selected target for the next war, doubtless the one designed to lift us out of a state of Depression.
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Even the speculation that the price of a barrel of oil could slide to $25 seems a way of saying nothing good. Crude oil is literally stored to the rafters in refineries, storage tanks and oil tankers. Its' a sign that no one is burning oil to produce anything. Industrial output isn't putting out.
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And yet Spring Break is upon us, Highway One is crowded and Key West appears to be humming with people, crowds and lines. Clearly it's a tough job breaking the drug of shopping as discount retailers across the US report an increase in sales as early supplies of spring goods reach the stores and consumers desperate to learn how to save hit the stores to relieve the pain of shopping withdrawal.
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Global Research out of Montreal has published an analysis of the current Obama Administration policies suggesting all efforts are aimed at empowering the powerful and disestablishing the institutions of the State aimed at supporting the majority of the population, using public funds to feed the private banks that have created this economic massacre. That makes depressing reading. The hunt for good news is like the Biblical search for a few good men in Sodom and Gomorrah.

Wednesday, March 4, 2009

House Hunting

I sense a new phenomenon in Key West- the possibility of home ownership. It is made real for me by my colleague who has settled on a price, $250,000 and has an approved loan, and is ready to make offers. So far most of the homes she has looked at have been above her price range, and those few homes below her range were snapped up faster than she could get inside to see them. She is very organized, unfortunately her realtor is a dud and I think she is slowly coming to accept that. We offered her the use of ours, a man who has taken other work but loves the trade and is very very good at it, but we got the usual indifferent stare. I hate offering advice, it's not worth the hassle.
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She is getting worried now because the stock market is plummeting and her down payment is shrinking with it. I was horrified when she said she still had her money in stocks, and this isn't someone who plans to be in the market in ten or twenty years, she's keeping her cash in stocks prior to cashing out when she gets and offer accepted...perhaps later this year?
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The housing market in Key West is still crap in the under half million dollar range and her tales of ghastly homes, trashed homes, bizarre homes offered at $400,000 makes me cringe. I mutter to myself that if she waits for a year she will find tons of bargains as house prices seem bound to plummet but naturally the advice is free and is worth less than it's cost. Still you'd think that a homeowner with a mortgage like me who is prepared to consider a further 25 percent drop in the value of his home would be worth at least considering. Part of her obsessive behavior is following through mercilessly on the arranged plan, no matter what other information may come to light along the way.
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I find it interesting that someone with a government job is ready to commit to home ownership in Key West, and its quite a turn around from the lost decade of spiraling costs and general hopelessness. I find it even more stunning that there are people who think the stock market is a good place to park one's money. When I suggest there is no end in sight (free advice!) my friends look at me as though I am crazy. Recessions have always ended and in a turn around, eventually have always come. Never mind we face a lost decade as Japan did in the 1990's. Never mind nation states around the world (The rest of the world? Where's that? Why do I care?) are imploding. Nothing here is any different than the recessions that hit periodically during the last thirty years.
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Climate change hasn't gone away and people who see extra cold winters as disproving the global warming theory are fooling themselves. Part of the global warming computer predictions indicate more violent climate swings in both directions as the climate balance shifts. Peak Oil is in abeyance at the moment because world oil demand has dropped. The problem there is that research is slipping away in the face of oil priced at $40 a barrel and if demand ever does pick up there won't be fresh sources on hand to supply anything like the demand. In any event credit for exploration of new commodities of any type has shrivelled up. Need copper? Too bad if current sources are insufficient to meet your present or future demand.
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When my friends roll their eyes and accuse me of being a pessimist I ask them for something to hang the happy hat on, an indicator of something positive to come. They have none, they shrug and change the subject. If they tried to articulate their feelings it would presumably be something along the lines of "we've survived similar problems in the past and we will in the future." Then I say to myself, that's not good enough.
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I see my colleague at work thinking along those lines and as long as it is she and I arguing the toss who cares? My really underlying fear is when I see people at the top, the experts, the leaders, who can offer no real reason for hope then I feel justified in being pessimistic. And if my friends don't want to reason with me, I am left to reason with myself. Here.

