August 21, 2008
Elaine Meinel Supkis
Two stories from last year at this blog are very pertinent for today's news. The harmonic echoes from exactly a year ago are most astonishing! The price of oil is going up due to the US and EU itching to fight yet another major oil exporting nation, this time the very nuclear Russia with a long, long history of winning wars with Europe. Yikes in spades! And the dollar is weakening, duh. Paulson's 'bazooka' he pulled out to reassure investors ended up blowing investors out of the water. Another 'Duh' moment in economic history. We visit Seeking Alpha which sounds more like 'Seeking Alfalfa'. A clueless professor talks very stupidly about inflation. Why can't I teach economics? History shows that my analysis has been very good so far! Rats.
Federal Reserve Picks Up Many Bad Mortgages
It was just only this last year that the fiat femme fatales tried it again. All the bankers in Europe and the US united to tell us that gold was worthless. Despite it rising from $260 to $650 in the last couple of years, they said this was silly, why stocks and the value of houses beat gold hands down! But as the value of both of those begin to falter and fall, the central banks have been selling of tons and tons of gold and this has kept the price down but this is a form of mass suicide, not to be copied. True, when a depression hits, the value of gold will drop just like all other assets but unlike fiat currency, it won't VANISH. For this is what all holders of paper fear. Stocks don't just go up or down, they VANISH. The only way gold can vanish is if the government confiscates it or someone robs you, both being quite obvious hazards!
But even if you keep your paper in a safe and watch over it with a gun, it can be reduced to zero value with no one coming within 1,000 miles! This is the inherent hazard of holding any sort of paper wealth. All paper wealth is just a proxy for something else.
This brings us to the news today: the Federal Reserve couldn't just hand out money to the banks for free! So they 'temporarily' took pieces of paper with addresses and signiatures on them that are IOUs made out to mortgage companies who loaned money to a bunch of dead beats! OK: so what are these scraps of paper really worth? Eh? $100 billion or more like $0? In the real world the answer is 'ZE-fucking-RO! Zen zen, nothing, nada, zilch.' If these worthless pieces of paper were worth $100 billion they would have been sold out in the open and not in this ridiculous fashion where we can't see them and we won't know if they are worth anything at all and is this the 'rescue' that our rulers are pulling off at our collective expense?
OK, everyone! When did anyone notice that the Feds have been heavily interfering with private housing markets? How about since the Great Depression! This time around, they are not saving house buyers but the banks themselves. Lending has become a government agency. But the profits flow to the banks who are merely a conduit to the government! This means, if the bankers can write infinite mortgages, they get infinite fees while the Feds have to cope with the defaults. This is rapidly finishing off our reckless, wild-spending government systems. How very revolutionary this is! Bankrupting our government in order to save bankers who gave out bad loans so they could collect fees is the height of stupidity.
Germany Slides Off Economic Cliff Thanks To Strong Euro
As I predicted, re-establishing the weak yen/weak dollar/strong euro status quo will swiftly lead to a collapse of the European economy for this is a near-perfect repeat of the strong yen/weak dollar/no euro economy of the early 1990's. Japan's yen became very strong, the Japanese flew all over the earth, buying things, investing and vacationing like mad. Then suddenly, it all collapsed and as the American economy got stronger, Japan went into a real depression. Now it is in a fake one but the signs are all pointing to Europe going into a real depression soon.
*snip*
All this year, the US and Japan cleverly joined Europe as they all told China there was no earthly reason to increase their FOREX reserves to over a trillion dollars. I mocked this effort. I even suggested Japan put its dollar reserves where its mouth was but of course, Japan simply wanted China to be punished and reduced as a trade rival. China was not fooled by all this. Either they read me or they are smart. I am betting on the 'smart' part. I found them to be very swift learners when things happen fast.The IMF and World Bank joined the propaganda effort to stop China from running the world's biggest FOREX reserves. Then Russia suddenly appeared out of nowhere with the world's #3 FOREX reserves! Even I was taken back by this sudden surge. I did recognize what it meant, though: Europe's battle with Russia was lost. Russia could now control relative values of the euro and the dollar via their FOREX reserves! For the last 10 years, while Japan patiently built up their economic firepower via their FOREX reserves, I have warned the Federal Reserve about this and warned them, the US MUST MATCH JAPAN by buying up yen! In equal amounts!
