September, Thursday 29, 2011

DOW + 143 = 11,153
SPX + 9 = 1,160
NAS – 10 = 2,480
10 YR YLD 1.95%
OIL +.84 = 82.98
DEC GOLD - .80 = 1,617.30
DEC SILVER + .38 = 30.52


Once again, Wall Street started the day with optimism and enthusiasm; the Dow Industrials jumped up about 260 points. Then the index slipped into negative territory. Then rallied into the close.

The German parliament approved a revamped euro bailout fund. Under the plan, the EFSF will be enlarged to €440bn. The actual price tag will be much higher. It will also be given the ability to give "precautionary loans" to struggling European countries, buy EU government debt, and provide funding to shore up the capital reserves of European banks – you know the same banks that were 100% capitalized last week.

Seven more euro countries still need to vote on the bailout, and the voting won’t finish until the end of October. For things to improve, a whole host of things need to go right but even a single mis-step could worsen the crisis even more.  A new Bloomberg survey shows 93% of investors think Greece will eventually default.

It is widely accepted that the EFSF will be inadequate and will require radical enhancement virtually as soon as it's approved.

Last weekend US treasury secretary Tim Geithner was demanding a huge increase in the EFSF's €440bn firepower.

So, very soon, we’ll start to  hear about expanding the guarantees or insurance the EFSF will offer for creditor countries and even talking about an EMF [a European version of the International Monetary Fund]

Everybody in German politics knows the current mechanisms are worse than useless if, say, Spain or Italy goes down the path towards default...

Italy held a bond auction this morning; they sold about 7 billion euro in 10 year bonds. The yield, or interest rate, hit 5.86%, up from 5.22%. That is the highest rate for Italian 10-year bonds since the euro was introduced.

But the Crisis has been contained – at least for today. The euro moved higher against the dollar.

The Labor Department reports first-time weekly unemployment filings dropped below 400,000 for the first time since August, falling by 37,000 to a seasonally adjusted 391,000. That’s nice, but one week does not make a trend. Next Friday, we’ll get the monthly jobs report for September, and it will like show the labor market remained sluggish.

Federal Reserve chairman Ben Bernanke delivered a speech last night in Ohio at a forum sponsored by the Clevelnad Fed; it was the first time Bernanke has talked publicly since the FOMC meeting and the launch of Operation Twist. Bernanke stated with unusual bluntness that Operation Twist has no chance of helping revive the economy and he admitted the Fed has ‘Run out of bullets”

……..

No, not really. I just wanted to make sure you’re still paying attention. But seriously, The US is running a deficit equal to 10% of GDP. The US’s debt to GDP level is north of 100%. And the 30-Year Treasury is at an all-time high. How much higher can Bernanke push long-bond prices?

Bernanke did say that long-term unemployment is an American “national crisis” and suggested that Congress should take further action to combat it. Bernanke noted that about 45 percent of the unemployed have been out of work for at least six months.

“This is unheard of,” he said in a question-and-answer session after a speech in Cleveland. “This has never happened in the post-war period in the United States. They are losing the skills they had, they are losing their connections, their attachment to the labor force.” He added: “The unemployment situation we have, the job situation, is really a national crisis.”

Bernanke says the government needs to provide support to help the long-term unemployed retrain for jobs and find work. And he suggested that Congress should take more responsibility.

Bernanke gave a hint that the economy might need more … umm…. What do we call it? Juice, another jolt, a shot in the arm, monetary encouragement, a boost, a bang. Of course we can’t call it QE3 or stimulus, but Helicopter Ben seemed to indicate he’s not afraid to crank up the printing press, saying: "If inflation falls too low or inflation expectations fall too low, that would be something we have to respond to because we do not want deflation." 

He also said lawmakers should provide more help to the battered housing industry.  Bernanke said, "Some strong housing policies to help the housing market recovery would clearly be very useful and would allow the monetary policy actions of the Fed ... to have more effect and to help the economy recovery more strongly,"

Bernanke finished his speech by saying: “Really, we’re completely out of bullets.”

Gross domestic product, the broadest measure of the nation's economy, grew at a 1.3% rate in the three months ending in June. That's an improvement from the 1.0% growth rate in the previous estimate from a month ago. The Commerce Department makes a few guesses on GDP and then issues their final guess – that’s the 1.3% number issued today. Much of the improvement was due to a higher estimate on what consumers spent during the quarter. Still, it’s not considered to be strong enough growth to change the unemployment problem, and not enough to avoid another downturn in the economy.