Devils on Horseback

Darfur, the extremely uncivil Civil War in southern Sudan has produced an interesting twist, after years of neglect and prevarication. The President of Sudan has been named in an arrest warrant issued by the International Criminal Court. The Court in the Hague, according to the BBC has charged Omar al-Bashir with crimes against humanity and war crimes, but not genocide, which is funny (ha ha) as his government t has been supporting the extermination of the population in the southern part of his benighted country.
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In the north of Sudan there is a population of Arabs with total control over the entire country. in the southern regions away from the coast there is a population of Africans, Negroes for want of a better term who have the same nationality as those in charge in Khartoum but of a different racial aspect. They have the misfortune of looking different living in poverty like nomads and occupying lands that may hold untold wealth. So the government organized a campaign to wipe them out. Murder them to death at the hands of mercenaries on horseback called janjaweed who sweep down on the farmers and slaughter them.
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The West as usual wring it hands, just as we did in Zimbabwe where cholera is rampant in the 21st century. Cholera! A 19th century killer if ever there was one, it struck terror into the hearts of Empire builders but in our day and age it's not even an issue with sanitation, food and drugs easily available. The mercenaries hired by the Sudanese government have been slaughtering Darfurians with a ferocity and joy that is reminiscent of Serbs in Bosnia. Except these people aren't white, they are black. Oh well.
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Curiously enough we have all known about Darfur for ages and nothing could be done. An American visiting the area became determined to awaken the conscience of the well-to-do and produced a shocking film called The Devil Came on Horseback and peddled it in theaters and in Congress to get some action. I saw the movie; I was shocked; I did nothing, actions imitated by my leaders everywhere. The killing went on.
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The n suddenly war crimes charges are filed out of apparently nowhere. Could it be the fresh breeze blowing through Washington D.C. has something to do with it. Our new Administration has been falling on it's face when confronting the economy but has been sweeping the halls clean of the civil rights abuses of the previous administration. Perhaps this is a small sign that someone somewhere else has been encouraged?

Tuesday, March 3, 2009

Public Pensions

It's a strange thing how our economy works against us when we try to do what has been traditionally viewed as "the right thing.' The old Ben Franklin saw about thrift has never made it past the status of a joke in my mind in light of his own inability to live within his means, but thrift is no bad thing. Especially as you grow older.
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My wife and I heard for years how baby boomers like us weren't saving enough for retirement so we made our plans, took jobs later in life with pensions attached, put money from our house sale into decent investments (not the stock market after 2000!) and settled down to a middle age of work and stability, a plan that added to our Social Security benefits for retirement too. I've always thought of us before and after marriage as being two people who lived our lives backwards, traveling and experiencing life as youngsters prior to settling into careers with retirement plans later in life. The decision to be child free made it all a lot easier.
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So here we are, vested in public pension plans, our investments still hanging on, returning less but not devastated, our mortgage large but manageable and our jobs relatively depression-proof. Yet now we learn public pension plans are pretty much broke. Pension plans are supposed to fund themselves but in the last decade or two, observing astronomical gains on the stock market they too joined in. Worse yet they borrowed money by issuing government backed bonds at fixed percentage rates and investing that money. Which is what investors call leveraging, a fancy name for borrowing money to invest (gamble?) with...and now the inevitable result. Public pension plans across the country are deeply in debt and failing the solvency test.
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The good news for those of us planning to count on these retirement plans is that they are guaranteed by the states. The bad news is taxpayers in the states are now on the hook for these duff investment plans. Bloomberg in it's exclusive story on these pensions estimates the loss at around a trillion dollars. And so it goes.
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This fiasco really was a crisis of credit. There was simply too much credit floating around, too much borrowing and not enough oversight and regulation and now the whole world pays. I have friends who still look at me peculiarly when I suggest the future will be a lot different. They still think a return to the carefree days of the credit bubble is entirely possible. Perhaps, but only after we've secured the future of my pension plans, please.

Monday, March 2, 2009

Trade Death

The Great Depression saw US/European industrial output drop by something like five percent in 1931 and four percent in 1932. In this last year US industrial output has dropped more than ten percent while Taiwan has dropped 43 percent, Russia 16 percent, Germany 12 percent, France 11 percent and Great Britain nine percent. Across the world industrial output has plummeted, share prices are garbage and trade is in the toilet. US house prices across the nation have dropped by a third and California's official unemployment rate is over ten percent, and that doesn't count workers who have given up or taken part-time work to fill in. If this isn't the Great Depression Two I don't know what is.
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Some commentators think this doesn't look like a depression because we don't have the "visual cues" of GD1- soup kitchens, people begging and people jumping off window ledges. It's clear that no one in charge has a clue what to do and the brigade of Internet advisers has a ton of suggestions, none of them all encompassing, and many suggestions aren't even palatable in the world of political possibility. Inflate the economy with massive amounts of new money, pay down mortgages, let the house of cards tumble, start a war. Who knows what will straighten this mess out, but the bloggers have an opinion. The US Secretary of State has told Asian leaders that declining to buy US bonds will be viewed in a very dim light; yet China has no money to spare, it says, as it's citizens are counting unemployment close to twenty million as laid off factory workers return to the countryside to try to feed themselves. They aren't doing a very good job and the Central Government is spending nearly $600 billion to keep them alive and quiescent.
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On the one hand politicians are promising not to institute protectionism and erect trade barriers, on the other hand the simple act of not buying foreign products is enough to bring an industrial economy to it's knees...From my perspective the US efforts at stimulus may have bought us some time. Time enough for Europe to implode over Eastern European defaults, and perhaps it has bought enough time for Asian social structures to implode as trade dies and unemployment skyrockets across the Far East. Perhaps then we in the US will have time to acknowledge the reality of the Great Depression Two and start to rebuild on the wreckage left by the rest of the world. Or not.