The US continues to refuse to hold much in the way of euros or yen. This is because we can depend upon our allies and trade partners and leeches to balance our currency one way or another. We are content to have no sovereignty over our own currency. No nation should allow other nations to hold such power over the national purse. Yet, not only do we allow the central bankers of Europe but also Japan, determine the value of our currency and to do so for their own benefit. Germany got caught in the gears because they fear a weak currency. This year, they are fully involved in weakening the euro. Now, on to today's news:
Paulson's Fannie-Freddie `Bazooka' Shakes Investors
(Bloomberg) -- U.S. Treasury Secretary Henry Paulson's ``bazooka'' may be intimidating the same investors he intended to reassure.The powers Paulson won from Congress last month enabling a government rescue of Freddie Mac and Fannie Mae -- authority he likened to a weapon whose mere existence made it unlikely it would have to be fired -- may end up making a bailout more likely, say analysts and investors.
They say the threat of government action is creating uncertainty that is raising the companies' borrowing costs and increasing the odds Fannie and Freddie will need taxpayer funding.
Joe Bazooka Paulson! He hauls out his big shot shooter and shoots himself in the foot. His offer to save the fair maid, Fannie Mae and her loutish brother, Freddie Mac simply meant all of Congress and the Federal Reserve and all those bankrupt bankers piled in and dumped these two vagrants into Paulson's lap. And who will rescue Paulson?
The Federal government. As I predicted, by the way, the Housing Bill passed by Congress is fixing exactly nothing except extending the agony of defeat in the banking sector. Everyone hopes to limp along for one more year. Then all will be well. But as I showed yesterday in the many graphs of the biggest banks in the US, they are nearing penny stock levels of value and can't raise money via selling stocks anymore.
Oil Rises More Than $6 on U.S.-Russia Tensions, Dollar Weakness
(Bloomberg) -- Crude oil advanced more than $6 after the signing yesterday of a missile-shield agreement between the U.S. and Poland bolstered concern that Russia may disrupt the flow of oil.The U.S. missile shield in Europe, which has ``a real anti- Russian potential, won't increase the continent's security,'' Russia's Foreign Ministry said. Russia is the world's second- biggest oil producer. Oil also climbed as the dollar fell to the lowest against the euro in a week.
``The tensions between Russia and the West were supposed to be simmering down but they are now ratcheting up because of Poland's agreement with the U.S.,'' said Gene McGillian, an analyst at TFS Energy LLC in Stamford, Connecticut. ``The fall of the dollar is sending a huge investor flow into commodities.''
Way to go, Europe! Join the US in expanding NATO so that the Russian Bear gets totally pissed off. Then do a sneak attack on Russian allies and kill Russian soldiers in bed. Then sit back and watch a very enraged bear rip Europe to shreds! The stupid Georgian war against Russia is like hunting grizzly bears with a revolver. The bear eats lead and then eats the revolver and then eats the hunter. Even Paulson's bazooka isn't enough. Indeed, if one wishes to win a full scale war with Russia, one has to nuke all of Russia. Unfortunately, Russia can nuke all of Europe and America. So the price of oil is going up and this is another 'Duh' moment from our lovely gang of neocon nut cases.
Oil is also being restricted by Saudi Arabia. Saudi Arabia is losing money in our banking stocks. But they tried to save our economy with hyper-pumping of precious oil. Their reward was scant, to say the least. Now, the US is openly talking about throwing away Fannie Mae and Freddie Mac and thus, ripping off not only a very angry Russia with many nuclear bombs but a clever China that holds the same and our main oil supplier to the West, Saudi Arabia. As well as Japan. This won't work. We can do this if we want everyone out to nail our hides to the wall.
