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Guest Post: EXTEND & PRETEND: Stage I Comes to an End! The Dog Ate my Report Card

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Submitted by Gordon T. Long of Tipping Points

EXTEND & PRETEND: Stage I Comes to an End! The Dog Ate my Report Card

Both came to an end at the same time: the administration’s policy to Extend & Pretend has run out of time as has the patience of the US electorate with the government’s Keynesian economic policy responses. Desperate last gasp attempts are to be fully expected, but any chance of success is rapidly diminishing.

Whether an unimpressed and insufficiently loyal army general, a fleeing cabinet budget chief or G20 peers going the austerity route, all are non-confidence votes for the Obama administration’s present policies. A day after the courts slapped down President Obama’s six month gulf drilling moratorium, the markets were unpatriotically signaling a classic head and shoulders topping pattern. With an employment rebound still a non-starter, President Obama as expected was found to be asking for yet another $50B in unemployment extensions and state budget assistance to avoid teacher layoffs. However, the gig is up: the policy of Extend and Pretend has no time left on the shot clock nor for another round of unemployment benefit extensions. A congress that is now clearly frightened of what it sees looming in the fall midterm elections is running for cover on any further spending initiatives. The US electorate has been sending an unmistakable message in all elections nationwide.

The housing market is rolling over as fully expected and predicted by almost everyone except the White House and its lap-dog press corp. Noted analyst Meredith Whitney says a double dip in housing is a ‘no brainer’ with the government’s HAMP program clearly a bust as one third of participants are now dropping out. The leading economic indicator (ECRI) has abruptly turned lower, signaling the economy is slowing rapidly without the $1T per month stimulus addiction, which has kept the extend and pretend economy on life support.

The gulf oil spill that was initially stated as 1000 barrels per day has been revised upwards faster than the oil can reach the surface. It now appears to be north of 100,000 barrels per day. A 100 percent miss is about in line with the miss on how many jobs the American Recovery and Reinvestment Act of 2009 (ARRA) was going to create.  Also, it appears the administration can’t even get its hands around the basics of administration management during any crisis event.  Teleprompter politics doesn’t work when real problems must be resolved. There is no credibility left for Extend & Pretend nor for this president and his congressional majority.

In foreign policy the Chinese decided to ‘unpeg’ the Yuan from the US dollar, days prior to the G20 summit in Toronto, taking the wind out of the US administration’s attack plan. Congress had been expectantly raising the rhetoric levels and making the Chinese Yuan the culprit.  The market sold off hard the day the Chinese made the announcement, which tells you all you need to know about this administration’s understanding and abilities to formulate effective foreign and domestic public policy.

White House policies are unmistakably in shambles. We are rudderless with terribly outdated Keynesian zealots at the helm as the storm continues to worsen.  Stage I of Extend & Pretend is over – RIP!

REPORT CARD: AMERICAN RECOVERY & REINVESTMENT ACT OF 2009 (ARRA)

 

Before we can identify what needs to be done, what the administration is likely to do and how we can preserve and protect our wealth through it, we need to first determine where we are going wrong. Surprisingly, no one has assessed the results of the American Recovery & Reinvestment Act 2009 (ARRA) which was this administration’s cornerstone program to place the US back on the post financial crisis road to recovery. Let’s briefly review it.

EMPLOYMENT

The chart above was one of the central charts used in persuading the public that the ARRA was absolutely necessary. This chart assisted in convincing the public that something they would previously have never accepted was the required course of action. I tried to find this chart on the ARRA’s touted Recovery.gov web site and found that it has disappeared, including the links to the original discussion papers. Is it any wonder? It was like a school child telling his parents the dog ate his report card. Fortunately, I had a copy in my database.

It isn’t just the failure to achieve the zero line in the second chart above that should be frightening. The failure to achieve the required 150K to 200K level which adds the new entrants from college, immigration, military personnel returning to civilian work force etc. indicates we are still in seriously rough waters. The falling Civilian Employment rate below is the correct way to assess the ARRA’s results.

GRADE FOR EMPLOYMENT:  FAILURE  E-

ECRI

As analyst David Rosenberg at Gluskin-Scheff reports:

“the ECRI index moved closer to fully discounting a recession. The spot index fell 0.6% in the June 25th week to 122.2 – the lowest level since the week of July 29th of last year when the S&P 500 was 975, so please, do not tell us that 1,000+ is still somehow a “cheap” level. The growth rate in the ECRI index dropped further, to -7.7% from -6.9% on June 18th and -5.8% on June 11th – this was the eighth week in a row of deterioration. It may end up being different this time, but never before has a -7.7% print sent off a “head fake”. In fact, the only two false signals occurred at levels that were not as negative as what we have on our hands today: the -4.5% print in 1998 after the LTCM debacle and -6.8% in the aftermath of the crash of ’87.”

GRADE FOR ECONOMIC REBOUND:  MARGINAL  D+

We can safely conclude either:

  1. The administration completely under estimated the extent of the economic crisis, even though we were well into it when the ARRA was introduced.
  2. The administration was unable to secure the actually required stimulus amount which was likely 4-5 times that approved.
  3. The administration failed to implement the program in a timely manner.
  4. The administration failed to diagnose the problem correctly and that in fact it is a structural problem versus a cyclical and liquidity problem, as they still insist it to be.

I personally believe it is all four of the above.

 

PUBLIC POLICY CHOICES

The recent G20 meeting in Toronto may very well have been a historical cusp. For the first time at a major summit the leaders refused en mass to follow US leadership. G20 leaders chose ‘austerity’, while the US firmly advocated ‘stimulus spending’.

The politically crafted joint release outlined ‘austerity, once the recovery was in place’. How this will be determined  is conspicuously missing, and to me it says no agreement was reached.

Ironically,  political pressures from a disgruntled electorate in the US indicates further stimulus spending is not likely to fly, while in Europe the austerity cuts are threatening the very fabric of the European social net which the public has begun rioting against.  We have both conflicting approaches between G20 camps while in turn they have conflicts with their own electorate base.  Maybe we should give Obama to the Europeans and we take Cameron or Merkel?

This is absolutely not the time for a failure to reach a fully agreed to and globally coordinated policy initiative that will arrest the current financial malaise. The lack of a clear understanding of what will work, what needs to be done and how it is to be done with an agreement amongst country leaders does not bode well for a successful outcome.

We must conclude that the first post-globalization crisis has been met with a resounding failure of coordination. Similarly, this was also the earmark of the political wrangling during the early stages of the 1930’s Great Depression.

ELECTORATE WON’T ACCEPT MORE SPENDING – AUSTERITY “IS IN”

Keynesianism has failed! Somewhat unknowingly there is a sense growing that these are not cyclical problems but rather are in fact structural problems - a belief that the financial crisis was not an unexpected event but rather a product of deeper and serious underlying strategic problems. President Obama and his Economic team remain in a shrinking camp of zealots who believe that further stimulus spending is still required. There is an overwhelming shift towards austerity which was evident by the recent G20 summit with one lone exception – the US.

When the Bank of International Settlements  (BIS), ECB President Jean Claude Trichet  and even former Democratic cabinet faithful Robert Reich come out publically strongly advocating austerity, you know opinion has changed.  The last spike however had to have been when Mr. Bubbles himself, former Fed Chairman Alan Greenspan, wrote in a June 18th  Wall Street Op-Ed piece.

 

“OUR ECONOMY CAN NOT AFFORD A MAJOR MISTAKE IN UNDERSTANDING THE CORROSIVE MOMENTUM OF THIS FISCAL CRISIS. OUR POLICY FOCUS THEREFORE MUST ERR SIGNIFICANTLY ON THE SIDE OF RESTRAINT.

Alan Greenspan, former Chairman , Federal Reserve

Wall Street Journal 06-18-10

As the primary architect of stimulus and easy money to fight everything that even remotely smelled of a slow down or problem from the 1997 Asian Crisis, Y2K, the Tech Bubble through to 911 it is an amazing turnaround and of significance from Alan Greenspan to go so publically on the record. For former followers of ‘Green-Speak’ it is unusually crystal clear!

