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Archive for the Economics Category

The Odd Couple – China & The U. of S.A. (January 12, 2009)

Posted in China, Economics, Foreign Policy on January 12, 2009 by e-commentary.org

Felix “China” Unger and Oscar “Uncle Sam” Madison are living together in a symbiotic/parasitic relationship. In recent years, some pundit types said that the economies of the world are “decoupled” from the United States. Some other types were skeptical. The economies always seemed “coupled.”

Those who argued that the U.S. no longer produces any goods for export do not recognize the toxic commercial instruments foisted on the world over the last half dozen years. And the world bought it. And bought them.

China produces the goods and the money to buy the goods. The U.S. consumes the goods and the money to acquire the goods. Projections about the Trillion dollar domestic bailouts spurring enough economic activity to drive the American economy and begin satisfying the growing national Debt are delusional. The U.S. will never pay off its national Debt. [See the e-ssay dated January 17, 2005 entitled “America the Bankrupt: Economics 210 in the Land of the Freeway and the Home of the Wave.”]

How will China (and Japan, England, and other creditor countries) respond? Is the U.S. “too big to fail” or more subtly “too intertwined to fail.” What if no other country or consortium of countries is in an economic position to rescue the U.S. economy or forgive its debt in later years?

Bumper stickers of the week:

We are all in this alone together

China – Shop (and let your currency float)

USA – Stop (shopping despite what others command)

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The Big Swap (December 29, 2008)

Posted in Economics on December 29, 2008 by e-commentary.org

. . .

“Have you ever read the Master Agreement of 2002?”

“Not exactly.”

“The International Swaps and Derivatives Association Master Agreement of 2002. It is a masterpiece of dishonesty and deception.”

“He said over and over that we could not lose.”

“The proposed Agreement is an integrated contract. That does not mean that Blacks and Whites can swim in the same pool. The Agreement states that any and all verbal agreements are superseded by the written terms of the Agreement.”

“He said there is no risk.”

“You are playing in the big league. Who are these guys? They don’t have any understanding of the market for left-handed rutabagas.”

“He says that they don’t need to know anything about the industry.”

“This is an airtight agreement, you aren’t allowed to breath. The forum selection clause clearly states that any action must be brought in the courts of New York. The choice of law section states that New York law applies without regard to its choice of law provisions. You are the away team. The Agreement might as well say that the home boys in New York win. ”

“That’s what they require us to sign.”

“Even if you can find a local boy with enough experience and connections, you won’t encounter merely ‘home cooking,’ you will encounter ‘home boiling.’”

“If it works, we make a small fortune. I make more in this one deal than I have made in five years.”

“It’s a bad idea.”

“We can’t lose.”

“This is way too risky for me. I must back away. This thing will collapse on someone.”

. . .

Bumper sticker of the week:

Greed = God

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Printing Electrons? (December 1, 2008)

Posted in Economics, Federal Reserve, Inflation on December 1, 2008 by e-commentary.org

The Federal Reserve is running the “printing presses” 24/7. The Fed. issues regular press releases announcing:

Federal Reserve will offer $150 billion in 28-day credit through Term Auction facility [yesterday].

Federal Reserve announces results of auction of $150 billion in 28-day credit held on [yesterday].

Federal Reserve will offer $150 billion in 28-day credit through Term Auction facility today.

Federal Reserve announces results of auction of $150 billion in 28-day credit held today.

Federal Reserve will offer $150 billion in 28-day credit through Term Auction facility [tomorrow].

Federal Reserve announces results of auction of $150 billion in 28-day credit held on [tomorrow].

. . . . . . . . . .

The amount raised and the term may vary, yet the country is burrowing in deeper at a faster rate.

Bumper stickers of the week:

The Trillion is the new Billion.