Home Agriculture

A rather nasty Monday morning has developed north of the Florida Keys. The islands are bathed in sunlight after a cold and windy night, and temperatures are hovering around 68 degrees (20C) which is pleasant enough compared to the record snowfalls closing schools Up North. The stock market which is become meaningful only as a barometer of confidence, not a measure of wealth, is slipping down further and further below levels last seen in 1997. Two economic voices I listen to are talking about farming. All of which makes me wonder.
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I read Jim Roger's Investment Biker, a book about travelling the world on a BMW and selecting countries to invest in. I enjoyed the travelogue but ignored the investment advice. I have never found money to be that interesting, perhaps because I have always had enough. Politics struck me as a much more worthy subject when i was younger and hoped that a better world might be forthcoming in my lifetime. I still hold out that hope, but politics has been exposed to me irrevocably as being in thrall to economics, and so I set myself to wondering whither economies.
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The other Jim is James Kunstler, who rejoices in an all-Anglo-Saxon last name and thus appears to find himself obliged to title his weekly column on the economy equally baldly: Clusterfuck Nation. Which, if nothing else makes it awkward to read at work. Kunstler is convinced all is lost and we are bound for a future very different from the immediate past, a place deprived of cheap oil and forced to operate on very small economies of scale. Kunstler's future seems to look like clusters of medieval villages, self sufficient and connected to others by trains. What he calls the "era of Happy Motoring" is coming to a close, and with it's demise the end of suburbia.
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Jim Rogers took himself and his family off to the overpopulated island fortress of Singapore (which produces no food at all for it's people) to sit out the coming clusterfuck and he continues to suggest investing against the stock market, shorting stocks and buying commodities. In a world losing it's economic base Rogers suggests there will be opportunities to invest and he is looking at things of real value. Rogers says the future will see very little capital available to expand production of commodities and they will thus become scarce, mines oil wells and agriculture will all have to get by on what they have, and we will be able to consume only as much as they produce, which he thinks won't be enough.
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Which leads me to wonder what next? The two voices of the apocalypse both see agriculture as the next lynch pin that appears ready to fail. Modern agriculture is Monsanto and Archer Daniels Midland, and piles of oil by-products for fertilizer. It is no longer the family farmer growing crops, it's farmers as corporate representatives growing inedible corn fructose like their peasant counter parts across the rest of the world growing cash crops like coffee and cocaine not edible crops as their ancestors used to.
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So what happens when farmers need to borrow money to grow food this spring? Instead of subsidizing banks which has led to no easing of credit perhaps we will see the government printing fresh bundles of money to allow farmers to grow crops, and we have to hope they will be instructed to grow food we eat, if they remember how. I am watching my own vegetable beds sprout and realise how inadequate my back yard efforts are. Feed myself? All I can do is offer myself a shrunken diet of greens if I'm lucky, while I wonder what happens to the rest of our food supply. I hope someone in charge is thinking about the supply too.