Even CNBC recently had troubles corralling the lone voice of sanity amongst its cadre of empty headed parrots when Rick Santelli in an off CNBC private interview on an Eric King interview was heard saying:

  • On Spending Cuts: "Listeners, this is going to be the most important thing I am going to say: we need to maintain the focus on spending, the politicians in my lifetime always spend. If we end up spending way more than we can take in, in essence the deficit panel becomes a tax panel. We must stop spending before we talk about VAT taxes or taxing Americans more, we need to get spending under control. The ratings of congress are the lowest they have been in history”.
  • On Austerity: "Nobody wants that. But there is a silver lining - the UK have conditions in their economy worse than the US, but they came up with an austerity plan, and we see that their currency has been rewarded. The GDP has risen about 10% in a very short period of time."
  • On Keynesianism: "The Keynesians are both right and wrong. I don't think Keynes advocated the kind of helicopter-Ben spending  that many say he promoted. He promoted the kind of stimulus that created jobs, that's more the medicine for a cyclical downturn, we have a structural issue because of the bubble credit scenario." ”

SO WHAT IS TO BE DONE?

Extend & Pretend was intended to give banks the time to restore their balance sheets versus the very politically unpopular choice of nationalization, which was debated during the height of the 2008 financial crisis. It was also intended to give time for the massive stimulus injections and the $13T of Lend, Spend and Bend (Guarantee) initiatives to ignite a rebound in the economy. It didn’t and the gig is now up!

 

The problem is actually pretty simple. We have more debt than productive growth can support. Debt has been losing its marginal productivity for years now and it no longer increases GDP. Rather, we abruptly reached debt saturation and now growth in debt reduces GDP. We have such levels of mal-investment and excess balance sheet gearing that increased debt now directly subtracts from productive money. Stimulus spending no longer will add sustained job growth.

PEOPLE WILL WANT SECURITY

The general public worries about two things: Having money to spend and having a job with which to earn the money. Everything else evolves or springs from having these first two. Politicians’ foremost job, if they are to get re-elected, is to deliver on this. Americans vote with their pocketbook.

They say that in a depression everyone is a Keynesian. That may be true until it is evident that it doesn’t work. Never have we had such debt levels from which to test this saying. What hasn’t changed is that when people are frightened they reach out to anyone that offers security or a sellable chance of restoring pre-crisis status quo stability - a person or administration that represents a chance to return things to the way they were. What was once unacceptable, even deplorable, is suddenly seen to be an option. The messenger of the solution is seen to be some sort of hero or messiah. This was precisely what led to the ascent of Adolf Hitler and many other now hated villains of history. They offered hope through new policy initiatives when none other did. They are now villains because their solutions turned out to be horribly wrong. Even if they were wrong headed ideas, if they were expedient they were latched onto by a desperate public. Are we fast approaching such a period over the next two years in America or are we already there?

EXAMPLES: 

A ‘GULF OF TONKIN’ & FALSE FLAGS

Powerful countries have a tendency to solve inevitable political conflicts and/or inabilities to persuade the electorate through the use of geo-political events. These events act as catalysts that force a direction to be taken and politically unpopular measures to be enacted.

There are many examples of this occurring, but one that is well documented with recorded first hand testimony and achieved a major political initiative is the Vietnam War era “Gulf of Tonkin” incident. President Lyndon Johnson staged and manipulated this ‘false flag’ event to secure the dramatic escalation of troops and funding of the Vietnam War against overwhelming public and political resistance. It gave the administration the cover to execute its predetermined agenda. The public was intentionally hoodwinked.

I fully expect something like this to occur within the next 90 days and prior to the fall midterm elections. Whether it is Iran, Korea, a BP triggered financial collapse, a cyber attack, or some other geo-political event – expect the fallout to move public opinion towards further ‘stimulus spending’.

The government must find an excuse to push another $5T (minimum) into the US economy.

I suspect the Federal Reserve and White House Administration are now convinced that without further massive stimulus, the US economy is headed into a deflationary depression.

We are presently at the cusp as shown in the chart below, which I have labeled as a “Critical Point” or more technically a “Chaotic Transient”. We can go either way. The determination is a function of the public policy initiatives which the administration chooses.

 

 

AUSTERITY & WAR

I would like to offer another illustration by SocGen's Dylan Grice in his latest weekly piece "Double dips, siren calls and inflationary bias of policy." It was recently published by Zero Hedge. I have inserted three charts and links to make the message clearer within today’s geo-political tensions.

Margaret Thatcher, who came to power oddly enough on a "mandate to smash inflation, smash the unions and downsize government", saw her popularity immediately slide to 25% as people realized the very real pain associated with austerity and a regime fighting run away government. On very rare occasions, the people of a country do end up making the decision to take on hardship, instead of kicking the can down the road. Yet they promptly grow to regret their decision. So what was it that saved the government, and allowed the Conservatives a second term in which to complete the painful austerity project?

The declaration of war by Argentina's General Galtieri over the Falkland Islands. The result was soaring popularity for the Iron Lady, and the rest is history.

Looking forward, now that all of Europe is gripped in austerity, (and make no mistake - this very same austerity is coming to the US on very short notice with crashing popularity ratings for all political parties), has the political G-8/20 elite focused a little too much on a Falkland war? Is war precisely the diversion that Europe and soon America hope to use in order to deflect anger from policies such as Schwarzenegger’s imposition of minimum wage salaries? Is there a Gallup or some other polling "unpopularity" threshold that the G-20 is waiting for before letting loose all those aircraft carriers recently parked [1] next to the Persian Gulf, the Israeli jets in Saudi Arabia [2] or the recent US troop buildup [3] on the Iran border? [4] (Italics is my addition: see the charts I have added for [X] locations. I have also added [5] for the highly symbolic July 4th weekend visit of Hillary Clinton to Georgia, Azerbaijan and Armenia)

 

MID EAST PROVACATION MAP

US MILITARY FORCES IN MIDDLE EAST (circa 2002-2003)
Troops have been removed from Saudi Arabia and there are bases in Iraq

Like the World Cup, if you can goad your opponent into reacting, you may be awarded the winning penalty shot.

Continuing from Mr. Grice:

The Thatcher experience shows how fragile support for painful economic policies can be even when the democratic mandate for those polices has been won. Like the Canadian and Scandinavian austerity experience in the 1990s, the painful programs adopted succeeded as much by luck as by political bravery. And this is what worries me. It's not that I'm ideologically wedded to one side or the other, it's that the precedents just aren't encouraging. The required austerity will be deeply painful and politically risky. Policymakers won't make it happen, so the bond market will make it happen instead.

EXTEND & PRETEND: STAGE I ENDS

38.2% FIBONACCI RETRACEMENT

The financial market charts reflect the current geo-political situation perfectly. The markets have now reached our targeted 38.2% Fibonacci retracement projection, which I have been calling for in my monthly newsletter.

What happens next? It is either one of the following alternatives, which future political policy decisions and actions will determine.

1- A MINSKY MELT-UP & INCREASING VELOCITY OF MONEY

We will get a dramatic insertion of new Federal Reserve stimulus in the amount of $5T. This will be the last element required in the manufacturing of a Minsky Melt-Up (see: EXTEND & PRETEND - Manufacturing a Minsky Melt-Up). An accelerating Velocity of Money will bring on inflation in the items we “need to have” versus the things we think “we want”. It will be a time of PROTECTING your wealth from the ravages of inflation or possibly hyperinflation.

It is important to appreciate, and contrary to popular perception, it isn’t solely the printing of money that will bring on elevated inflation. It is also the result of a stealth supply shock in basic necessities coupled with a demand shock associated with population. Let me explain.

When the 2008 financial crisis hit, businesses began immediately preserving cash. Capital expenditures were slashed and new projects placed on hold or shelved indefinitely. For industries with long lead times to bring on new and increased production, such as is common in mining, food processing and generally overall in basic commodity businesses, this crimps their abilities to meet ramp ups for any near-to-intermediate term demand. Meanwhile, the Asian and Emerging markets of the world continue to be able to afford to eat better and consume larger quantities of the basic staples of life. These economies have not been hit as hard as the developed economies. This combination along with a future weakening US dollar is going to seriously propel consumer inflation in the US and accelerate Money Velocity when the Fed overlays QE II.

2- PLUNGING MARKETS AND ASSETS VALUES

If the government is not successful in its reflation efforts, then we can expect a dramatic sell-off in financial assets. The market will retest and break through the 2008 lows of 666 in the S&P 500. It will be a time to PRESERVE your wealth from the onslaught of asset devaluation.

PRESERVE & PROTECT BEGINS

We have now entered into Stage II of Extend & Pretend or what I would prefer to call Preserve and Protect. We must watch key events extremely closely as they unfold, but with a clear understanding of the framework in which they happen. Government policy initiatives, geo-political events and economic trigger points must all be scrutinized.