“A billion [Trillion] here, a billion [Trillion] there, and pretty soon you’re talking real money.” Attributed (perhaps incorrectly) to Everett Dirksen

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Deflation? (November 24, 2008)

Posted in Depression, Economics, Gas/Fossil Fuel, Inflation on November 24, 2008 by e-commentary.org

Deflation seems to be the current concern. Oil, copper and aluminium prices are down dramatically. When the raw materials go down in price, the finished products should go down in price. In theory, sort of. The price of a 250 foot section of Romex wire is now almost what a 100 foot section cost a year ago. However, prices often are sticky and ratchet down slowly. Lower prices sound appealing, although deflation does create economic problems among debtors and consumers.

However, the old economic models may not work. Demand is down because no one has any real money and no one will loan any real or unreal money. However, credible reports indicate that people need to eat, house, drive, acquire plasma tvs, etc. The system is awash in unreal money. However, those who produce goods and provide services are not standing by ready to respond. They are collapsing. The world‘s economies and the world Economy are splintered and increasingly disconnected. If you build it, they may not come.

Gas did not hit $6 a gallon by Halloween; it hit $3 a gallon. [See the e-ssay dated May 26, 2008 entitled “$4 in June, $5 in July, ….”.] The momentum for fuel-efficient vehicles has abated and investment in oil-producing equipment and fields has declined. When the demand for aluminium declines, bauxite is not mined. In the near future, everyone will compete with pockets full of unreal dollars for scarce goods and services. Bread at $100 a loaf? Inflation still seems to be the hidden monster. The new Weimer Republic writ large.

Bumper sticker of the week:

WIL

Whip Inflation Later

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The Virtual Horserace (November 17, 2008)

Posted in Economics, Greenspan, Housing on November 17, 2008 by e-commentary.org

During the dot.com bubble, a small number of affluent investors (consultants, dentists, consultants to consultants, public employee retirement funds, consultants to consultants to consultants, candle stick makers, etc.) anteed up large bets in cash up front; few horses crossed the finish line a few years later; everyone absorbed the losses with little intermediate-term damage. Okay, they will retire later and perhaps with less money. Life went on. [See the e-ssay dated December 4, 2006 entitled “When the Bubbles Burst”]

During the “Greenspan Bubble,” however, the seeds of the Depression were sown democratically across the land. (Almost) everyone in the populace placed huge bets on credit; few horses will ever complete even the first stretch of a 30-year race (mortgage term); the negative consequences are predictable and devastating. The intermediate-term loses may be 3 to 5 to 7 Trillion in the US and a few Trillion overseas.

Astute observers knew that something evil was going on behind the scenes during “Hurricane Al,” but the contours of the corruption did not emerge until recently. The Wall Street Boys devised something noxious known as a “Credit Default Swap” that involves a “virtual horserace” without real money that jeopardizes the economy and the American economic and political system. The real nightmares are the bets placed on bets placed on bets placed on bets placed on bets placed on bets placed on bets in this virtual and unregulated gambling casino using CDSs as tokens. These players were betting on outcomes in the horse race and then insuring the outcomes without any money, margin or reserve. The winners (who may need to lose in order to win) of the game want to be paid; the losers cannot pay and never intended to pay.

No one will say that these gamers are “domestic economic terrorists.” Saying something that true and stark is deemed to be impolite and impolitic. The CDSs are a cancer on the country. The losses may be 25 to 50 Trillion or more. The Economy cannot absorb the losses.

Bumper stickers of the week:

We will get fooled again.

“All you need in this life is a tremendous sex drive and a great ego. Brains don’t mean a shit.”

Mayor Anthony “Captain Tony” Tarracino (1916 – 2008)

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The Building Tsunami (October 13, 2008)

Posted in Economics, Federal Reserve, Housing on October 13, 2008 by e-commentary.org

Things are collapsing. The mortgage/house is no longer an ATM (Automatic Teller Machine). Mortgages were given to individuals who could not pay. At least with a mortgage there was a structure providing some collateral to support the loan.

