Predicting the Future
I've been thinking about doing this for some time, but have held off. Now it's time to take the plunge. Here is my prediction for the economy for the remainder of 2010.
As the summer wears on and into the fall, housing prices will crash once again. Along with them, this time, durable goods will also crash. You'll see this reflected in the increasing number of "sales" at your local Wal-Mart and other retail stores. Formerly thriving strip malls will start to look like ghost towns, where they haven't already, and you will notice a increase of vacancies at your local shopping mall. Going into the mid-term election things will get bleak.
The elections make things a bit dicey, but I think it's safe to say regardless of the results, by the end of the year we will see another round of "stimulus" using borrowed funds. The size of the stimulus may be mitigated by how the elections are looking, or how they turned out (depending on the exact timing) but I'll give it a range of anywhere from $100 Billion to $600 Billion. It will be interesting to watch sales of treasury bonds after the stimulus is announced to see if there is any creaking in the hull yet. I predict that this round of bond sales will not fail, but will bring us precipitously closer to the point where they will. We may see yields start to spike, and that will be a dangerous sign if they do.
Europe is at least right now talking the talk of austerity. If they actually show they have the mettle to stick with it I predict a turnaround in the Euro and falling bond prices across Europe as investors start to look at the U.S. with a skeptical eye. However, this is a big IF. All the talk of austerity could be just that. Talk. Politicians are well known for saying the right thing at the right time to calm investors nerves. If it ends up showing itself to be just talk then I expect the scrutiny to stay on Europe while we dig ourselves an even deeper hole.
That's how I see it. We'll see what happens.
by Carlton Smith
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Americano Moderno Fascismo
In the aftermath of World War I, the allied countries burdened Germany with the blame for the war. To exact punishment for it, heavy fines and restitution payments were placed on a German people who had no way of paying it. Under the weight of this debt, its economy collapsed.
In desperation, the German people turned to a party of thugs. Thugs who supported the "working man." Thugs who supported the downtrodden. Thugs who spoke of a great new Germany, created by the modern ideals of socialist economy, and ready to stand up to those who had imposed this burden. The creative minds of those thugs convinced their people that the Jews were to blame for their circumstances. By every right, it seems, those thugs believed this to be true. They didn't understand the economics of debt any more than people here do today. So to them, it was perfectly reasonable to believe that the blame lay with a peaceful, yet separate population that lived among them.
Today, in this country, a burden of debt is weighing down our economy. An economic philosophy largely ignored by our institutions of higher learning explains how this happens, but our "experts" are not familiar with this philosophy. Those who are have seen this situation coming. They warned of the dotcom boom and bust. They warned of the housing bust. Their warnings came true. And today their warnings are more dire than ever. Prevailing economic thought teaches us that we need to "stimulate" the economy to launch into true recovery. However, those who predicted our current predicament tell us that the root of the problem is debt. Stimulus creates more debt. And you can't solve a debt problem with more debt. Not unless your end goal is to go bust.
And that's exactly where we're headed. But going bust for a nation isn't the same thing as it is for an individual, or even a large corporation. When you or I go bust, we file bankruptcy, our creditors don't get paid, we have difficulty getting credit for a while, and our slate is wiped clean. For corporations it is similar. Most often pieces of the corporation are sold off to those that can make good use of it's components. But when a nation goes bust the whole society is left in limbo. Chaos ensues.
Today, across Europe, where the debt crises is even more advanced than it is here, public labor unions are organizing and executing protests against the austerity measures those governments are instituting to avoid economic collapse. Just as we have seen here recently with teachers unions in Illinois and New Jersey, student groups in California and others. These are the forces that are organizing today. They haven't created a scapegoat like the German thugs of the 20's and 30's yet. But the keyword is, yet. They are putting pressure on our nation and the nations of Europe to not cut back spending. They want the debt load to continue, regardless of whose back it's put upon. This debt can only lead to catastrophe.
And when catastrophe is realized and a nation goes bust, someone always rises from the ashes. History teaches us that it's usually those who are already organized. And of those who are organized, usually the most ruthless prevail.
by Carlton Smith Print This Post
Stranger than Fiction
You really can't make this stuff up. From a piece by Calculated Risk over the weekend...