For those wanting to follow this PRESERVE & PROTECT stage, and to know which Tipping Points will mark the way, then sign-up for e-mail notification of the releases of the Preserve and Protect article series and follow daily developments at Tipping Points.

It is going to prove to be one of the most interesting times in history. Let it be one of the most profitable for you and not the devastating period it will be for most.

The ‘dog ate my report card’ didn’t work in school and it didn’t work again!

 


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Thu, 07/08/2010 - 17:22 | Link to Comment Crisismode
Crisismode's picture

I suspect the Federal Reserve and White House Administration are now convinced that without further massive stimulus, the US economy is headed into a deflationary depression.

 

You suspect?

My take is that it's a dead certainty.

 

Thu, 07/08/2010 - 18:39 | Link to Comment doublethink
doublethink's picture

 

Blame The Chinese Yuan!

 

(Reuters) - The U.S. Treasury Department again declined to label China a currency manipulator in a long-delayed report issued late on Thursday that is likely to provoke Congressional calls for tougher methods with Beijing.

 

http://www.reuters.com/article/idUSTRE6675LE20100708

 

Thu, 07/08/2010 - 18:52 | Link to Comment Ripped Chunk
Ripped Chunk's picture

+!

Yes, blame others instead of the banksters and "corporate titans" 

Thu, 07/08/2010 - 20:58 | Link to Comment Bear
Bear's picture

You are wrong.

Men are greedy ... All men will attempt to maximize their (influence, power, wealth, etc.) ... the fix we are now in was created when the natural greed of business (wealth) allied with the natural greed of political leaders (power) leading to the repeal of Glass-Steagall in 1999 fueled by the natural greed (influence) of Greenspan.

The Banksters and Corporate Titans were only doing what they are paid to do ... maximize profit. The political leaders who did not uphold their oaths failed us:

I do solemnly swear (or affirm) that I will faithfully execute the Office of President of the United States, and will to the best of my Ability, preserve, protect and defend the Constitution of the United States    Clinton, Bush I and II, and Obama

I do solemnly swear (or affirm) that I will support and defend the Constitution of the United States against all enemies, foreign and domestic; that I will bear true faith and allegiance to the same; that I take this obligation freely, without any mental reservation or purpose of evasion; and that I will well and faithfully discharge the duties of the office on which I am about to enter. So help me God


Thu, 07/08/2010 - 22:06 | Link to Comment pan-the-ist
pan-the-ist's picture

All men are not greedy. Most people are content and want to be left alone.  They probably don't travel in your circle but that doesn't mean they don't exist.  Most people I know want to be treated fairly by their car dealer and their government.  Most people expect that when they put money into their retirement some fucking greedy banskter won't be trying to take it.  Some people are scammers, chiselers, takers, criminals.  Don't project yourself on other people and then generalize.

Thu, 07/08/2010 - 22:45 | Link to Comment Boilermaker
Boilermaker's picture

Amen brother.  I don't need to be rich.  I just need to be able to provide and, hopefully, in a comfortable fashion.  I'm always amazed at those that would literally kick an old lady in her toothless gums for an extra dollar.  Ironically and sadly, it's normally those that need it the least.

Fri, 07/09/2010 - 01:59 | Link to Comment Bear
Bear's picture

You are right (I overstated) not all men seek power, influence, or wealth, but most will try to optimize their circumstances and when given a job to do will try to do it well. I think the banksters did (and are still doing) a good job optimizing their circumstances, i.e. maximizing the profits of BAC, C, GS, JPM, etc. But that is my point ... They should be restricted from doing the job of extracting the cumulative savings of generations of Americans by those we elected to protect us from enemies foreign and domestic. It's our leaders who failed us.

 

Fri, 07/09/2010 - 09:13 | Link to Comment Chump
Chump's picture

"Its our leaders who failed us."

Ponder that statement.

Who really failed?  Who fell for the promises that could never be kept?  Who desired freedom from the responsibility of thinking and acting for themselves?

Put another way, how did those leaders achieve power for years on end in the first place?

There are a lot of places to point fingers, but we first have to point the finger at ourselves and move out from there.

Thu, 07/08/2010 - 19:22 | Link to Comment AssFire
AssFire's picture

Deflationary Depression??? End of Day's??

Whhooaa, I just wanted to know who LeBron picked.

Thu, 07/08/2010 - 19:40 | Link to Comment papaswamp
papaswamp's picture

If he is smart he will pick FL...no income tax here

Thu, 07/08/2010 - 19:49 | Link to Comment Boilermaker
Boilermaker's picture

That's true!  Of course, it's also the worst real estate market in the US...but...

Thu, 07/08/2010 - 22:07 | Link to Comment pan-the-ist
pan-the-ist's picture

He'll be buying low.

Thu, 07/08/2010 - 20:16 | Link to Comment Rusty Shorts
Rusty Shorts's picture

 - xcuse me for butting in here, but I think everyone should see this.

Market Manipulation On Display

http://www.youtube.com/watch?v=xOr5suFJ6-k

 

Thu, 07/08/2010 - 20:46 | Link to Comment DocLogo
DocLogo's picture

wow, great video... does that happen with all stocks, etc?

Thu, 07/08/2010 - 21:40 | Link to Comment -1Delta
-1Delta's picture

thx... sleep well

Thu, 07/08/2010 - 20:50 | Link to Comment B9K9
B9K9's picture

I just love these types of hyperbole laced missives; true tin-foil stuff. Look guys & gals, life is much more mundane. It doesn't take Hollywood flash & boom to kill people. In fact, people die everyday from the most ordinary circumstances.

Absent insane systems like Nazi Germany, Imperial Japan and/or Stalinist Russia engaged in existential wars, governments have very little power in the way of guiding markets. If the Fed & fed.gov were so powerful, then why bother with all the MSM green-shoots blather and PPT market manipulation? I mean, why hassle bluffing & puffing if you've actually got the cards?

Ben was fighting a short-term deflationary event. All he had in turn was short-term monetary tools & techniques (QE, swaps, etc) combined with short-term government fiscal measures (ie Keynes). Extend & pretend was really all about extending & pretending until some new long-term economic miracle/driver came up.

But there is no miracle forthcoming, hence we are now going to experience a long-term deflationary depression. Blowing up the $USD doesn't buy you anything - it's the same exact end result as default, but with a more pissed off populace.

Obamacare was the high-water mark of this administration. Once the meme starts getting passed around that austerity will collapse the federal government, this is going to become a key selling point come November.

Hussein is an affirmative-action quota boy. Unlike dirty SOBs like Nixon & Clinton who really, really wanted the job and were willing to do anything to get it, this guy is wondering why he even accepted the position offered to him by Goldman. What's in it for him? Pussy? No, not right now. So, screw it.

We are now rudderless. There isn't going to be any radical announcement or movement by this administration. The Dems in DC have reached a collective acceptance that Nov will determine our/their fate. So expect more drift & malaise as we progress through summer & near fall.

Like I said above regarding Hollywood explosions, we don't need any excitement to get us where we are going. We're going there regardless - it's already baked in - now we proceed.

Thu, 07/08/2010 - 17:26 | Link to Comment anony
anony's picture

Only crazy, insane, and criminal classes enter politics in the first place because they really can't do anything productive in the private sector.

Ergo, if the definition of insanity is expecting different results, by doing the same thing repeatedly, the only possible next step would be?

Stage II, of course.

See your trillion, and raise you two more. 

Thu, 07/08/2010 - 18:41 | Link to Comment traderjoe
traderjoe's picture

The only part about your comment that I disagree with is the first one. Politics is a fantastic career path - great perks, prestige, speaking engagements, not really much work (per se), very little oversight, can retire early and be a talking head, etc. I'm not in it, but I can see the attraction for the self-indulgent. 

Thu, 07/08/2010 - 17:27 | Link to Comment wiskeyrunner
wiskeyrunner's picture

If they don't extend unemployment benifits the people will go nuts and lash out. I think they will extend them we are in a no growth economy, we can't just let these people starve while bankers buy new 30k watches.

Thu, 07/08/2010 - 18:14 | Link to Comment cossack55
cossack55's picture

Sure we can.  Its called Darwinism.  We have a history of it. 

Thu, 07/08/2010 - 19:56 | Link to Comment Rusticus
Rusticus's picture

If it were Darwinism the TBTF banks would have gone the way of T Rex.