Economists at Citigroup have again cut their global gross domestic product forecasts for 2011 and 2012 - saying growth prospects "continue to deteriorate quickly." At a global level, the bank's Citi Investment Research & Analysis unit now predicts growth will slow to 3 percent this year and 2.9 percent in 2012. Two percent global growth is seen by the International Monetary Fund and World Bank as the classification for global recession. Citi downgraded its outlook for the United States, Europe, Japan, Canada and the UK individually. Further, Citi researchers expect more sovereign ratings downgrades among Euro Area countries in the next 3-6 months, including Italy, Spain, Greece, Portugal and Cyprus.

Analysts at Goldman Sachs are warning of the risk of a "great stagnation".  The goldman report says:  “During these episodes, GDP per capita growth hovers below 1 percent and is less volatile than usual. They are also characterized by low inflation, rising and sticky unemployment, stagnant home prices, and lower stock returns. Stagnations are more likely than you would like. Because these events are correlated with financial crises, the conditional probability of stagnation in the current environment is higher than normal," and: “Trends in Europe and the US are so far still following growth paths typical of stagnations.”

The Goldman report predicts a 40 percent chance of stagnation in the world's developed markets. In order to avoid such an outcome requires governmental policy that restores confidence and growth.

“Whether these countries manage to avoid a ‘Great Stagnation’ by a pick-up in the recovery is likely to depend on policy being able to restore confidence and putting in place reforms that can decisively jolt growth,” Humm, what’s another word to describe a jolt to the economy,,…. Hummm, juice the economy, a shot in the arm,  - dare we say – stimulus?

Yeah, that’s it, stimulus. What’s another word for stimulus – FREE MONEY! Yep, that’s the answer. If you want to avoid the “GREAT STAGNATION” the government needs to crank up the printing press and hand out free money to Goldman Sachs.

I used to think this macro-economic analysis was difficult and complex, but it’s really pretty simple – Crank up the printing press and pass out FREE MONEY to the banks.

A couple of years ago I wrote a book called Eat the Bankers. I tried to analyze the root cause of the economic crisis. I concluded that the big problem was usury. For those of you not familiar with that term, usury is just a slightly archaic way to refer to debt. And the problem with debt is that it grows exponentially. And if you’re not careful, very, very careful, then you can get buried in debt, whether an individual or a nation. The book premises that removing restrictions against usury led to the economic crisis and wasted a great economy by shifting investment capital away from productive purposes; usury stunted economic development and perpetuates poverty. The result has been the greatest redistribution of wealth in history. Usury enslaves the borrower and oppresses the poor. Today’s corporate nobility is no different than the monarchs, oligarchs, and tyrants of old; the difference is that enslavement is now accomplished with economic tools and usury is the blunt axe that chops away at our incomes, our savings, the economy, and our freedom. You can’t create fiat money without usury and I believe that limiting usury is the key to honest money and a stable and prosperous economy. The book is available at Amazon.com. I hope you read it.

Anyway, I have also done some public speaking. This past spring I was a speaker at the Wealth Protection Conference in Tempe, and I talked about longer term trends. Trends I expected might play out over the next year or two.

I included two trends that probably left some people scratching their heads. On was what I called New Journalism, and the other Trend was what I called CyberWars.

Regarding New Journalism, I said: New methods of news and information distribution will render the 20^th century model of journalism obsolete. The new journalism reaches across borders and language barriers. Almost anybody can distribute that information.  We don’t need media moguls. We don’t need expensive studios and makeup artists. What we need is truth.

Now, I think that is a fairly bold statement because how can we have a revolution if it isn’t televised? But if you look at the revolutions that led to the Arab Spring – at least part of that can be attributed to Wikileaks information that came out dealing with the corruption in several of those countries. There has been a great deal of criticism of Wikileaks, but I have not yet heard that any of the information posted on Wikileaks is inaccurate.

The reason I consider this a major trend is that when people start to question the arbiters of everything to fulfill their promises, the people will do more than just question authority, they will begin to defy authority.

Now, do you remember when Wikileaks founder Julian Assange was arrested and threatened with extradition to Sweden over alleged sex crimes?

Assange’s sympathizers launched Operation Payback, and in December, they shut down the main websites of Visa, Mastercard, Amazon.com, PayPal, and the Swedish government. A 16 year old Dutch Boy was arrested. Seriously, I’m not making this up.