The populace is still spending beyond their means. The staggering amount of credit card debt is another Great Tsunami. Credit cards are being given if not shoved down the throats of individuals who cannot pay. These Improvised Explosive Devices (IEDs) are plastic explosives delivered daily by the United States Postal Service. They will all explode within the next year. And then the Congress, the Fed. (Federal Reserves system), and the business and economic press will express surprise, display panic and engender fear.

The geopolitical concerns are overlooked or disregarded. The rest of the world is now taking over the US by “investment not invasion” as American becomes a “second world former superpower.” More later.

Bumper sticker of the week:

Déjà vu all over again?

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A Bleak Day: The Trillion Dollar Tragedy (October 6, 2008)

Posted in Bailout/Bribe, Bush, Debt/Deficits, Economics, Federal Reserve, Greenspan, USA PATRIOT Act on October 6, 2008 by e-commentary.org

Congress failed. Again. The Bailout Bill will accelerate the Meltdown by misallocating funds and burning day light needed to address the underlying problems.

A three page travesty delivered by Bush became a 451 page travesty cum pork adopted by Congress. These votes may rank with the Gulf of Tonkin Resolution, the Iraq war resolution, and the USA PATRIOT Act vote.

The public saw a 1.1 Trillion dollar drop in the value of their investments/401(k) IRAs last Monday and seemed to believe that a 700+ Billion bribe was worth the gamble. The Bailout Bill will cost at least 1 Trillion to administer directly and will cause Trillions more in losses and damage. Bribing the big players not to pull the plug until after the election is over is almost criminal if not treasonous.

Few note that the current crisis will be made worse by this bailout/bribe. Beyond concerns about “moral hazard” and “bailouts for billionaires,” the problem is that the bailout is creating an even great credit crunch for the country. There is way too much money in the economic system in the wrong hands. The new money is being funneled into the wrong vessel, into a bowl not a colander. The money will be hoarded. The money is being not made available to the public.

Raising the deposit amount insured by the FDIC from $100,000 to $250,000 appears to offer something to the public, yet it also discourages the individual investor from monitoring his or her financial institution. Individuals are deluded into believing that everything is ducky. Individuals not just the government must act as regulators. Banks that will soon be taken over by the FDIC are offering much higher interest rates to gobble up as much money as possible before the collapse.

Consumer confidence has never been higher. Consumers are confident that the entire economic and political system is broken.

Business confidence has never been higher. Businesspersons know that they are lying and, of greater import, that all other businesspersons are lying. Reading between the lines of the economic reports is a challenge. Reading between the lies is vexing.

So many fought to declare and establish independence for this country. Last Friday, Congress voted to establish and fund a czar/dictator/central planner. Two hundred thirty-two years later, we have a King of Finance. Emperor Paulson. One of the individuals who created the problem has been crowned to deepen it.

Fear once again triumphed over hope and reason.

Bumper stickers of the week:

Those who repeat history are doomed to repeat history.

If you think 401(k) is your mother-in-law’s bra size, then you might be a redneck.

—–Jeff Foxworthy

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Futile Efforts (September 29, 2008)

Posted in Bailout/Bribe, Congress, Economics on September 29, 2008 by e-commentary.org

HSB

Washington, D.C. 20510

Senator _________:

Enough. This bailout/handout is obscene.

Risk is the handmaiden of reward. Success and failure are American. Privatizing success and socializing failure are unwise if not criminal. And no way to run a Republic.

Why are we as a country creating a dictator/czar who is not subject to congressional oversight or judicial review to decide how he will run the country? Paulson was previously the Chairman and CEO of Goldman Sachs. The wolf is in charge of the hen house. He has done nothing for years.

This problem has been with us for many years. Why get excited now? We as a country got all excited and passed the PATRIOT Act, went to war with Iraq, etc. Now is the time to reflect.