Thu, 07/08/2010 - 18:35 | Link to Comment Eally Ucked
Eally Ucked's picture

Of course they have to delay revolt by extending all those benefits. But whatever they do has the same end. There is no more space for little guys to borrow and feed the so called "service economy". Until 07 they were using HELOCS to fund their purchases, housing never goes down mentality is finished for now and there is no other cash cow around.

Printing is good for a while but at some point it will work in opposite direction. For now they are trying to use policy that you have to be positive about economy and future and spend those ever diminishing dollars, at least, at the slurpees joint, this keeps economy going?

What is really left of US economy, corn, Apple phones and military spending funded by borrowed money. That oil spill will cause much more damage to US than everybody thinks.

Thu, 07/08/2010 - 18:42 | Link to Comment Boilermaker
Boilermaker's picture

Uhhh...iphones are made in China but "designed" in the US.

Thu, 07/08/2010 - 21:58 | Link to Comment suckapump
suckapump's picture

The gulf oil spill that was initially stated as 1000 barrels per day has been revised upwards faster than the oil can reach the surface. It now appears to be north of 100,000 barrels per day. A 100 percent miss is about in line with the miss on how many jobs the American Recovery and Reinvestment Act of 2009 (ARRA) was going to create.

Not to be too much of a stickler for math, but 1,000 -> 100,000 is a factor of 100, which equates to a 10,000% error. But hey, what are a few orders of magnitude between friends, right?

Thu, 07/08/2010 - 17:29 | Link to Comment wiskeyrunner
wiskeyrunner's picture

As we near the election I suspect now the Obama has kissed and made up with Israel the stock market may put on a show.

Thu, 07/08/2010 - 17:31 | Link to Comment SilverIsKing
SilverIsKing's picture

What would LeBron do?

Thu, 07/08/2010 - 18:15 | Link to Comment JLee2027
JLee2027's picture

Go to Miami of course.

Thu, 07/08/2010 - 17:31 | Link to Comment Ned Zeppelin
Ned Zeppelin's picture

"The government must find an excuse to push another $5T (minimum) into the US economy.

I suspect the Federal Reserve and White House Administration are now convinced that without further massive stimulus, the US economy is headed into a deflationary depression."

Yep.

Thu, 07/08/2010 - 17:34 | Link to Comment centerline
centerline's picture

Great post.  Thank you.

Thu, 07/08/2010 - 17:34 | Link to Comment doomandbloom
doomandbloom's picture

the dog ate my stress test too...

Thu, 07/08/2010 - 17:37 | Link to Comment gridlocked
gridlocked's picture

Im pretty sure we have over 1,000 overseas

military bases now and many of those countries

don't want us there.

Thu, 07/08/2010 - 17:44 | Link to Comment still kicking
still kicking's picture

really 1,000?  try maybe 50

Thu, 07/08/2010 - 18:03 | Link to Comment Teaser
Teaser's picture

Al Gore invented this wonderful device that some of use all the time.  We call it the "interwebs".  Really, it's a set of tubes that Al Gore constructed that connects companies, governments and even individual homes!  What you do, is you use "The Google"  or "The Bing", you write down your question, and put it in the tube and away it goes.  Then, you get a whole lot of answers back!  Then, you have to read.  Reading is HARD, but worth it.  And the next time you see Al Gore, if he's not in prison, thank him for the greatest invention ever!

 

Officially the Pentagon counts 865 base sites, but this notoriously unreliable number omits all our bases in Iraq (likely over 100) and Afghanistan (80 and counting), among many other well-known and secretive bases.

 

from http://www.fpif.org/articles/too_many_overseas_bases

Thu, 07/08/2010 - 18:14 | Link to Comment RingToneDeaf
RingToneDeaf's picture

I think it is closer to 1,000 maybe more.

It all depends upon how they are counted.

Google it, I was surprised.

Now how many countries have US bases?

Try 135 countries with US bases. Again how big does a base have to be to be counted?

 

Thu, 07/08/2010 - 18:22 | Link to Comment gmrpeabody
gmrpeabody's picture

It has to have at least 1 guy giving orders, and at least 1 guy following ordes. That sounds like a base to me.

Thu, 07/08/2010 - 19:27 | Link to Comment tasmandevil
tasmandevil's picture

plus one john wayne or james dean or james brown not john travolta

Thu, 07/08/2010 - 20:30 | Link to Comment Harry Bender
Harry Bender's picture

Or just one Chuck Norris...

Thu, 07/08/2010 - 18:20 | Link to Comment DosZap
DosZap's picture

Personally I think we need to close down ALL but the VERY most essential.

Japan has wanted us out,for years...........good...get the FO.

Germany also...............

South Korea.......same.(nuke umbrella covers there, from anywhere).NK, get's too frisky, Neutron......

Protect yourselves Bitches.(no need to be there, Nuke umbrella extends globally for US, and allies.)

Just these, have cost us  Trillions over the last 60yrs.

Fri, 07/09/2010 - 01:06 | Link to Comment still kicking
still kicking's picture

I did look it up and I stand by my number (i'm a little over at 50) those small outposts are not true bases.  It's like trying to claim the dollar store is the equivalent of the mall.

Thu, 07/08/2010 - 17:40 | Link to Comment Shameful
Shameful's picture

90 days is a bold statement.  I mean Americans love to watch videos of people getting killed from the air, but they better manufacture a good reason.  Maybe a photo set of Ahmadinejad killing and eating Bat Boy.

"Bat Boy dead, America mounts bold new offensive"

 

Thu, 07/08/2010 - 20:25 | Link to Comment spinone
spinone's picture

+10.  I love Bat Boy references

Thu, 07/08/2010 - 20:32 | Link to Comment Harry Bender
Harry Bender's picture

+20 same here

Thu, 07/08/2010 - 22:38 | Link to Comment StychoKiller
StychoKiller's picture

"Two-headed Baby Kills Own Mother!"

Thu, 07/08/2010 - 17:48 | Link to Comment P-K4
P-K4's picture

The leadership is failing miserably and all they can do is prescribe more Viagra (stimulus)... it reminds me of the old addage "(Richard) for brains."

Thu, 07/08/2010 - 17:48 | Link to Comment no life
no life's picture

FUBAR

Thu, 07/08/2010 - 18:15 | Link to Comment poopdeville
poopdeville's picture

SNAFU

Thu, 07/08/2010 - 17:52 | Link to Comment binky
binky's picture

From alternet.org

 

The total of America's military bases in other people's countries in 2005, according to official sources, was 737. Reflecting massive deployments to Iraq and the pursuit of President Bush's strategy of preemptive war, the trend line for numbers of overseas bases continues to go up.

 

original story -- http://www.alternet.org/story/47998

Thu, 07/08/2010 - 17:59 | Link to Comment still kicking
still kicking's picture

The details go on to specify 38 large and medium sized bases.  The hundreds of small outposts in Afganistan and Iraq probably make up most of the other 699 small bases.

Thu, 07/08/2010 - 20:51 | Link to Comment DocLogo
DocLogo's picture

It's not the size of the base that counts, it's the girth of the bombs

Thu, 07/08/2010 - 18:04 | Link to Comment Teaser
Teaser's picture

Make sure you thank Al Gore for the Interwebs you used to glean that valuable information!  He spent a lot of time building all these tubes, in between chasing skirts.  How the man ever did it all boggles the mind!

Thu, 07/08/2010 - 18:24 | Link to Comment gmrpeabody
gmrpeabody's picture

 When does he sleep, I ask!

Thu, 07/08/2010 - 20:53 | Link to Comment DocLogo
DocLogo's picture

after his root chakra gets a full release

Thu, 07/08/2010 - 17:52 | Link to Comment Assetman
Assetman's picture

Wow.  Stage II will either introduce the onset of a deflationary depression, or a Minsky Meltup leading to hyperinflation.

I gather the odds are 50/50? 

Oh, that really helps </sacrasm>.

Thu, 07/08/2010 - 18:06 | Link to Comment mikla
mikla's picture

+1

Thu, 07/08/2010 - 18:24 | Link to Comment Boilermaker
Boilermaker's picture

Have a plate of shit or a glass of piss.  Your choice...choose wisely.

Thu, 07/08/2010 - 20:27 | Link to Comment spinone
spinone's picture

Piss is sterile.  I'd choose piss.