U.S. Stocks Drop on Writedown Concern; Lehman, Goldman Retreat
(Bloomberg) -- U.S. stocks dropped, extending the first weekly loss in a month, as investors speculated credit writedowns at financial firms will increase and a rise in oil damped earnings prospects for automakers and airlines.Goldman Sachs Group Inc., Morgan Stanley and Lehman Brothers Holdings Inc. led financial shares in the Standard & Poor's 500 Index to a one-month low after Citigroup Inc. cut their profit estimates. General Motors Corp. fell as much as 4.1 percent and US Airways Group Inc. plunged 11 percent as oil advanced the most in two months. Supervalu Inc. and Safeway Inc. slipped 3 percent after UBS AG said inflation will cut into supermarkets' profits.
Just three months ago, the media was told that Goldman Sachs was NOT hurt by the banking/lending collapse. Their clever dealers had schemes bringing in more loot. Which, incidentally, was directly connected to a fast series of very serious bubbles in all types and kinds of commodities. Especially oil. Now, the commodity markets are dropping, sort of, and Goldman is losing money! So Goldman wants commodities to rise again, they can't get rich any other way! They are truly torn in two. Stuck on the classic Horns of Dilemma here! And this is true of the entire system.
It was allowed to morph and grow totally in wacky ways to evade the obligation of the US to balance its trade and government budgets! We wanted to have our cake and eat it too and this meant we got stuck on these stubborn horns. Whatever we do to fix things will make other important things worse. If we set up better domestic energy and transportation systems starting with Nixon, we might have been able to survive this trap. Instead, we did the exact opposite.
If we retracted our empire after extracting ourselves from the Vietnam war, we might be able to survive. But we did the exact opposite after the Soviet Union fell apart. We expanded. And we went from tiny wars with barely armed Caribbean micro-islands to huge confrontations with Russia, all in a leap and a bound. This irresponsible action on our parts was unnecessary and deadly. We can't win even medium-sized wars, much less, this.
The US won't get rich poking Russia in the nose. Quite the contrary. The Pentagon is salivating over the possibility that McCain will rule us and open the spigots for wild, super-wild military spending on Cold War toys. Many manufacturers are praying for this. A good number of workers are hoping for this, too. But we can't afford this without heavy taxation. During the 1940-1970 era, we had high taxes to pay for this. Now, all we want is those tax cuts and hedonism.
Core Inflation Is Low and Stable by Mark J. Perry, Ph.D.
What about annual core inflation? It's been flat for 10 years now at about 2%, see chart above, is lower now than it was several years ago, and less than 50% of the long-term 4.58% average.As I suggested before on several posts, unless and until core inflation rises like it did in the 1970s (see chart above), inflation can't be "a clear and present danger," as Brian suggests.
This clown is a classic clueless economics professor. They were cranked out by the thousands from the Nixon era onwards. Nearly all of them, right wingers. 'Marxists' were systematically cleaned out from 1055-1975.
If you only weigh my skeleton, my weight hasn't changed in 10 years!
My comment:
Balderdash, that is the BEST remark yet! Love and and will use it on my blog.
All inflation graphs MUST show the various changes in tracking inflation. Otherwise, it is full of bullhockey. I used to be part of the annual inflation collection system whereby a Federal agent would come to my house and he and I would spend hours going over what I bought that year and how much it cost. I kept all my receipts for this purpose. He was the same man every year and we got to chat a lot about inflation statistics.
This was from 1975- 1982. Then, he ceased coming by. The first 'reform' of the statistics was launched! Since then, we have been inflicted with a goofy and worsening system that grossly undercounts real inflation.
Just like Japan is now doing. As inflation ravages the average Japanese, they get no recourse at all since the statistics refuse to reflect this.