Reflect on the three articles in today’s NYT: Kristol, Krugman and Cohen. Cohen’s article addresses the international dimension. The rest of the world does not care about the developments in the USA and is not going to do anything to help. Let’s not be so concerned about the rest of the world on this issue at this time.

If we as a country are going to nationalize the industries, why not nationalize the industries rather than just the losses?

If we reject the bailout, there will be some inconveniences and costs, yet life will go on. We will get up in the morning, put on our socks and go on with life.

If the legislation is passed, there is no rescinding it according to its term. The long-term negative consequences of a bailout/handout to the taxpayer and the country are incomprehensible.

It is time to say No! to this travesty.

This legislation is unwise and imprudent.

Over the last few days, I have been surprised at how united _______ are on this issue. Across the political spectrum, there is disgust and outrage.

It is time to reflect.

Sincerely,

_______________

****************************************************************************************************

RHOB

Washington, D.C. 20515

Dear Congressperson ______:

The politicians must quit digging. “When you are in a hole, quit digging.” Now is the time to reflect and think clearly about this “Economic 9/11” that has been foisted on the Republic by Wall Street with the involvement of far too many equally greedy American citizens.

The bailout bill is a travesty that will create more intermediate-term problems without solving any current ones. The only way to fund the bailout will be to print money or borrow it from the Chinese and other countries. Either source of funds is fraught with even worse economic consequences in the next six months.

If ma and pa store owner in [local towns] cannot get credit, then establish a program to allow direct short-term emergency loans from the government, perhaps the SBA, to meet their credit needs. If someone cannot get a loan to purchase a vehicle, establish a program to provide a loan and take a security interest in the vehicle. The New York banks have all the money in the world and still refuse to loan it. Why reward that behavior by giving them more money? Why push on a string?

The Senate is often described as the more deliberative body. It is a wholly-owned subsidiary of the banking industry, lock, stock and sinker.

Bernanke showed tremendous promise, but he has failed. Paulson is part of the problem and should not be vested with the powers of a czar/dictator/central planner so that he can benefit his friends and former colleagues.

The economic and business press is behind this bill in part because, with a few notable exceptions, they have so miserably misunderstood and misrepresented the problem for years.

This is a time for courage. Vote against this version and make a public statement that the “leadership” must make another effort to provide a sound bill or the negative economic consequences will be their responsibility. Let the House shine.

Regards,

________________________

Bumper sticker of the week:

Otter: “I think this situation absolutely requires a really futile and stupid gesture be done on somebody’s part.”

Bluto: “We’re just the guys to do it.”

“Animal House” movie (1978).

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Hiatus (June 1, 2008)

Posted in Bush, Depression, Economics, Global Climate Change on June 1, 2008 by e-commentary.org

The “Bush Depression” is inevitable. World War III proceeds apace. We are behind the power curve addressing climate change. Nothing helps; nothing works. Time for a break. [See the e-ssay dated May 11, 2005 entitled “The Coming Depression Is Not Depressing.”]

Bumper sticker of the Summer:

Insanity is doing the same thing over and over again and expecting different results. Al Einstein

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$4 in June, $5 in July, . . . . (May 26, 2008)

Posted in Economics, Taxation on May 26, 2008 by e-commentary.org

$4 a gallon in June, $5 in July, $6 in August . . . . or October? Speculators and hoarders may be distorting the market somewhat. The real problem, of course, is one of supply and demand, too little of the former and too much of the latter. Our global addiction is growing along with the number of new addicts. Citizens of the world are voting daily in the world’s global voting booths – the maternity wards of the planet. Those little mouths will consume their daily supply of unrefined bread and refined oil. They say that if the rest of the world consumes like a typical American (which they are and will), we will need to colonize three more planets. However, the last census concluded that there is only one planet. For over a third of a century, since at least 1973, the world has been on notice that oil is finite. Little has been done to reduce the luster of and lust for oil. Seems like the time to act?

Bumper stickers of the week:

Pass the Terrorist Tax

Check those tires

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