Thu, 07/08/2010 - 18:25 | Link to Comment Teaser
Teaser's picture

Well, I think the author's point is that something will happen.

 

I think he's dead right there, "something" will happen, it always does.

Thu, 07/08/2010 - 18:45 | Link to Comment traderjoe
traderjoe's picture

I don't agree at all with the concept of the "new normal". The economy can't survive on 1-2% growth. Either it goes way up, or goes way down. There's too much debt/debt service. 

Thu, 07/08/2010 - 17:56 | Link to Comment FranSix
FranSix's picture

Even though Keynes may have been 'The Third Man,'  I still like him as a person.

Thu, 07/08/2010 - 17:57 | Link to Comment jkruffin
jkruffin's picture

It is almost like someone is reading my thoughts, reading my posts, taking credit for my work.. LOL

 

Seriously though, I have said war with Iran by Sept.

I have said hyper-inflation resulting from next 5 trillion QE running DOW to 30k at some point.  Bond yields exploding to 10-15% on the 10yr,  20% on the 30 yr

Then ultimate collapse of the fiat dollar.

I have said Gold 5k and Silver 500 at some point.

All of these IMO are going to be achieved, timing is the key to play it right.

I'm ready!

Thu, 07/08/2010 - 18:19 | Link to Comment Ned Zeppelin
Ned Zeppelin's picture

"Hon, we've got $500,000 - do you want to go to McDonald's and buy the kids dinner or pay off the mortgage."

But seriously, would the PTB allow all that American mortgage debt to be jubileed so easily by hyperinflation? I think not.

Thu, 07/08/2010 - 18:22 | Link to Comment Shameful
Shameful's picture

Sure why not?  They can take them back via property taxes after all, least on the state and local level, or pass one on the national level if need be.  Even those who "own" are really nothing more then renters.

Thu, 07/08/2010 - 18:27 | Link to Comment gmrpeabody
gmrpeabody's picture

+100

Can be forclosed on (evicted) at will.

Thu, 07/08/2010 - 18:13 | Link to Comment redrob25
redrob25's picture

The Velocity of money argument has been debunked by Henry Hazlitt, in "The Inflation Crisis and How to Resolve It."

http://mises.org/store/Inflation-Crisis-and-How-to-Resolve-It-P618.aspx

See Chapter 12 - Where Monetarists Go Wrong

That doesn't mean we will not have a hyperinflationary event, just that the V in the famous equation MV=PT isn't important, but that both sides of the equation equal prices. V by itself cannot affect the value of money without a corresponding increase in the other side of the equation. Meaning producers have to produce more for people to use more money. And at some point, the capacity for production will cap what rate people can spend.

And in an analysis of the German hyperinflation, the velocity of money did not increase to such a level as to create a large deflation in the value of money.

The perceived value of money by the people was what caused the deflation in value. No matter how much the government printed, the market devalued the German currency faster.

There are other aspects to his argument which I will not go into here. Please read the book, it is an excellent resource for today's times.

That does not mean I don't think hyperinflation won't happen. It will, but it will be when the people lose confidence in the money and not when the velocity increases at such a high level (which it can't as it is limited by various factors outlined in the book).

Hazlitt also analyzed three stages of inflation that occur and do not coincide precisely with inflation of the money supply, but rather more heavily with the psychology of the market's valuation of the money who are using the money supply.

Thu, 07/08/2010 - 18:48 | Link to Comment traderjoe
traderjoe's picture

The more I learn about "economics", especially macro, is how little they've actually figured out with any sort of confidence. It's a bunch of theories and guesses. It's not a closed environment, there's no control group, etc. I'm no PhD from a "decent" school, so what do I know?

Thu, 07/08/2010 - 19:17 | Link to Comment jkruffin
jkruffin's picture

You're just a blogger and according to the FED, bloggers don't know shit!!  Remember that the next time you speak, or you will receive 10 floggings.  LOL

Thu, 07/08/2010 - 21:46 | Link to Comment Dr. Acula
Dr. Acula's picture

"The more I learn about "economics", especially macro, is how little they've actually figured out"

Hazlitt is from the Austrian school of economics. Check it out. The Austrian school is the only one I know of that provides an integrated theory of economics (no seperate micro and macro parts) and it is the only that makes sense.

The other schools are pretty much politically-motiviated BS. They childishly play with numbers and have phoney statistics like GDP (which doesn't take into account leisure - undoubtedly a scarce economic good that people will exchange their money and time to obtain). They advocate a central bank, yet can't coherently explain why there should be a central bank fixing things like interest rates (the price of loanable funds) yet not fixing other things prices like the price of potatoes.

 

Fri, 07/09/2010 - 09:50 | Link to Comment redrob25
redrob25's picture

Agree with Dr. Acula. The Austrian school is the only legitimate school of economic science that I have come across.

The others, based upon Monetarism and Keynesianism (mercantilist) are both fatally flawed and have been shown multiple times in history to not be accurate.

Thu, 07/08/2010 - 20:22 | Link to Comment masterinchancery
masterinchancery's picture

Prof. Bernholz found in his book on hyperinflations that all were caused by massive budget deficits that were monetized by the printing of paper money by the govt or a central bank.

Thu, 07/08/2010 - 20:32 | Link to Comment Vampyroteuthis ...
Vampyroteuthis infernalis's picture

redrob is right. The velocity of money is declining. It is being sucked into those black holes appearing at your local bank and where Helicopter Ben works daily. The debt collapse will suck everything into it. First up, housing followed by everything else that is overinflated.

Thu, 07/08/2010 - 22:27 | Link to Comment tmosley
tmosley's picture

Getting paid more than twice a day, and having your wife run out to spend the money before it loses its value seems like pretty high velocity to me, even as it is related to faith (where the worker has no faith that the currency will retain value, so they run out to get rid of it).

That said, you are right when you say that hyperinflation is more a function of faith in the currency than anything else.  Velocity of money is a function of faith in currency.  Thus, MV=PT can be expressed as M*f(C)=PT, where C is confidence in money.  Further, confidence in money is largely a function of the rate of expansion of the money supply, so it could be expressed M*f(C(M))=PT.  Taken to that extreme, it's not much of a stretch to say that M=PT.

Fri, 07/09/2010 - 10:04 | Link to Comment redrob25
redrob25's picture

Both sides of the equation have to balance. In other words, in any way you try to manipulate that equation, the argument falls on its own sword and dies precisely because both sides have to equal.

When people are paid, whether daily, weekly, or monthly, the average rate of use of money is the same. If they get paid monthly and use it all on the first day, then they cannot spend any for the rest of the month. Therefore any velocity changes would be very short duration and could not cause a hyperinflation.

In your example, you equate the rising numeric value of the money with velocity. For the equation to balance, the corresponding price at which the producer will sell his goods must also rise. Therefore, the velocity of money (how many times it is spent and turned over in the market, NOT the absolute value of the bills being spent) will not change. Just the zeros printed on the bills.

The hyperinflation is a psychological phenomena that follows the physical phenomena. It has been shown in the Germany example that the money supply was inflated long before the hyperinflation actually set in. And at the point the hyperinflation turned straight north, the lack of physical printing presses meant that the Germans could not print money fast enough. In other words, the devaluation at that point was > than the amount of money put into circulation. People lost faith in the money after it had already been inflated.

The same thing is happening in the US now. The helicopters have dumped their loads, but the people still have faith in the currency. So while we see an uptick in inflation as a percentage, we are nowhere near hyperinflation even though the physical amount of it neccessary exists at this exact point in time. We are somewhere in stage 1, about to enter or having just entered stage 2.

Thu, 07/08/2010 - 18:14 | Link to Comment WaterWings
WaterWings's picture

40,000,000+ food stampers don't plan out further than the next "drop date" on their magic cards. What happens when they don't work anymore?

Thu, 07/08/2010 - 18:20 | Link to Comment Mr Lennon Hendrix
Mr Lennon Hendrix's picture

We start over.

The Highwaymen - Highwayman:

http://www.youtube.com/watch?v=uw1bHaUk1CM

Thu, 07/08/2010 - 20:41 | Link to Comment Harry Bender
Harry Bender's picture

+1 Ha for the Willie Nelson Vid

Thu, 07/08/2010 - 18:18 | Link to Comment starfish
starfish's picture

There has to be another option...what about massive debt forgiveness? Principal reductions, lower mortgage rate...way lower mortgage rates, easier qualifications, like no appraisals...man...if we could lower the collective mortgage rates of the entire USA that would be good...more disposable income etc. 