Mayor McPherson's Extravagance

Key West Mayor Morgan McPherson has announced he wants unpaid members of the city planning board to be given city health benefits. I get city health benefits and they are quite excellent, free to me but if I add anyone to my policy, a partner or children, the monthly cost is nearly $800. The benefits are excellent too, paying for teeth cleanings with discounts of dental work, paying for eye exams and discounts to eye work, and excellent prescription and medical coverage. I feel very fortunate to enjoy the benefits package in country where health insurance is viewed as a privilege and not a right. My wife has a comparable package from the School District, and despite our coverage we remain committed supporters of single payer, or at the very least, coverage for all. Choosing between bankruptcy and death seems way too harsh in what is still the richest country in the world.
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On the other hand I wonder what the Mayor is thinking. The city is working on a plan to cut the budget by ten percent next fiscal year and the Mayor is gaily proposing (in the old fashioned giddy sense) to throw a few more costs on the pyre of job cuts. The only way the city will cut ten percent of it's budget is by cutting positions and it's a prospect that should worry us all. Not the Mayor apparently. His attitude is worrying to me as the city is also contemplating rebuilding city hall which was flooded and rendered an unworkable moldy heap by Hurricane Wilma is far distant 2005. Since then the city has done nothing about city hall except talk, sporadically about what to do.
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Naturally at a time of fiscal restrictions the talk is of building an entire new city hall at a modest estimated cost of $25 million dollars, half the city budget. Proposals to adopt an already existing building, the county's Gato Building has been mentioned, does not seem to fit with the city commission's grandiose vision. So the debate goes on about how much money can be spent on this necessary change.
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The Mayor's quixotic support for a water park at Truman Waterfront appears to have gone down the plug hole alongside the evaporation of the national economy, but he has proposed rounding up utility bills in the city and giving the extra cents to support his favorite Christian charities in the city. That tax plan isn't going over so well in multi-cultural Key West, and one has to wonder what sort of fiscal future McPherson is laying out for himself and his brood in light of his imminent foreclosure eviction. Dollars and cents are not the Mayor's strong point.
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Mayor McPherson used to live near Mile Marker Ten in the county and when he decided to run for the ten thousand dollar a year position he bought a home in the city. His real estate broker earnings plummeted and his wife's salary as a school Vice Principal was not enough to keep them above water so they now face foreclosure. Mayor McPherson went along with the new city manager's plan last year to replace one outgoing assistant with two new assistant city manager's each earning over $100,000. The manager announced with a straight face that the change was to "increase efficiency."
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Overtime in the city has been all but eliminated, the budget must shrink, and I have been warning my colleagues to prepare for givebacks- including what seems likely to me, which would be a small fee each month for our health insurance. Which suddenly seems like it would be a bizarre contractual request from a city that even momentarily entertains the notion of offering anyone remotely connected to the City of Key West the privilege of free health benefits. I don't think the Mayor, despite his own personal problems, understands the depth of feeling prevalent as we slide into a Depression. Bubba favors are not a good idea.

AIG

American International Group, the insurance people have asked for another thirty billion dollars from the US taxpayers after sucking up $150 billion already in failed efforts to support the company of last resort for manipulators of hedge funds and derivatives. I recall how the mandarins last December told us what we already knew: that the Recession had begun a year earlier and we were supposed to be surprised when it had been obvious to all that we were in a honking down turn. Now our economic bosses tell us that AIG reported the largest ever loss for the end of 2008, and here we are in March 2009. On that news DOW Jones futures are starting another slide, below the 7,000 mark this time. As though AIG's implosion should come as a surprise.
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I have read that some commentators, still pushing a political agenda in these parlous times, want to blame minorities in the US for creating this crisis, because they are to blame for precipitating the mortgage implosion. The argument goes that namby-pamby government support encouraged feckless welfare families (read: brown and black people) and when as was inevitable, these people failed to pay the market imploded. It will not be possible to eradicate this racist position because it is a dearly held political position, and using numbers to repudiate it won't work. The fact is that a vast majority of failures came through the betting on, and insurance of, those loans, made by white people and middle class people and even wealthy people. As usual it is easier and more expedient to blame the victim.
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The reason the mortgage industry got into no documentation loans was the good old profit motive. (I took one out myself, astonished by the process, which I soon converted to a thirty year fixed as I had no faith in interest rates remaining so low). In the old days banks sold mortgages and kept the paper so they had to rely on the interest payments coming in each month. In this Brave New World banks bundled up our mortgages and sold them around the world advertising the paper as "backed by US real estate." They bought insurance through AIG and lost interest in whether or not the mortgages failed. When the interest rates rose and people defaulted AIG stepped in and paid up to cover the failures, until it ran out of money.
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Had the US government allowed AIG to fail banking would have imploded far more completely and effectively than it did when Lehman Brothers, Treasury Secretary Paulsen's old Nemesis, was allowed to fail. The fear was societal collapse with the failure of AIG and thus the unending bailouts to try to support the insurance payouts on the mortgage failures. As we get deeper and deeper into the bail out plan with no change in the economic slide, it becomes clearer that rescue packages aren't working and all we are doing as a nation, is sliding deeper into impossible debt, throwing good money after bad. Yet we can't seem to stop.
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It seems abundantly clear that we need to chart a new and different course to escape the inevitable collapse if we keep doing the same thing and expecting a different result. And yet like a nation addicted to the drug of endless credit and debt we keep spending money and shooting up and hoping that this time the high will carry us away. Eventually it will.