When the revolution in Egypt erupted, one of the revolutionary heroes was a young guy who worked for Facebook. One of the first things Mubarak did was to shut down the internet in Egypt. Before the revolution was televised, it was blogged, YouTubed, and Twittered.

One of the off-shoots of that cyber-attack was a  couple of groups that came to be known as LulzSec and Anonymous. Last week, the FBI arrested two alleged members of the hacking collectives LulzSec and Anonymous on Thursday morning in San Francisco and Phoenix and secured charges against a third suspect from Ohio. Back in July, the FBI arrested 16 people in the US and Great Britain.

The two groups are believed responsible for hacking a whole bunch of websites, including: Sony, AT&T, Fox, PBS,  the US Senate, the Arizona Department of Public Safety, and many, many many more websites and even ATM machines and databases and even the CIA’s website. They don’t appear to do it for the money.

If you think the recent arrests closed down LulzSec and Anonymous – think again. Let’s talk about Occupy Wall Street.

Clip.

Who is behind Occupy Wall Street? Well, it might have started with Anonymous but it soon got picked up and passed around, via facebook and twitter and next thing you knew there were a few thousand people camping out in Liberty Square in lower Manhattan.

So far, the Occupy Wall Street protests haven’t received much Main Stream Media coverage. I’ve seen a lot of protest over the past 10 years that haven’t received much main stream media coverage.

There was the Showdown in Chicago, which drew about 5-thousand protestors to the doorsteps of the American Banking Association’s meeting. Turned out to be a complete non-event. The revolution was not televised. There have been hundreds of other protests all across the country, sometimes these protests have drawn thousands of people – but almost no television coverage. But the Occupy Wall Street demonstration is now in its 13^th day; and it is getting bigger; and it doesn’t look like it is going away.

 It's unsurprising that establishment media outlets have been dismissive and even scornful of the ongoing protests on Wall Street.  Any entity that declares itself an adversary of prevailing institutional power is going to be viewed with hostility by establishment-serving institutions and their loyalists.  That's just the nature of protests that take place outside approved channels, an inevitable by-product of disruptive dissent: those who are most vested in safeguarding and legitimizing establishment prerogatives (which, by definition, includes establishment media outlets) are going to be hostile to those challenges.

The funny thing is that the disdain for the protesters has come both the right and the left. And another funny thing is that the actual protesters seem to come from both the right and the left. There are Obama supporters for sure but there are also Obama detractors – Don’t forget that Wall Street’s favorite candidate in 2008 was Obama. And don’t forget the President loaded up his administration with a Wall Street White House Chief of Staff and a Wall Street Puppet in the Treasury, and a whole raft of former Godlman Sachs officials. Many of the protesters were eager troops for Obama. And they've moved on. Way on. The talk on the ground is not about elections anymore. It's about transforming society.The Occupy Wall Street crowd also includes Ron Paul supporters.

About the only group not protesting on Wall Street are Mitt Romney supporters

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Yea, that isn’t finding a lot of support among the protestors.

It's becoming clearer that the choice of New York City, as opposed to say, Washington DC, for the launch of this effort, was genius. For what it says is, of course, that this movement is not about the US government. The real enemy is the Financial-Bankster complex.

Despite attempts to portray the protesters as wacky nut jobs, they really aren’t. They don’t have an official position. They haven’t written a treatise. They don’t have a 5 Point Plan.

Very few protest movements enjoy perfect clarity about tactics or command widespread support when they begin; they're designed to spark conversation, raise awareness, attract others to the cause, and build those structural planks as they grow and develop.  

There's a vast and growing apparatus of intimidation designed to deter and control citizen protests.  The most that's allowed is to assemble with the permission of state authorities and remain roped off in sequestered, out-of-the-way areas: the Orwellian-named free-speech zones.

And this is exactly where the Occupy Wall Street Protest managed to gain traction. After about ten-days of generally uneventful protests that threatened to disappear out of pure boredom, the cops corralled a handful of young women behind a mesh screen. The women were guilty of being in the wrong place. They certainly weren’t acting in a violent or threatening manner – and then a cop sprayed them with pepper spray – for no apparent reason. The young women screamed in pain. And the screaming was broadcast – not on NBC or CBS or ABC, but it was broadcast on YouTube. – the revolution was televised.

