Wednesday, October 09, 2013 - Scum in the Steam Room

Scum in the Steam Room

by Sinclair Noe

DOW + 26 = 14,802
SPX + 0.95 = 1656
NAS – 17 = 3677
10 YR YLD + .01 = 2.65%
OIL – 2.03 = 101.46
GOLD – 11.90 = 1308.00
SILV - .40 = 21.99

We'll get to Janet Yellen in a bit. First, I'm getting sick and tired of this stupidity oozing out of Washington; you are too, I know. Americans’ confidence in the economy has deteriorated more in the past week during the partial government shutdown than in any week since Lehman Brothers collapsed on Sept. 15, 2008, which triggered a global economic crisis. Gallup’s Economic Confidence Index tumbled 12 points to -34 last week, the second-largest weekly decline since Gallup began tracking economic confidence daily in January 2008. And that poll was taken at the end of last week. Since then, we've hit a new low.

The government is still shut down. I don't know why. John McCain delivered a speech on the Senate floor; he said: “To think that we were going to repeal Obamacare, which would have required 67 Republican votes, of course, was a false premise.” So, I really don't know why we are still having a shutdown. He then went on to recognize the five families of US soldiers killed last weekend in Afghanistan; 21 soldiers have died since the shutdown started.

When a soldier is killed in battle, the family receives about $100,000 in death benefits. A month ago, the Pentagon warned the politicians on Capitol Hill that this would happen. The politicians did nothing. Pentagon officials said the shutdown restrictions have also halted reimbursements for families traveling to Dover Air Force Base in Delaware to witness the return of fallen troops, paying for memorial services and burial expenses, and traveling to visit wounded troops. Today, the politicians scrambled to pass a bill reinstating the death benefit for families of the soldiers. Too late. Too damn late.

If you think the US is looking at a possible default on October 17, think again. The default happened yesterday. When the United States fails to pay the family of a fallen soldier to come and take that hero's body; when the government fails to pay for that soldier's burial we have defaulted. Forget about bond holders, forget about the markets. The first and most basic requirement of this government is to keep our promise to those who make the ultimate sacrifice of blood and life for their country. We have failed.

Senator McCain said: "I'm ashamed. I'm embarrassed. All of us should be." Yep, but that doesn't begin to tell the story of the abysmal failure we just witnessed. The House of Representatives has determined that it is essential to pay money to keep the House gym open; the gymnasium is essential. The politicians have to have their swimming pool, basketball courts, sauna, and steam room, or as Representative Don Young from Alaska said: “This job is stressful...” and he needs a place to vent.

They are scum, pure and simple – scum! (As I write this I am saying far, far worse but you don't need to read my cursing. You are probably cursing on your own and I hope you find some relief.)

No veterans, no America. You forgot didn't you. Patriots blood is not spilled to keep the House gym open. Here's the deal; we made a promise that if a soldier dies in battle, we will not leave him or her behind. Never. We will make certain they are returned home. We will take care of the family.

We have defaulted, not a fiscal default but a moral default. Disgusting, embarrassing, and inexcusable.

Everything else is the meaningless stupidity of the politicians. The debt ceiling is getting closer and closer. For now, the politicians are slow walking to the edge of default. They're acting like it's safe to stand on the edge and look over; some even claim that if we went over the edge, gravity might not kick in. That's dangerously stupid. Some people think that if the debt ceiling is not raised it would not result in default. It will; the Treasury has said that it does not have the authority to pay the nation's debts.

There are options. The president could still enlist the aid of the Ben Bernanke to monetize debt under the “unusual and exigent circumstances” authority of the Fed. Undoubtedly that would lead to threats of impeachment and the options for monetizing the debt would probably not kick in until the default turned into an emergency. The president could ignore the debt ceiling and order the Treasury to pay the debt. He could rely on Section 4 of the 14th Amendment to the Constitution, which says the “validity of the public debt of the United States, authorized by law … shall not be questioned.” The debt itself is clearly “authorized by law” because it’s the direct result of laws authorizing the US to spend and to tax. The showdown over the debt ceiling is over payment of the debt, not the legality of the debt itself. Arguably, what the Constitution requires trumps any law governing the debt-ceiling.