Euro Zone

Listening to Europe's leaders mumble about not going for protectionism makes me wonder just who they think they are fooling. France has a few billion to invest in a car company (the world needs more cars? No, France needs more employment), so France will spend that money supporting employment for Polish workers as opposed to say auto workers in Clermont Ferrand. makes sense to me, and apparently it makes sense to Carla Bruni's husband. Amazing stuff.
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The Germans are telling the world they behaved really well during the recent series of bubbles so why should they, who are blameless have to sort out the messes left by the people all around them who metaphorically locked themselves into concentration camps and economic strait jackets? Well, why should they? Perhaps because their economy is sinking just like ours is, and Japan's and Russia's and even China's is slowing down enough that people there are taking to the streets. Globalization has screwed us all.
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Like all crises this one has it's unintended consequences. You'd have thought that because the US started it with our profligate ways and our ridiculous consumer and credit culture we would be sinking down into the mire of a profound depression all alone. Countries like Ireland, thrifty, hard working little Ireland, and Russia loaded with capitalism and oil and gold, and Switzerland the poster nation for calm economic efficiency would all be buzzing ahead and making the most of our stupidity and failure. Instead everyone else is slipping off the economic cliff and here we are, strong currency and still the world's reserve money. Weird.
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It wasn't so long ago Iran was leading the effort to get the rest of the world to trade oil in euros, a notion that seems as quaint as trading in Austro-Hungarian Thalers, now that the euro zone has been thrown into chaos by the gnomes of unexpected consequences. Poland Hungary and the Czech Republic have sold mortgages at low interest rates in Swiss Francs and those nation's currencies, the zloty, the forint and the koruna have plummeted in value as the world crisis bit them in the butt. The problem is now they are all defaulting on those mortgages which have effectively doubled their house prices. Imagine the default rate in the US if all mortgages suddenly doubled in size! So those countries are leaving Switzerland gasping as those Swiss franc loans are now all but worthless, meanwhile Ukraine and the Baltic states have pulled the same number on the euro and Austria is telling Germany to pull their finger out and help.
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The Germans are reluctant to help, counting no doubt on stronger pleas to cement their position at the head of the Euro zone finally will step in to help, shedding the French and British as struggling co-leaders of the European Union, and leaving them in the dust of their own economic failures. I wonder though how Europe will reinstitute protectionism? As a response perhaps to US tariffs and barriers? Or out of humanitarian concerns for European workers? Who knows...The nub of it all though seems to be dragging us through the same debates and the same fears of the 1930's, this time with electronic chatter to accompany the crisis, but one has to hope, not to the same dreadful conclusion. The second war to end all wars was quite enough.

Sunday, March 1, 2009

Optimism

I've noticed there is economy fatigue doing the rounds where I live. The economy isn't something people want to talk about. I am left to speculate why but I think it's a feeling of helplessness combined with a desperate hope for the best. Seeing that attitude amongst my colleagues and friends is understandable but seeing among the people who lead us is a bit disturbing.

I continue to find myself surprised that there is a general belief expressed, that "after this is over" we will"get back to normal." Normal in this case seems to be the vision of a booming economy with money to spread around in numerous shops and ever expanding forms of entertainment and electronic gadgetry, just as we lived in the recent boom years. I don't think things will go back as they were before, and all I have is history to back me up.
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During World War One the idea was that the war to end all wars would restore the Edwardian Era to European monied classes. The war brought on a decade long boom which ended in Depression, but the Edwardian Era was gone forever. World War Two was fought to secure the future against fascism and it ushered in the era of empire disguised as the endless Cold War. And when the Iron Curtain imploded we hoped for a peace dividend which would bring us all prosperity. Instead we got declining wages, rising debt and a desperate drive to stay above water. Now that bubble has exploded and we are supposed to be able to expect another round of prosperity when we get over this hump. I find it hard to believe, and so they label me a pessimist.
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I think of myself as cautiously optimistic if only because I think good things can come from change. The unfortunate part is that change has to be forced on us because we are human and change is what we resist. Even our leaders don't really want to see change, they reinforce our dead banks, and permit extravagance to continue in the upper echelons because that's the way things are done amongst the powerful. However change will come and it's up to us to see that it turns out well. Riding the bus instead of riding the Bonneville seems like a step down, and it will be a change. I intend to take my book along with me and read a novel instead of burning five dollar gas to get to work. The bus ride will be a peaceful interlude of forced relaxation.
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Expensive electrons will drag us away from our screens and we will be forced to deal with each other face to face, a prospect I dread. Already i have had enough vacuous gardening conversations I realise I am going to have to take classes om small talk top survive the post Depression recovery in our Brave New World. I never said It was easy to be an optimist, just obligatory.