And just like that these wacky protesters earned a little respect. Why the hell were the police hauling them off to jail anyway? They were just standing around. They weren’t violent. It was a stark contrast to the people looking on from the buildings on Wall Street. The people who caused the near collapse of the Global Finacial system three years ago. Not a single one of them has been arrested.  The harsher the police response, the bigger the crowds, the more curiosity is raised. Violence and force are the path to failure.

The big "grownup" media sticking point is that the protesters don’t have a real message (as in, "But What Do They Want? There's No Unified Message!").

Does anyone really not know what the basic message is of this protest: that Wall Street is oozing corruption and criminality and its unrestrained political power -- in the form of crony capitalism and ownership of political institutions -- is destroying financial security for everyone else?

What would be called bribery in a third world dictatorship is called campaign finance and lobbying in the US and it is a big business. Lobbyists set up shop right down the street from Congress and spend billions of dollars annually to manipulate legislation, regulations, and judicial decisions. And when lobbying efforts are not enough, the private sector actually takes over positions of power in government. There is a revolving door between government jobs and private sector jobs. A former federal employee can find lucrative employment as a lobbyist, a consultant, or strategist – provided they were cooperative with the private sector when they were in the government’s employ.

XXX

The list of public officials with past or future ties to big business reads like a government phone book, almost every name is included: Don Regan (Merrill Lynch), Nicolas Brady (Dillon Read), Robert Rubin (Goldman, Citigroup), Henry Paulson (Goldman), Alan Greenspan (Pimco), Dick Cheney (Halliburton), Phil Gramm (UBS). Senator Chris Dodd accepted preferential mortgages loans from Countrywide, part of the “Friends of Angelo” program that Countrywide offered to politicians, celebrities, and newsmakers. The guy from Citigroup can talk to the guy from Goldman and the guy from Hartford Insurance and the other guy from Merrill – and they never have to step out of the Treasury building. And while it might not make sense to appoint Joe the plumber as Treasury Secretary, it doesn’t make sense to expect altruistic public service from people who face the temptations of big payoffs. It is equally ludicrous to think politicians are ignorant of the holdings in their “blind trusts”. They might be doing the peoples’ business or they might be doing their own business. Even the most high minded allow unique access to business buddies. The truth is that Fed Chairman Bernanke and Treasury Secretary Geithner speak to Wall Street bankers on a daily basis. When a problem occurs they talk to the bankers. When the bankers want something, they talk to the Secretary and the Chairman. Normal citizens do not have this kind of access. Elected Senators and Representatives do not have this kind of access.

XXX

The result is Corporatist capitalism. And in this case, the elite financial interests that created the crisis now control how the mess will be addressed, either because they are now in government positions of power or because they have purchased influence. While tighter regulation, greater transparency, stricter accounting, and indictments might seem like reasonable responses for the near destruction of the economy, that has not been the case; instead the response has been to shower the perpetrators with cash, big bonuses, little or no increase in regulation, looser accounting standards, lucrative trading opportunities, and greater political influence. Politicians know that if they stand up to the banking and corporate special interests, then the traders on Wall Street can punish them in one day by driving prices down, and issuing a press release that says the politicians have hurt peoples’ 401K and IRA.  The citizens get scared and Wall Street wins. 

Once the financial elites influence had smothered government, it spread to media and the culture as a whole. The mantra was “greed is good” and “what’s good for Wall Street is good for America”; both lines are lies. What’s good for Wall Street is only good for Wall Street. The stock market is not the economy, even though bloated bankers see themselves at the center of, and masters of the universe. The red and green digital tickers do not reflect the real economy but a grotesque distortion.  When the wealth of America is centralized in the pockets of the financial elite on Wall Street, that’s where the money stays; it does not trickle back to Portland or Pascagoula.  The notion that greed is good is just obscene and has been unacceptable for thousands of years.

A government falling under the control of financial elites is not a wild conspiracy theory; it is nothing new. It happened in ancient Venice and 17^th century England; it was a major factor in the American Revolution; it is commonplace in third world countries; and it has been a constant challenge for the United States. President Andrew Jackson was correct when he cast shame on the bankers for what they had done, but he had the courage to stand up to them so that no shame would be cast on him for the further damage they would have wrecked.  He certainly did not give them bonuses.

