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Looking Beyond The Smokescreen

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We bloggers have the mainstream news outlets to thank for our readership.  The inane, single-minded focus on a particular story, simply because it brings a huge audience to one’s competitors, regularly provides the driving force behind programming decisions made by those news producers.  As a result, America’s more discerning, critical thinkers have turned to internet-based news sources (and blogs) to familiarize themselves with the more important stories of these turbulent times.

Robert Oak, at The Economic Populist website, recently expressed his outrage concerning the fact that a certain over-publicized murder trial has eclipsed coverage of more important matters:

For over a week we’ve heard nothing else by the press but Casey Anthony.  Imagine what would happen if Nancy Grace used her never ending tape loop rants of hatred against tot mom to spew and prattle about the U.S. economy? Instead of some bizarre post traumatic public stress disorder, stuck in a rut, obsessive thought mantra, repeating ad nauseum, she’s guilty, we might hear our politicians are selling this nation down the river.

*   *   *

Folks, don’t you think the economy is just a little more important and actually impacts your lives than one crime and trial?  The reality is any story which really impacts the daily lives of working America is not covered or spun to fiction.

The fact that “our politicians are selling this nation down the river” has not been overlooked by Brett Arends at MarketWatch.  He recently wrote a great essay entitled, “The Next, Worse Financial Crisis”, wherein he discussed ten reasons “why we are doomed to repeat 2008”.  Of the ten reasons, my favorite was number 7, “The ancient regime is in the saddle”:

I have to laugh whenever I hear Republicans ranting that Barack Obama is a “liberal” or a “socialist” or a communist.  Are you kidding me?  Obama is Bush 44.  He’s a bit more like the old man than the younger one.  But look at who’s still running the economy: Bernanke. Geithner. Summers. Goldman Sachs. J.P. Morgan Chase. We’ve had the same establishment in charge since at least 1987, when Paul Volcker stood down as Fed chairman.  Change?  What “change”?  (And even the little we had was too much for Wall Street, which bought itself a new, more compliant Congress in 2010.)

As the 2012 campaign season begins, one need not look too far to find criticism of President Obama. Nevertheless, as Brett Arends explained, most of that criticism is a re-hash of the same, tired talking points we have been hearing since Obama took office.  We are only now beginning to hear a broader chorus of pushback from commentators who see Obama as the President I have often described as the “Dissapointer-In-Chief”.  Marshall Auerback wasn’t so restrained in his recent appraisal of Obama’s maladroit response to our economic crisis, choosing instead to ratify a well-deserved putdown, which most commentators felt obligated to denounce:

It may not have been the most felicitous choice of phrase, but Mark Halperin’s characterization of Barack Obama was not far off the mark, even if he did get suspended for it.  The President is a dick, at least as far as his understanding of basic economics goes.  Obama’s perverse fixation with deficit reduction uber alles takes him to areas where even George W. Bush and Ronald Reagan dared not to venture.  Medicare and Social Security are now on the table.  In fact entitlements of all kinds (excluding the myriad of subsidies still present to Wall Street) are all deemed fair game.

To what end?  Deficit control and deficit reduction, despite the fact that at present, the US has massive excess capacity including millions of unemployed and underemployed, a negative contribution from net exports, and a stagnant private spending growth horizon.  Yet the President marches on, oblivious to the harm his policies would introduce to an already bleeding economy, using the tired analogy between a household and a sovereign government to support his tired arguments.  It may have been impolitic, but “dick” is what immediately sprang to mind as one listened incredulously to the President’s press conference, which went from the sublime to the ridiculous.

*   *   *

Let’s state it again:  households do not have the power to levy taxes, to issue the currency we use, and to demand that those taxes are paid in the currency it issues.  Rather, households are users of the currency issued by the sovereign government.  Here the same distinction applies to private businesses, which are also users of the currency.  There’s a big difference, as all us on this blog have repeatedly stressed:  Users of a currency do face an external constraint in a way that a sovereign issuer of its currency does not.

*   *   *

The President has the causation here totally backward.  A growing economy, characterized by rising employment, rising incomes and rising capacity utilization causes the deficit to shrink, not the other way around.  Rising prosperity means rising tax revenues and reduced social welfare payments, whereas there is an overwhelming body of evidence to support the opposite – cutting budget deficits when there is slack private spending growth and external deficits will erode growth and destroy net jobs.