So, the stupid, scum politicians are slow walking up to the edge of fiscal default. What could go wrong?

For the answer, to that question we look to Japan, where it is reported a worker at the Fukushima nuclear plant accidentally pushed a button turning off power to the four badly damaged reactors yesterday. Japan's Nuclear Regulation Authority said that a worker carrying out inspections had turned off pumps injecting cooling water into the unstable reactors.

The plant operator, Tokyo Electric Power Co, or Tepco, pours hundreds of tons of water a day over the reactors to keep them cool after a devastating earthquake and tsunami in March 2011 triggered meltdowns and explosions. Despite the employee's blunder, officials say a backup system kicked in immediately. It is just the latest in a string of worrying mishaps which reveal just how vulnerable the power plant still is, two years on from the disaster. Earlier this year, Tepco lost power to cool spent uranium fuel rods at the plant after a rat tripped an electrical wire. And just last week the company also found that hundreds of gallons of highly radioactive water had leaked from one of the hastily built storage tanks.

The tank lacked a gauge designed to warn people when it is dangerously full, meaning workers overfilled it. TEPCO said the water spilled out of a concrete barrier surrounding the tank and believed that most of it reached the sea via a ditch next to the river. A further 300 tons of contaminated water leaked into the ocean back in August, which is on top of the 300 tons of groundwater which the company admitted could be seeping into the ocean per day. But don't worry, because nuclear is safe and clean. Or as Tepco says, “everything is under control.”

Next on the list: Janet Yellen. 

President Obama has nominated Federal Reserve Vice Chair Janet Yellen to replace Ben Bernanke as head of the Fed starting next year. Obama praised current Fed chairman Ben Bernanke for leading the US through “some of the most daunting circumstances of as lifetime. He has truly been a stabilizing force –not only for our country, but for the entire world,” Obama said.

Obama described Yellen’s nomination as “one of the most important economic decisions that I’ll make as president.” He said Yellen was one of the world’s leading economists and had a proven track record at the Fed, where she is currently vice-chair. She actually does have a good record for her economic forecasting. A study of 700 economic predictions made by 14 Fed policymakers from 2009 to 2012 found Yellen was the most accurate forecaster overall. She also scored in the top four for her forecasts on inflation, labor, and growth. Yellen  sounded the alarm bell early about the housing market bubble and excesses in the financial markets before the recession.

She was the head of the Council of Economic Advisors for 2 years during the Clinton administration, but she does not seem to be a political insider. She has taught at Harvard, the London School of Economics, and UC-Berkley. She is married to Nobel Prize winning economist George Akerloff. She would be the first woman to head the Fed, but not the first woman to head a central bank. She is expected to support monetary stimulus. In other words, if Yellen heads the Fed, there would be no rush to taper; although most of the FOMC is leaning toward taper. Still to be determined is whether Yellen will be a tough regulator.

Today, the Fed released minutes of the last FOMC meeting. The Fed surprised economists last month when it decided to continue its stimulus at current levels. Bernanke had previously signalled that the Fed could start “tapering” the size of the bond-buying scheme by the end of the year.

But the Fed’s members were concerned about the economy, with a row over the debt ceiling and the federal budget on the horizon. “Questions were raised about the effects on the housing sector, and on the broader economy of the tightening in financial conditions in recent months, as well as about the considerable risks surrounding fiscal policy,” according to the minutes.

“The announcement of a reduction in asset purchases at this meeting might trigger an additional, unwarranted tightening of financial conditions, perhaps because markets would read such an announcement as signalling the committee’s willingness, notwithstanding mixed recent data, to take an initial step toward exit from its highly accommodative policy,” the minutes said.

As a result, “ a number of participants” thought a cautious approach was needed and “it would be prudent to await further evidence of progress before reducing the pace of asset purchases.”

The decision to keep buying at the same rate “was a relatively close call”.