Thu, 07/08/2010 - 18:27 | Link to Comment economicmorphine
economicmorphine's picture

I don't want to eat your bad debt.  Therein lies the problem with your suggestion.  Somebody has to eat it.  Who?  The taxpayer?

Thu, 07/08/2010 - 18:33 | Link to Comment Kali
Kali's picture

The banks we bailed out.

Thu, 07/08/2010 - 18:56 | Link to Comment starfish
starfish's picture

how about the federal reserve? can't they just hit delete...they can sure create debt that easily...

Thu, 07/08/2010 - 18:28 | Link to Comment jkruffin
jkruffin's picture

Debt forgiveness will never happen because of the greedy elite.  But, a lump sum, and I have figured it out that $5 Trillion in QE based on the latest numbers of employed taxpayers is $32,500 roughly per person.  This in a lump sum payment to get people out of debt is a viable way to do it.  Issue it in coupons or something that can be sent into the creditors for payment.  Until people can get out of debt, this is going to get uglier and uglier.  The bankers get their money and people get out of debt.  Raise taxes then, to pay for it, make the bankers pay for part of it too with taxes on them.  They are going to raise taxes anyway soon, so might as well have people out of debt to do it, than tax them while in debt, and defaults go rampart and we go right back into trouble.  Put laws in place and lower the debt to income ratio to keep people from getting over-extended again.  JMO of it.

Thu, 07/08/2010 - 18:33 | Link to Comment gmrpeabody
gmrpeabody's picture

Well shit..., I don't have any real debt now. Guess I may as well go load up before I have to start paying off everyone else's.

Thu, 07/08/2010 - 18:36 | Link to Comment jkruffin
jkruffin's picture

you are already paying on everyone else's debts now and have been for years, where have you been? 

Thu, 07/08/2010 - 18:43 | Link to Comment gmrpeabody
gmrpeabody's picture

Silly me...., I meant paying off MORE of everybody else's!

Thu, 07/08/2010 - 18:28 | Link to Comment Boilermaker
Boilermaker's picture

Massive debt foregiveness?  Are you fucking crazy?

You must have missed the highly coincidental change in personal bankrupty laws for the masses just prior to the implosion.

They aren't forgiving jack shit and will never have any intention of doing so.  The elites are completely committed to screwing everyone.

Thu, 07/08/2010 - 18:55 | Link to Comment starfish
starfish's picture

Yup, I'm crazy.  Every heard of the Jubilee Year...

Thu, 07/08/2010 - 19:18 | Link to Comment Boilermaker
Boilermaker's picture

Hey, I'm FOR it.  A full reboot would do wonders.  The problem is that the debt holders would lose.  If there is one thing I'm sure of, it's that rich people will every god damn thing they can, even inhumane, to keep their dollars from becoming nickles.

Let 'em eat bread.  No bread?  Let 'em eat cake.

Thu, 07/08/2010 - 22:22 | Link to Comment FrankIvy
FrankIvy's picture

Boilermaker wrote: Let 'em eat bread.  No bread?  Let 'em eat cake.

 

Actually, the "cake" to which Ms. Antoinnette referred was the cake in the bread ovens that built up around where the bread was.  The cake was, essentially, bits of bread that had come off in baking and caked up.  It had nutrient value.

So, while she was being quite nasty, she was not being sarcastic, and, after the Ahmadinjad quote, it is the worst botched translation in history.

Thu, 07/08/2010 - 22:46 | Link to Comment Boilermaker
Boilermaker's picture

She was still a raging cunt.

Fri, 07/09/2010 - 11:20 | Link to Comment gmrpeabody
gmrpeabody's picture

+100

Thu, 07/08/2010 - 19:12 | Link to Comment exportbank
exportbank's picture

Debt forgiveness is a can of worms. What debts do you forgive? If you bought a house in an overheated market and it tanks should the guy that lost money in his 401K make you whole? If you bought 2 new cars and 3 big screens should the guy with one car and one TV make you whole? The people that saved, didn't speculate,lived within a budget are the ones that everyone now wants to hose. We are close to the point of proving that "being responsible" is the worse decision you can make. Note: when I use the word you - I obviously don't address any particular individual.

Thu, 07/08/2010 - 19:28 | Link to Comment Boilermaker
Boilermaker's picture

But, the can of worms is already opened.  The government can't pay it's debts.  Banks can't cover their bad loans.  Corporations can cover their pensions.  Municipalities and states can't cover their bonds.  Students can't afford to go to universities.  Consumers can't afford their debts.

It's a full on collapse and it's been decades in the making.

I agree, it's unbelievably unfair.  But, you still can't get blood from a stone.  If you can't pay up...well, you can't pay up.  It's that simple.

Thu, 07/08/2010 - 19:50 | Link to Comment DR
DR's picture

True, the ruling elites are as delusional as the masses so they hang on to the hope of "austerity" when the truth is going to be default.

Thu, 07/08/2010 - 20:55 | Link to Comment Misean
Misean's picture

Debt forgiveness, jubilees and etc.?!?!  My ASS! It's called freaking bankruptcy.  That means the idiots who played gamble o' rama with a shit ton of leverage and lost loose.  And it is the ONLY way the banksters are ever gonna eat the shit they so deserve. 

Thu, 07/08/2010 - 18:18 | Link to Comment Quinvarius
Quinvarius's picture

They need to do more public stimulus to balance out the required banker stimulus.  The banks are still completely hosed and completely BK.  They need more money and they will get it because they control the printing presses.  But if we keep giving them money, and none to the public, we will have very ugly political situation and no recovery...ever.  They have to start balancing the situation out or just axe the banks.

Thu, 07/08/2010 - 18:18 | Link to Comment RingToneDeaf
RingToneDeaf's picture

Does Obama want a collapse to create the socialist paradise?

I think it will be clear to all but the willfully blind soon.

Like Peggy Noonan said, he acts like an alien.

Thu, 07/08/2010 - 18:29 | Link to Comment Rogerwilco
Rogerwilco's picture

People throw around numbers like $5T as though it is possible to create and inject that level of stimulus into the general economy -- no way. We can't borrow that amount from the rest of the world, and we have nothing to sell that might even come close, so there are two possibilities left. One, Bernanke and Geithner print it, or two, the money is borrowed from pension and retirement accounts. Flagrant printing is not going to happen because it would destroy the Fed. The second option will result in a popular revolt, although Denninger claims they could accomplish the same by converting the pension and IRA/401K assets to treasuries.

I see a muddle-through approach that provides enough funding to squeak through the mid-term elections. Then they'll figure out something else...

Thu, 07/08/2010 - 18:32 | Link to Comment Boilermaker
Boilermaker's picture

Have you ever seen a $500,000,000 Zimbabwe dollar note?  Ever seen an Argentinian pension siezed?  Ever seen the retirement age for social security increased over and over?  Ever seen a credit card go from 7.9% to 31.9% overnight?

Seriously, they can do whatever the fuck they want to do.

Thu, 07/08/2010 - 18:40 | Link to Comment Rogerwilco
Rogerwilco's picture

As long as the Fed is "independent", Bernanke will never allow the printing option. Yes, Congress could vote to abolish the Fed, but it's not going to happen between now and November.

Thu, 07/08/2010 - 18:44 | Link to Comment Boilermaker
Boilermaker's picture

That's not going to happen, ever.

Thu, 07/08/2010 - 18:51 | Link to Comment traderjoe
traderjoe's picture

You've never read or heard his speech where he specifically talks about the "technology" that is the "printing press" which allows the government to 'print as many dollars as it wants at virtually no cost' as a solution to deflation?

Thu, 07/08/2010 - 18:56 | Link to Comment Boilermaker
Boilermaker's picture

Wait.  Aren't we agreeing that he'll print the shit out more bills?  I'm lost now.

Thu, 07/08/2010 - 19:05 | Link to Comment Rogerwilco
Rogerwilco's picture

@traderjoe

Yeah, yeah, he made that boast ten years ago, and long before he was Fed Chairman. Unless he is willing to watch the total demise of the institution he leads, there is no way he can go along with that option. The only thing the Fed can sell is money, why the hell would they want to destroy its value? Outright printing would destroy the USD.

Thu, 07/08/2010 - 19:18 | Link to Comment Shameful
Shameful's picture

So the Fed is not willing to destroy the value of the dollar...care to explain the loss of purchasing power in the last 100 years? 