The increasing, widespread awareness of Obama’s mishandling of the economic crisis has resulted in a great cover story for New York Magazine by Frank Rich, entitled, “Obama’s Original Sin”.  While discussing Rich’s article, Yves Smith of Naked Capitalism lamented the fact that Obama is – again – the beneficiary of undeserved restraint:

Even Rich’s solid piece treats Obama more kindly that he should be.  He depicts the President as too easily won over by “the best and the brightest” in the guise of folks like Robert Rubin and his protégé Timothy Geithner.

We think this characterization is far too charitable.  Obama had a window in time in which he could have acted, decisively, to rein the financial services in, and he and his aides chose to let it pass and throw their lot in with the banksters.  That fatal decision has severely constrained their freedom of action, as we explain .  .  .

Miscreants such as Casey Anthony serve as convenient decoys for public anger.  Hopefully, by Election Day, the voters will realize that Casey Anthony isn’t to blame for the pathetic state of America’s economy and they will vote accordingly.


 

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MythBusting

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How many times have you heard politicians or mainstream media pundits dump on “The Internet” as an unreliable source of information, due to an abundance of unchecked, dubious reports, which are touted as the truth?  To the contrary, politicians are the least reliable sources of information in our society because – as everyone knows – they are crooks and liars.

The mainstream media have been vested with unchallenged credibility for too long.  It wasn’t until the advent of on-line news reporting (and blogging) when the news “authorities” were subjected to a regular scheme of serious fact-checking.  Nevertheless, the mainstream media still persist in promoting erroneous stories that seem to take on a life of their own – partly because so many news outlets stumble over each other for the sake of parroting the same meme reported by a competitor.  Remember the “Balloon Boy” story?  For an entire afternoon last year, the nation stayed glued to the television, watching a UFO-styled balloon float across Colorado with helicopters in hot pursuit.  Throughout that entire episode, no news reporter or TV commentator saw fit to raise the question:  Is that balloon really large enough to lift a little boy into the sky and haul him through the air like that while it is obviously deflating?  Of course not.  That would have killed the story.

This week brought us a few commentaries, which have done a good job of running against the mainstream media-generated consensus reality to show us what is hiding under the rock.  The first item was something I found on The Big Picture website:  a 50-page, on-line book by Jonathan Tasini entitled, It’s Not Raining, We’re Getting Peed On:  The Scam of the Deficit Crisis.  Tasini went beyond deflating the hype of the deficit crisis to challenge nine other myths, referred to as “Stupid Statements”.  He followed that with his discussion of a disease afflicting politicians and media commentators:  Elititis Experitits.  Tasini covered a lot of ground in a mere 50 pages, concluding with the point that the only deficit being experienced by America right now is a deficit of moral leadership.

Another fine example of mythbusting was provided by Brett Arends in a piece for MarketWatch entitled, “The Truth about California”.  Brett Arends took a noble step forward to challenge the popular myth that California is about to default on its debts and that the Golden State is in desperate need of a bailout from Uncle Sam.  Arends began the essay with this statement:

I know that facts and truth seem to be optional these days.  I know that in the exciting new world of infinite media everyone can choose to believe whatever fantasies they want. But in the case of California, it’s getting on my nerves.

Arends relied on data from the Tax Foundation to go beyond debunking the myth that “California needs a bailout” – to argue that California has been bailing out the rest of the country:

The numbers are simply staggering.  In the quarter century through 2005 (the most recent year for which we have data), Californians bailed out the rest of America to the tune of about $620 billion in today’s dollars.  In 2005 alone it came to nearly $50 billion.

That is 30 times next year’s forecast “budget shortfall” in Sacramento. The only reason California has a budget problem at all is because they have, foolishly, spent so much money subsidizing everyone else.

If it weren’t for that, California could cut its state and local taxes by around $1,300 a person.  That’s a $1,300 tax cut for every man, woman and child. Hmmm.  Funny you never read about that anywhere, isn’t it?

Our third example of mythbusting comes from recent California expatriate, Jr. Deputy Accountant, who exposed the “man behind the curtain” in Catherine Rampell’s article for The New York Times entitled, “Corporate Profits Were the Highest on Record Last Quarter”:

Filed under:  totally unbelievable headlines that are even less believable once you actually dig into the truth behind the big fancy headline.