Here is yet another story from Seeking Alfalfa:
Obama's Economic Policy and Reagonomics by Mark Thoma
This article by David Leonhardt describes Barack Obama's view of economic policy, and it is very similar to my own. Most of the time, it is best to leave markets alone, to let them work without intervention, and that should be our starting point. But markets fail, and part of the disagreement with those holding more conservative views is over how often markets fail, whether they can easily self-correct when there are problems, and how effective the government is at fixing problems when they exist.On the last point, I am a proponent of market-based regulation when it is possible to use it. For example, if you want to regulate the profit of a public utility, one way to do it is through rate of return regulation. Under this approach, prices are set so as to guarantee investors a particular "fair" rate of return. The problem with this is that there is no incentive for the firm to control its costs, the rate of return to investors will be the same whether it is efficient or inefficient.
This writer endorses Obama over McCain. McCain's economics program is McInsane. But Obama wants us to remain stuck on the Horns of Dilemma forever. The hope is, we slightly raise taxes on the rich and we continue onwards with slight reductions in imperial spending, sort of except AIPAC owns Obama these days and we have no choice. As usual. Here are some more remarks from this story's comments section:
robert.b.ferguson
Aug 21 09:47 AMLets see: raise taxes in a down economy, stifle energy production during a demand surge and remove incentive for growing wealth. sounds like a winning formula. good luck with that.
My comments:
Raise taxes? HAHAHA. The US is GOING BANKRUPT, everyone! Thank you, GOP, in particular.
But both parties are now spending like fiends. And the US public, like spoiled brats before Xmas, expect Santa Claus to come down the Federal Chimney and open us a bag of manufactured in Asia goodies.
We have to eliminate all our foreign bases, stop all our foreign wars, erect tariffs and barriers to imports and rebuild this nation before we go totally zombie. Anyone who thinks the present system can run another 25 years is insane.
Our entire nation is entirely in debt. We are up against the Great Wall of China. Our creditors are communists!!!! Hey, ever think about what this really means, anyone?
We are so messed up. Go ahead, America, cut taxes even more.
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Sigh. I feel rather old. Since LBJ, I have suggested we cut military spending so we can constrain our budgets. This seldom happens. Only when a Democrat is elected these days, does the GOP cut military support. They won't support wars like in Bosnia, for example. They won't support anything. This clips the military's wings somewhat. If the Democrats run things with a GOP President, the same thing happens. Maybe having a divided government is the only solution. Better still, have the Parliament system with more parties so we can pressure the two big ones better.
The US doesn't want to pay any bills. There are many, many lies told about taxes. For example, when talking about the budget, seldom do the 'no new taxes' people mention that the US working class is funding the government much more than the statistics show. Most people who want to persuade us into thinking only the rich pay most taxes conveniently leave out mention of the SS surplus funding. This skewers the data grossly.
Since Reagan spooked everyone into upping the SS withholding payments, the working class as lost ground in the economic games. Wages are falling vis a vis inflation. And the contribution of the SS funds to running the government is concealed or deliberately excluded the same way food and fuel have been removed from inflation statistics. Ideologues would far rather dishonestly win arguments rather than seeking the truth.
The truth really isn't all that hard to find. She may be blind, but She is also a Goddess. She is also called 'Libra' and has those pesky scales we hate so much.
A little titbit from Bloomberg UK this morning. They had some "Director" from some London think-tank ('Foreign Policy something-or-other). I wasn't listening that closely, so cannot quote verbatim; however, in speaking about NATO (on the NATO/Russia conflab) he stated something about NATO being intended as the vehicle for creating a global peace keeping force, or some such. This was said in a very "everyone knows" way. This Russia problem seems to have thrown him off balance.
My take: no wonder we had no rapprochement after the wall came down. The psychopaths just couldn't stop themselves.
Posted by: Bear of Little Brain | August 22, 2008 at 09:15 AM
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Posted by: Paul S | August 22, 2008 at 11:17 AM
BUT YOU ALSO REFUSE TO CALCULATE OR CALL THE HOUSE COST/PRICE INFLATION OF THE LAST 15 YEARS INFLATION?
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