From Danny Hakim at the NY Times: New York Plan Makes Fund Both Borrower and Lender (ht jb)
Gov. David A. Paterson and legislative leaders have tentatively agreed to allow the state and municipalities to borrow nearly $6 billion to help them make their required annual payments to the state pension fund.And, in classic budgetary sleight-of-hand, they will borrow the money to make the payments to the pension fund — from the same pension fund.
Oh my ...
Really? How does that work? Can I borrow money from my savings account to make deposits in my savings account too?
Where does the madness end?
"Move along folks. There's nothing to see here"
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The New York Times and Willful Blindness
In an editorial piece today, the New York Times warns readers about getting into too much of a tizzy about deficits.
The Obama administration has warned that the new austerity drive could undercut economic recovery and has pressed the case that stronger countries, such as Germany, should not slam on the brakes. In a letter to G-20 colleagues, Treasury Secretary Timothy Geithner warned that budget cutting won’t work “unless we are able to strengthen confidence in the global recovery.”
What the New York Times needs to get is that Keynsian economics has failed. There is no recovery. The so-called stimulus has done nothing but prolong and deepen the economic pain our modern economy is only beginning to realize. We're replacing demand with debt. Debt that will have to be repaid. Debt that caused the problem in the first place. You can't solve a problem caused by debt with more debt.
The longer we cling to this pipe dream of recovery and the efficacy of stimulus, the longer and deeper this crisis will be. The New York Times is willfully blind to economic reality. They show their hand when they state, "nearly 1 in 10 are out of work," using the rosiest unemployment statistic around, which ignores those who have fallen off the unemployment rolls, stopped looking for work or accepted part time work in lieu of badly needed full time work.
The New York Times wants us to believe that it will all be better if we just stick to the plan. Follow their advice to all of our peril.
by Carlton Smith Print This Post
Time to Pay the Piper
From this piece today at the Market Ticker, Denninger is once again on his soap box warning of things to come...
The so-called "bailout" of Greece will soon be exposed as not really a bailout but rather an unfunded mess that cannot be funded. When that realization enters the investment consciousness I fully expect the equity and bond markets to undergo a cataclysmic upheaval far worse than Lehman Brothers, as there is literally nothing that can be done at that point beyond a default on the unpayable obligations and the resulting impact on balance sheets - which will render major financial institutions insolvent...
The inevitable consequences of this decision cannot be avoided. They can be and have been delayed for two years, but we can't prevent them from being manifested.
The nations that decide to do the right thing first will be the ones that emerge with their governments and societies more intact than the others. This does not mean pain avoidance, but it may well be the difference between lots of pain and loss of national sovereignty - or worse.
We looked at the socialist Utopia in Europe and pined for an enlightened government that would afford us the same laundry list of benefits. We said, "If they can do it, why can't we?" Well, as we are seeing now, they can't - and neither can we. The trouble is that the end game to this is not a matter of a little bit of time collecting unemployment and then ready for the high times again. It's much more serious than that. We're playing with history here. If you have never spent much time wondering what hungry people rioting in suburbia would look like, you may want to ponder it. And you may want to figure out what you might do to protect yourself if it happens.
I have seen no evidence that our government is willing to stop it.
by Carlton Smith Print This Post
Daily Reading
These are some items I found interesting today.
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According to Mike Shedlock at Mish's Global Economic Trend Analysis, the most populous state in the nation wants to fund it's budget shortfalls with returnables. Seinfeld jokes aside, when are these jokers going to get it?
Perez calls his plan "unique and creative approach." Governor Schwarzenegger called it "legal gymnastics." I call it "fiscal insanity".
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David Hersanyi at Reason.com writes about the controversy surrounding Rand Paul's statements regarding the Civil Rights Act of 1964.
I wonder if the mainstream media feels like it found a magic bullet to shoot down libertarian-type candidates by raising questions about their beliefs regarding legislation designed to control how citizens behave, when their behavior might not be politically correct. They're smart enough to know that 99% of the public has no idea what the specifics of the Civil Rights Act of 1964 stated, but that most listeners will equate such a statement with thinking that the politician is opposed to civil rights in general. The laughable part of this is that this demagoguery obscures the point that most mainstream politicians couldn't give a rat's rear end about civil rights and the politicians these questions are targeted to discredit would do far more to restore civil rights to this country than any of those crooked hacks currently in office ever would.
Agree or not, shouldn't Americans armed with historical perspective be able to engage in constructive dialogue about the positive consequences—and some of the negative complexities—of legislation from 1964? (I know. Just kidding.)