As Jr. Deputy Accountant points out, Reading Rampell’s article as far as the third paragraph brings you to the disclaimer, which lets the air out of this UFO balloon:

The government does not adjust the numbers for inflation, in part because these corporate profits can be affected by pricing changes from all over the world and because the government does not have a price index for individual companies.

Beyond that, near the end of the Times article, the reader is confronted with an unpleasant fact, which undermines the optimistic tone of the headline:

“The economy is not growing fast enough to reduce significantly the unemployment rate or to prevent a slide into deflation,” Paul Dales, a United States economist for Capital Economics, wrote in a note to clients.  “This is unlikely to change in 2011 or 2012.”

At least the ugly truth was available to those willing to actually read the article.

As Jonathan Tasini pointed out in his on-line book, the traditional media are “uninformed, lazy and always desperate to be part of the insider crowd”.  Perhaps that is another reason why traditional media outlets are finding themselves replaced by Internet-based news sources.


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Rare Glimpses Of Honesty And Sanity

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July 1, 2010

Too many of the commentaries we see these days are either motivated by or calculated to promote hysteria.  When someone expresses a rational point of view or an honest look at the skullduggery going on in Washington, it’s as refreshing as a cold beer on a hot, summer day.

With so much panic over sovereign debt and budget deficits afflicting the consensual mood,  it’s always great to read a piece by someone willing to analyze the situation from a perspective based on facts instead of fear.  Brett Arends wrote a great piece for MarketWatch, dissecting the debt panic and looking at the data to be considered by those implementing public policy on this issue.  His essay focused on “the three biggest lies about the economy”:  that unemployment is below ten percent, that the markets are panicking about the deficit and that the United States is sliding into socialism.  Here is some of what he had to say:

Most people have no idea what’s really going on in the economy.   They’re living on spin, myths and downright lies.  And if we don’t know the facts, how can we make intelligent decisions?

High unemployment exerts a huge deflationary force on the economy.  Beyond that, the income taxes those unemployed citizens used to pay are no longer helping to pick up the tab for our bloated budget.   Mr. Arends emphasized the importance of looking at the real unemployment rate – what is referred to as U6 – which includes those people deliberately disregarded when counting the “unemployed”:

For example it counts discouraged job seekers, and those forced to work part-time because they can’t get a full-time job.

That rate right now is 16.6%, just below its recent high and twice the level it was a few years ago.

*   *   *

Consider, for example, the situation among men of prime working age.  An analysis of data at the U.S. Labor Department shows that there are 79 million men in America between the ages of 25 and 65.  And nearly 18 million of them, or 22%, are out of work completely.  (The rate in the 1950s was less than 10%.)  And that doesn’t even count those who are working part-time because they can’t get full-time work.  Add those to the mix and about one in four men of prime working age lacks a full-time job.

In exploding the myth about claimed market panic concerning the debt, Arends dug back into his arsenal of common sense, explaining what would happen if the markets were panicked:

. . .  the interest rate on government bonds would be skyrocketing.  That’s what happens with risky debt:  Lenders demand higher and higher interest payments to compensate them for the dangers.

But the rates on U.S. bonds have been plummeting recently.  The yield on the 30-year Treasury bond is down to just 4%.  By historic standards that’s chickenfeed.  Panicked?  The bond markets are practically snoring.

The specious claims about domestic socialism don’t really deserve a response, but here is how Arends dealt with that narrative:

Meanwhile, federal spending, about 25% of the economy this year, is expected to fall to about 23% by 2013.  In 1983, under Ronald Reagan, it hit 23.5%.  In the early 1990s it was around 22%.  Some socialism.

Another prevalent false narrative being circulated lately (particularly by President Obama and his administration) concerns the hoax known as the “financial reform” bill.  Wisconsin Senator Russ Feingold gave us a rare, disgusted insider’s look at how Wall Street was able to get what it wanted from its lackeys on Capitol Hill:

Since the Senate bill passed, I have had a number of conversations with key members of the administration, Senate leadership and the conference committee that drafted the final bill.  Unfortunately, not once has anyone suggested in those conversations the possibility of strengthening the bill to address my concerns and win my support.  People want my vote, but they want it for a bill that, while including some positive provisions, has Wall Street’s fingerprints all over it.

In fact, reports indicate that the administration and conference leaders have gone to significant lengths to avoid making the bill stronger.