Thu, 07/08/2010 - 20:35 | Link to Comment Rogerwilco
Rogerwilco's picture

Inflation of a few percent a year is acceptable to these guys (Keynes even recommended as much to keep the proles happy). Over a century even this small inflation rate will result in the big "97%" decline everybody loves to tout.

That said, the Fed will not allow 20% annual inflation. Paul Volker made that very clear in his term as Fed chairman.

Thu, 07/08/2010 - 22:19 | Link to Comment FrankIvy
FrankIvy's picture

RWilco Wrote - Paul Volker made that very clear in his term as Fed chairman.

 

Sure dude.  Let's start with this - his name is Paul Volcker.  Let's finish with this - saying that was Volcker did 25 years ago is precedent for what Bernanke will do is about the same as saying that we're going to voluntarily cut our dependence on foreign oil - - - because Carter said we were.  References to PV seem, to me, a stretch into another time and dimension.

Thu, 07/08/2010 - 23:06 | Link to Comment Return2Sanity
Return2Sanity's picture

Yes, you are correct, no question in my mind, the Fed will stop printing and start tightening as soon as inflation gets up around 4-6%. But that's when things get interesting, because it is already obvious that the US can't service its debt at anything over 4% interest. As rates rise, Congress will have a very short period of time to cut spending drastically and raise taxes to reassure the bond market. This is exactly what destroyed the Russians in 1998. They had a loan lined up from the IMF and had a solid plan on the table that would have cut expenses and raised taxes enough for them to be able to service their debt, and all they had to do was pass it. Just vote it in. That was all they had to do. But the Duma chose instead to gut all the parts that were “unpopular”, then passed what was left of it, and promptly adjourned for vacation. Immediately afterward, Russian stock, bond, and currency markets all collapsed simultaneously due to lack of investor confidence.

 

Thu, 07/08/2010 - 22:36 | Link to Comment tmosley
tmosley's picture

Right and I'm sure the Fed would never just print a trillion dollars and give it to the banks without Congressional approval or even telling anyone about it.

I don't really think they are going to lose much sleep over a five trillion dollar injection.

Thu, 07/08/2010 - 18:34 | Link to Comment jkruffin
jkruffin's picture

They don't need to borrow it, they just print it like they plan to do anyway.

Thu, 07/08/2010 - 18:38 | Link to Comment Boilermaker
Boilermaker's picture

Exactly, hello $1,000 notes.  Presto.

Thu, 07/08/2010 - 21:06 | Link to Comment Return2Sanity
Return2Sanity's picture

No question, they'll print it. Bernanke has been very clear in numerous speeches that the Fed will print to offset deflation. But, he also claims that they will not print once inflation, or rather reflation, takes hold. The Fed needs the government to distribute the money they print, because the banks won't loan it out. This is why there's all the talk about another stimulus. The problem will be that as soon as the government starts handing out money, the people will immediately come to expect it to continue, and then get very angry when it goes away. That is the danger point.

Thu, 07/08/2010 - 22:13 | Link to Comment FrankIvy
FrankIvy's picture

Rogerwilco wrote: Flagrant printing is not going to happen because it would destroy the Fed.

 

How?  Seems to me it will destroy the country, and the Fed will get stronger.

Thu, 07/08/2010 - 18:31 | Link to Comment Gordon_Gekko
Gordon_Gekko's picture

If I were a self respecting Army General, even I would mock a puppet president.

Thu, 07/08/2010 - 18:32 | Link to Comment economicmorphine
economicmorphine's picture

Seems like the board has decided that it's going to be QE.x.  I'm not so sure.  Germany is leaning towards austerity and it's too late for Dear Leader to save the midterms.  People on these boards are fond of pointing out just how stupid the people are.  Maybe it's just me, but the people around me by and large have figured it out, or, if they haven't they are at least a whole lot closer than they were when Paulson was pushing TARP. If they're going to do QE2 they have to do it yesterday for it to have any impact before November.  On the other hand, if you argue that Bernanke et al truly believed what they were doing was right, they now have proof that they were wrong.  If so, there's only one possible solution.  I personally doubt the integrity of many in government, but the Fed regional govs are breathing down Bernanke's neck.  I believe they have some clout.  I believe the gig is up and we're going to see the meltdown first and then, and only then QE 2.  We'll see.  I'm wrong alot.

Thu, 07/08/2010 - 18:38 | Link to Comment Shameful
Shameful's picture

Why would the Fed give a damn about the elections, it's not like they answer to anyone?  A new band of looters will not change anything, they like the line of their predecessors will set about filling their pockets.  Wouldn't it make more sense to inject that money to help the new wave of looters and buy their loyalty rather then back the ones on the way out anyway? And the Fed regional govs are a dog and pony show.  When Zimbabwe doesn't get his way I'll listen to them.  Always trust the Fed to do what is best for the banks, always.

Thu, 07/08/2010 - 18:33 | Link to Comment buzzsaw99
buzzsaw99's picture

Stimulate me bitchez!

Thu, 07/08/2010 - 18:43 | Link to Comment doMiKY
doMiKY's picture

we are running without a functioning government.

"It is going to prove to be one of the most interesting times in history."

Thu, 07/08/2010 - 18:43 | Link to Comment Remington IV
Remington IV's picture

After reading this , I am convinced that I need to go to rehab

Thu, 07/08/2010 - 18:47 | Link to Comment Silver Bullet
Silver Bullet's picture

The only thing saving this country right now is the FED's independence.

However, I'm sure, sooner rather than later, you'll get your wish with a Republican congress, a Palin Admin. and a another depression.

At least you will all have your gold...

Cheers

Thu, 07/08/2010 - 18:53 | Link to Comment buzzsaw99
buzzsaw99's picture

Ben?

Thu, 07/08/2010 - 19:05 | Link to Comment All_Is_Well
All_Is_Well's picture

His mom...

Thu, 07/08/2010 - 21:56 | Link to Comment -1Delta
-1Delta's picture

No its Timmy with his PPT manual... ben is bending over in his helicopter to throw some more liberty 33 at the ES tonight

Thu, 07/08/2010 - 18:54 | Link to Comment traderjoe
traderjoe's picture

Fed's independence? From whom? The government? Did you see BB with the Teleprompter the other day? Who do you think owns the Federal Reserve Banks? The public? The government? Try the banks (no really). The dollar is a Federal Reserve Note - a loan given to you by private banks. 

Oh, and there's not much distinction here made between Dems and Repubs. They're all the same on ZH...

Thu, 07/08/2010 - 18:58 | Link to Comment Boilermaker
Boilermaker's picture

Yea, I was kinda lost on the spin that ZH is full of elephants.  What the fuck was that about?

Thu, 07/08/2010 - 19:03 | Link to Comment Silver Bullet
Silver Bullet's picture

I just meant that you will all get what you want for at least the next 24 months with a republican congress and a democratic president.

i.e. at best a freeze on spending.

When it comes down to it, no matter what you all say, NONE of you has an answer to plug the lack of demand that exists in the OECD world that will likely persist for the next 10-15 years.

All austerity is gonna do is put us in the death spiral that we will never get out of.

Thu, 07/08/2010 - 19:22 | Link to Comment Boilermaker
Boilermaker's picture

And all stimulus will do is briefly delay and inevitable collapse and destroy my kids and unborn grandkids future instead of just mine.

I don't even care about Republicans and or Democrats anymore.  That's over.  Who cares?  They are both corrupt as hell.  I don't care if one is ripping me off in a sleazier way than the other.  They are both cornholing me to death.

Thu, 07/08/2010 - 18:58 | Link to Comment Silver Bullet
Silver Bullet's picture

As much as I hate the TBTF banks, right now they are the lesser of two serious evils considering the political landscape across the western world for the forseeable future.

Thu, 07/08/2010 - 19:20 | Link to Comment Shameful
Shameful's picture

"No, he really loves me!  He promised he would stop hitting me...with the aluminum bat.  He picked up a wood one yesterday...  That's something right?"

Thu, 07/08/2010 - 19:30 | Link to Comment Boilermaker
Boilermaker's picture

Ike?  Is that you?

Thu, 07/08/2010 - 19:35 | Link to Comment buzzsaw99
buzzsaw99's picture

Disagree. There is nothing in the entire world more evil than the big bankers.