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“Less than 24 hours after his swearing-in ceremony, U.S. Treasury Secretary Timothy F. Geithner surprised Camden R. Fine with an invitation to a one-on-one meeting about the financial crisis. “I about fell out of my chair," said Fine, president of the Independent Community Bankers of America, a Washington-based trade group with about 5,000 members. He was in a corner office overlooking the White House at the Treasury Department the next morning, telling Geithner that behemoths such as Citigroup Inc. and Bank of America Corp. were a menace, he said. "They should be broken up and sold off," Fine, 58, said he declared, as Geithner scribbled notes before thanking him for his time and ushering him out into the January chill. The Treasury secretary didn't follow through on Fine's suggestion, just as he didn't act on the advice of former Federal Reserve Chairman Paul A. Volcker, or Federal Deposit Insurance Corp. head Sheila C. Bair, or the dozens of economists and politicians who pressed the White House for measures that would limit the size or activities of U.S. banks. One year after the demise of Lehman Brothers Holdings Inc. paralyzed the financial system, "mega-banks," as Fine's group calls them, are as interconnected and inscrutable as ever. The Obama administration's plan for a regulatory overhaul wouldn't force them to shrink or simplify their structure." – Bloomberg

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We have a new phenomenon – mega-banks that are “Too big to fail”. The concern is moral hazard. The idea is simple. If you are continually willing to protect people from the consequences of their own errors, your benevolence will be factored into the future decisions of the persons rescued. The protected party becomes averse to risk and they engage in riskier and riskier behavior. In the long run, they will make even more errors. The principle exists at all levels. The teacher who changes grades when students plead hardship isn't helping in the long run. The teacher is rewarding and thereby encouraging poor study habits. He is creating moral hazard. The central banker who bails out banks whose incompetence has resulted in massive losses isn’t helping in the long run. The central banker is rewarding the banks for gambling, thereby creating a moral hazard. 

For centuries some banks have made big profits and some banks have failed. When a bank fails, it goes out of business and some clever scoundrel eventually comes along and opens a new bank. But in the recent drama, the government decided that certain banks were simply too big to fail; if they were to fail, they would drag everyone’s deposits and pension plans and the entire financial system into an abyss. The bankers had become domestic enemies, more dangerous than terrorists. This should have been clear evidence that the banks had misused depositors’ money. Indictments should have been forthcoming. Instead, the government surrendered to the banks’ demands.

The great Republic that had withstood the loss of Presidents to assassins’ bullets, which had held strong even with the loss of millions of brave heroes on battlefields, suddenly found that the one indispensible element to the survival of the nation was the banks. The coup was accomplished. The government was no longer of the people, by the people, for the people; now it was government of the bankers, by the bankers, for the bankers. The bankers had gambled and failed, and they looted the Treasury, and continued gambling. For years the bankers had peddled influence, written legislation, were allowed to mint money (or at least create it out of thin air with fractional reserve banking), and generally exempt themselves from regulation. As the politicians opened the Treasury vaults to be looted by the bankers it became clear, or at least there was a vague uneasiness, that our democratic republic had been taken over.

The Republicans blamed the Democrats; the Democrats blamed the Republicans; and behind the smoke and mirrors of name calling and incivility we lost sight that the bickering only served to divide the country and hide the fact that the guilty party was the usurers. The nastiness covered the fact that our democratic republic was no longer represented by a two party system; we had morphed into a three party system: on the far right was a handful of Conservatives, on the far left was a handful of Progressives, and the big majority is full of Corporatists – politicians that had sold out to corporations, politicians that hoped to sell out to corporations, politicians that had swallowed the Blue Pill and accepted the propaganda that corporations were benign benefactors and not cruel oligarchs.

The Democratic Party and the Republican Party have morphed into one party – the Corporatists. They are a confederacy of dunces controlled by money that pours in from corporations. Money is necessary to be re-elected and the politicians don’t dare do anything that would upset the corporations and result in the money spigot being turned off.  The Democratic Corporatists are flooded with money from the same sources that flood the Republican Corporatists. The money isn’t given to the politicians to support a Democratic/Progressive agenda or a Republican/Conservative agenda; the money is given to support a Corporatist agenda; the agenda is simple – more money for the Corporatists; pump up the quarterly balance sheets, collect the bonus and get out of Dodge before the dust settles.   The vast majority of politicians are Corporatists and they serve the narrow interests of a narrow set of economic interests. These narrow interests influence the outcomes of elections; they write legislation; they make sure neither side gets too uppity.