Lest we forget that the financial crisis of 2008 was caused by the antics of cretins such as “Countrywide Chris” Dodd, Senator Feingold’s essay mentioned that sleazy chapter in Senate history to put this latest disgrace in the proper perspective:

Many of the critical actors who shaped this bill were present at the creation of the financial crisis.  They supported the enactment of Gramm-Leach-Bliley, deregulating derivatives, even the massive Interstate Banking bill that helped grease the “too big to fail” skids.  It shouldn’t be a surprise to anyone that the final version of the bill looks the way it does, or that I won’t fall in line with their version of  “reform.”

As I discussed in “Your Sleazy Government at Work”, the voters will not forget about the Democrats (including President Obama) who undermined financial reform legislation, while pretending to advance it.  The Democratic Party has until early 2012 to face up to the fact that their organization would be better off supporting a Presidential candidate with the integrity of Russ Feingold or Maria Cantwell if they expect to maintain control over the Executive branch of our government.





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An Ominous Drumbeat Gets Louder

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August 13, 2009

Regular readers of this blog (all four of them) know that I have been very skeptical about the current “bear market rally” in the stock markets.  Nevertheless, the rally has continued.  However, we are now beginning to hear opinions from experts claiming that not only is this rally about to end — we could be headed for some real trouble.

Some commentators are currently discussing “The September Effect” and looking at how the stock market indices usually drop during the month of September.  Brett Arends gave us a detailed history of the September Effect in Tuesday’s edition of The Wall Street Journal.

Throughout the summer rally, a number of analysts focused on the question of how this rally could be taken seriously with such thin trading volume.  When the indices dropped on Monday, many blamed the decline on the fact that it was the lowest volume day for 2009.  However, take a look at Kate Gibson’s discussion of this situation for MarketWatch:

One market technician believes trading volume in recent days on the S&P 500 is a sign that the broad market gauge will test last month’s lows, then likely fall under its March low either next month or in October.

The decline in volume started on Friday and suggests the S&P 500 will make a new low beneath its July 8 bottom of 869.32, probably next week, on the way to a test in September or October of its March 6 intraday low of 666.79, said Tony Cherniawski, chief investment officer at Practical Investor, a financial advisory firm.

“In a normal breakout, you get rising volume. In this case, we had rising volume for a while; then it really dropped off last week,” said Cherniawski, who ascribes the recent rise in equities to “a huge short-covering rally.”

The S&P has rallied more than 50 percent from its March lows, briefly slipping in late June and early July.

Friday’s rise on the S&P 500 to a new yearly high was not echoed on the Nasdaq Composite Index, bringing more fodder to the bearish side, Cherniawski said.

“Whenever you have tops not confirmed by another major index, that’s another sign something fishy is going on,” he said.

What impressed me about Mr. Cherniawski’s statement is that, unlike most prognosticators, he gave us a specific time frame of “next week” to observe a 137-point drop in the S&P 500 index, leading to a further decline “in September or October” to the Hadean low of 666.

At CNNMoney.com, the question was raised as to whether the stock market had become the latest bubble created by the Federal Reserve:

The Federal Reserve has spent the past year cleaning up after a housing bubble it helped create.  But along the way it may have pumped up another bubble, this time in stocks.

*   *   *

But while most people take the rise in stocks as a hopeful sign for the economy, some see evidence that the Fed has been financing a speculative mania that could end in another damaging rout.

One important event that gave everyone a really good scare took place on Tuesday’s Morning Joe program on MSNBC.  Elizabeth Warren, Chair of the Congressional Oversight Panel (responsible for scrutiny of the TARP bailout program) discussed the fact that the “toxic assets” which had been the focus of last fall’s financial crisis, were still on the books of the banks.  Worse yet, “Turbo” Tim Geithner’s PPIP (Public-Private Investment Program) designed to relieve the banks of those toxins, has now morphed into something that will help only the “big” banks (Goldman Sachs, J.P. Morgan, et al.) holding “securitized” mortgages.  The banks not considered “too big to fail”, holding non-securitized “whole” loans, will now be left to twist in the wind on Geithner’s watch.  The complete interview can be seen here.  This disclosure resulted in some criticism of the Obama administration, coming from sources usually supportive of the current administration. Here’s what The Huffington Post had to say:

Warren, who’s been leading the call of late to reconcile the shoddy assets weighing down the bank sector, warned of a looming commercial mortgage crisis.  And even though Wall Street has steadied itself in recent weeks, smaller banks will likely need more aid, Warren said.