Thu, 07/08/2010 - 19:00 | Link to Comment buzzsaw99
buzzsaw99's picture

yep. the same people who own the fed own the gubbermint.

Thu, 07/08/2010 - 21:02 | Link to Comment Rusty_Shackleford
Rusty_Shackleford's picture

Holy shit. 

Now THAT is funny.

Thu, 07/08/2010 - 18:53 | Link to Comment Gordon_Gekko
Gordon_Gekko's picture

The only thing saving this country right now is the FED's independence.

BWAHHAHAHAAHAAHAHAHAHAHAAAHAHAHAHAHAHAHAHAHAHAHAHAHAAHAHAHAHAHAHAHHAHAAAAAA!!!!

Thu, 07/08/2010 - 19:15 | Link to Comment gmrpeabody
gmrpeabody's picture

Yes, that was rich. I almost wet my britches. Think I'll pour another.

Thu, 07/08/2010 - 21:17 | Link to Comment steelhead23
steelhead23's picture

GG - You missed the point.  Of course the Fed is independent - it is neither a tool of the Dems nor of the Reps, it is and always has been a wholly owned subsidiary of the big banks.  Surely what the writer meant was that because the Fed is always acting to further enrich the big banks, it isn't likely to do anything that would make them fail.  The author is merely indicating that what is good for J.P. Morgan-Chase is good for us all.

Thu, 07/08/2010 - 18:53 | Link to Comment Implicit simplicit
Implicit simplicit's picture

"...there is a sense growing that these are not cyclical problems but rather are in fact structural problems - a belief that the financial crisis was not an unexpected event but rather a product of deeper and serious underlying strategic problems."

Therein lies the crux of the biscuit.You cannot have a growing public employee sector with rising wages and a declining private buisness sector with declining wages. The math doesn't work for tax collection for pensions and entitlement programs; not to mention for growing GDP which has its own set of additional structual problems related to energy.

Thu, 07/08/2010 - 18:59 | Link to Comment traderjoe
traderjoe's picture

Exactly. Structural v. Cyclical. Declining manufacturing. Race to the bottom with corporate costs, requiring increasing economies of scale. Poor demographics. Increasing globalization. Inefficient tax structure that encourages off-shoring. Regulatory capture. Declining marginal utility of consumerism. Lack of quantum leap productivity innovations (airplane, telephone, computer, fax, e-mail, iPhone, iPhone IV?). The requirement of fractional reserve banking for growth to roll over loans. And all that. 

Thu, 07/08/2010 - 19:27 | Link to Comment jkruffin
jkruffin's picture

When I got a government job one time, the first thing on the first day of work some of the other guys told me was " To ride the gravy train until the biscuit wheels fall off "   and boy were they ever right.

Thu, 07/08/2010 - 20:31 | Link to Comment geoffb
geoffb's picture

" To ride the gravy train until the biscuit wheels fall off "

 

Snort!

Thu, 07/08/2010 - 22:00 | Link to Comment Implicit simplicit
Implicit simplicit's picture

The next creative destructive innovations need to come from the energy field. Without a reliable longterm less expensive energy source there will be no more decent GDP growth. There is a direct relationship between cheap energy and accelerating GDP growth in a mature capitalist society such as the US. We should be going gangbusters trying to become independent from the middle east over the next 10 years or it will be a lot worse than it already will be.

Thu, 07/08/2010 - 18:55 | Link to Comment Henry Chinaski
Henry Chinaski's picture

It's like Atlas Shrugged meets Trading Places...

"Who's been putting out Kools on my carpet?"

Thu, 07/08/2010 - 19:02 | Link to Comment All_Is_Well
All_Is_Well's picture

Who wants to borrow more money when it's gonna get even harder to pay off your existing debt going forward with the coming punitive tax increases and who knows what else? No wonder consumer credit is down another 10 Bil!

Thu, 07/08/2010 - 19:19 | Link to Comment DavidC
DavidC's picture

I reckon they could be crazy enough to try the $5 trn stimulus - the majority of American people being against the original $700 bn (hmm, didn't get that quite right, did they?) didn't stop them first time round.

Either way, the ultimate payoff will be catastrophe - this is the only weapon left in their armoury and once it's shot that's it.

DavidC

Thu, 07/08/2010 - 19:23 | Link to Comment ElvisDog
ElvisDog's picture

I agree with those that say there is no fricking way a $5T QE2 program gets launched, and particularly by Obama and the Dems. What is the old saying? "Only Nixon could go to China"? Any more stimulus plans from Obama feeds right into the building momentum of the tea parties. It would be the coup de grace on the Dems in the November elections. Even if they think QE2 is the only hope for them, they have to at least talk austerity because public opinion has turned against Keynesiasm thought.

Thu, 07/08/2010 - 20:02 | Link to Comment zen0
zen0's picture

I am not completely sure, but I don't think the Big War solution will be allowed to unfold. Little wars and skirmishes yes, Big War, no.

Unless those days be shortened (restricted, contained, managed) no flesh (human, animal, etc.) shall remain alive.

Thu, 07/08/2010 - 20:33 | Link to Comment Vic Mackey
Vic Mackey's picture

That food crisis starting near the end of 2006 was actually caused by Goldman. But you probably guessed that already without having to be told it!

 

http://www.independent.co.uk/opinion/commentators/johann-hari/johann-hari-how-goldman-gambled-on-starvation-2016088.html

Here's how it happened. In 2006, financial speculators like Goldmans pulled out of the collapsing US real estate market. They reckoned food prices would stay steady or rise while the rest of the economy tanked, so they switched their funds there. Suddenly, the world's frightened investors stampeded on to this ground.

 

So while the supply and demand of food stayed pretty much the same, the supply and demand for derivatives based on food massively rose – which meant the all-rolled-into-one price shot up, and the starvation began. The bubble only burst in March 2008 when the situation got so bad in the US that the speculators had to slash their spending to cover their losses back home.

Wed, 07/14/2010 - 02:10 | Link to Comment TheJudge2012
TheJudge2012's picture

Looks like either congress isn't so scared of the electorate, or they thought they could keep the roll call vote quiet:

 

Hall of Shame List of those who cosponsored the thorough Federal Reserve audit HR 1207 then abandoned their so-called “support” for HR 1207.  The Audit was included in a motion to send the Dodd-Frank Fed Empowerment Act (H.R. 4173) back to committee.  Voting against the motion was a vote to further empower the secretive Fed and accept a watered-down, Fed-approved, virtually useless audit contained in HR 4173.  Note Dennis Kucinich, after all his yelling about the banks, voted to squash a meaningful audit.  Quite the actor he is:

http://www.campaignforliberty.com/materials/HR1207-Shame-List.pdf

Link of every vote on the roll call. A nay vote was a vote to reject the motion, empower The Fed, and kill HR 1207.

http://clerk.house.gov/evs/2010/roll412.xml

Thu, 07/08/2010 - 20:46 | Link to Comment PierreLegrand
PierreLegrand's picture

We can safely conclude either:

  1. The administration completely under estimated the extent of the economic crisis, even though we were well into it when the ARRA was introduced.
  2. The administration was unable to secure the actually required stimulus amount which was likely 4-5 times that approved.
  3. The administration failed to implement the program in a timely manner.
  • The administration failed to diagnose the problem correctly and that in fact it is a structural problem versus a cyclical and liquidity problem, as they still insist it to be.
  • There is one more option. Maybe they intend on wrecking the economy. After you make one mistake I am thinking that ok no problem, after you make 5 mistakes ok well maybe you are an idiot, after every single decision you make is wrong I am left with the fact that you INTEND to screw up.

    Thu, 07/08/2010 - 20:59 | Link to Comment rocketgas
    rocketgas's picture

    I guess it could a variant of 'the next best thing to good pubulicity is bad publicity'. He will be remembered as Americas worst (if not last) President

    Thu, 07/08/2010 - 21:04 | Link to Comment rocketgas
    rocketgas's picture

    I do feel a little bad for the guy. He was americas new Boom time Prez, he got their mostly throught the machine. Hes' not really accomplished much in a leadership role, Hes gonna be the new black prez in time of great prosperity. Thats how he, and alot the sitting fools in congess, got nominated. We all know it was a massive credit bubble and Obama, and the many of the fools in congress, are singularly unprepared for this situation.

    Thu, 07/08/2010 - 22:08 | Link to Comment FrankIvy
    FrankIvy's picture

    Now he's just going to be known to many in the angry masses as the -----er who broke the camel's back.

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