Roughly half of the $700 billion bailout, Warren added, was “don’t ask, don’t tell money. We didn’t ask how they were going to spend it, and they didn’t tell how they were going to spend it.”

She also took a passing shot at Tim Geithner – at one point, comparing Geithner’s handling of the bailout money to a certain style of casino gambling.  Geithner, she said, was throwing smaller portions of bailout money at several economic pressure points.

“He’s doing the sort of $2 bets all over the table in Vegas,” Warren joked.

David Corn, a usually supportive member of the White House press corps, reacted with indignation over Warren’s disclosures in an article entitled:  “An Economic Time Bomb Being Mishandled by the Obama Administration?”  He pulled no punches:

What’s happened is that accounting changes have made it easier for banks to contend with these assets. But this bad stuff hasn’t gone anywhere.  It’s literally been papered over. And it still has the potential to wreak havoc.  As the report puts it:

If the economy worsens, especially if unemployment remains elevated or if the commercial real estate market collapses, then defaults will rise and the troubled assets will continue to deteriorate in value.  Banks will incur further losses on their troubled assets.  The financial system will remain vulnerable to the crisis conditions that TARP was meant to fix.

*   *   *

In a conference call with a few reporters (myself included), Elizabeth Warren, the Harvard professor heading the Congressional Oversight Panel, noted that the biggest toxic assets threat to the economy could come not from the behemoth banks but from the “just below big” banks.  These institutions have not been the focus of Treasury efforts because their troubled assets are generally “whole loans” (that is, regular loans), not mortgage securities, and these less-than-big banks have been stuck with a lot of the commercial real estate loans likely to default in the next year or two.  Given that the smaller institutions are disproportionately responsible for providing credit to small businesses, Warren said, “if they are at risk, that has implications for the stability of the entire banking system and for economic recovery.”  Recalling that toxic assets were once the raison d’etre of TARP, she added, “Toxic assets posed a very real threat to our economy and have not yet been resolved.”

Yes, you’ve heard about various government efforts to deal with this mess.  With much hype, Secretary Timothy Geithner in March unveiled a private-public plan to buy up this financial waste.  But the program has hardly taken off, and it has ignored a big chunk of the problem (those”whole loans”).

*   *   *

The Congressional Oversight Panel warned that “troubled assets remain a substantial danger” and that this junk–which cannot be adequately valued–“can again become the trigger for instability.”  Warren’s panel does propose several steps the Treasury Department can take to reduce the risks.  But it’s frightening that Treasury needs to be prodded by Warren and her colleagues, who characterized troubled assets as “the most serious risk to the American financial system.”

On Wednesday morning’s CNBC program, Squawk Box, Nassim Taleb (author of the book, Black Swan — thus earning that moniker as his nickname) had plenty of harsh criticism for the way the financial and economic situations have been mishandled.  You can see the interview with him and Nouriel Roubini here, along with CNBC’s discussion of his criticisms:

“It is a matter of risk and responsibility, and I think the risks that were there before, these problems are still there,” he said. “We still have a very high level of debt, we still have leadership that’s literally incompetent …”

“They did not see the problem, they don’t look at the core of problem.  There’s an elephant in the room and they did not identify it.”

Pointing his finger directly at Fed Reserve Chairman Ben Bernanke and President Obama, Taleb said policymakers need to begin converting debt into equity but instead are continuing the programs that created the financial crisis.

“I don’t think that structural changes have been addressed,” he said.  “It doesn’t look like they’re fully aware of the problem, or they’re overlooking it because they don’t want to take hard medicine.”

With Bernanke’s term running out, Taleb said Obama would be making a mistake by reappointing the Fed chairman.

Just in case you aren’t scared yet, I’d like to direct your attention to Aaron Task’s interview with stock market prognosticator, Robert Prechter, on Aaron’s Tech Ticker internet TV show, which can be seen at the Yahoo Finance site.  Here’s how some of Prechter’s discussion was summarized:

“The big question is whether the rally is over,” Prechter says, suggesting “countertrend moves can be tricky” to predict.  But the veteran market watcher is “quite sure the next wave down is going to be larger than what we’ve already experienced,” and take major averages well below their March 2009 lows.

“Well below” the Hadean low of 666?  Now that’s really scary!