Some critics eagerly blasted "naive" libertarians, and others, like Washington Post columnist Eugene Robinson, used Paul's "extremist position" to wring their hands over the coming Republican crusade to overturn the Civil Rights Act—which fits neatly into an arching (and largely imagined) narrative that puts America squarely in the mid-1960s.
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Daily Reading
Here are some stories that I came across today that I found interesting. Perhaps you will too...
- Vox Day at World Net Daily writes about republican government, corruption and public unions.
This goes well beyond ideology. Even the liberal media's standard bearer, the New York Times, was appalled to discover that New York is home to several ex-government employees who retired in their 30s whose pensions now pay them more than $100,000 a year. This is legal, contractual and totally unconscionable. No retired policeman can reasonably claim to have ever put his life on the line to the extent that a Marine Corps private making one-quarter as much while stationed in Afghanistan or Iraq does.
- David Harsanyi at Reason.com has an interesting take on net neutrality.
I know it sounds wonderfully fair. But the reality of net neutrality makes as much sense as mandating that tricycle riders have the same rights and privileges as cars and trucks on our roads—highway neutrality.
The FCC promises it doesn't have any intention of controlling Internet content, only of making access fair. But empowered with the ability to regulate the flow of online traffic, it offers a semantic, not substantive, excuse for a power grab.
- Here is an interesting little song by Tim Miller, inspired by a family that fell victim to predatory lending practices.
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Karl Denninger at The Market Ticker talks about debt and the economy in Kuttner Has Been Lobotomized.
We had the inflation. Punishing, cruel, ridiculous inflation. Yeah, I know, you don't think it happened because it was "only" a doubling of gasoline and diesel prices in a five year span (well, actually, it was closer to a tripling, but who's counting, right?)
Of course this very same inflation showed up in other things, like houses and stock prices. This made people "feel rich", but in fact they were not, because their wages did not accelerate at anywhere close to the same rate, nor could they.
- Mike Shedlock at Mish's Global Economic Trend Analysis writes today about commercial real estate foreclosures and rental property woes.
Los Angeles City Councilman Richard Alarcon is a complete fool, unless of course he is pandering to voters, perpetually buying votes to get re-elected.
- Radley Balko at Reason.com points out several lessons police and local governments (and even cable network A&E) might learn from the Detroit raid that resulted in the death of a little girl.
With many of these shows, the police department gets veto power over what footage makes it on the air. So you won't be seeing footage of many mistaken raids. That said, A&E should air the footage of this raid to show that the violent tactics these shows repeatedly glamorize can and do have tragic consequences. If the network has any guts at all, it will make sure the same episode looks at the possibility that the presence of its own cameras contributed to the death of a little girl.
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Police Abuse
Over the past week I have seen several stories regarding the abuse, murder and harassment of citizens by local police forces. Serve and Protect has quickly become an outmoded euphemism, deserving of derision.
Just take a look at those three articles linked above.
In the first story, a SWAT team entered into a home, shooting at dogs with bullets ricocheting about the house while a mother was reading a bed time story to her young son in an upstairs bedroom. Police were looking for marijuana, which is legal to possess in that community - but the "suspect" was believed to have a whole bunch, apparently. What was he charged with? Possession of drug paraphernalia. He paid a $300 fine. That was certainly worth putting innocent people in mortal danger.
In the second story another police SWAT team burst into a home in Detroit, Michigan - this time looking for a suspected murderer and shot a 7 year old girl sleeping on the living room couch. They say it was accidental. Evidence shows otherwise. Of course, a suspected murderer should be arrested, and it would be reasonable to presume such a suspect dangerous. It would also be reasonable to wait until the man tried to leave the home and arrest him on the street where it's less likely that you might kill little girls. This would be reasonable to presume if you believed that the police were on your side.
In the third story, police in New York City are downgrading violent crimes so crooked politicians can look better statistically and harassing peaceable citizens to meet quotas. If you believe that my use of the word harassment is an attempt to steer the perception of my readers, consider this excerpt:
Officers were instructed to arrest people for "blocking the sidewalk," for not possessing ID (even while just feet from their homes), even for no reason at all (cops were told to "articulate" a charge at a later time). The cops were told to make arrests even if they knew they'd be voiding the charge at the end of their shifts. As a sergeant implores in one recording, "Again, it's all about the numbers."
About those numbers: While only about one tenth of 1 percent of the stops yielded a gun (at present it's nearly impossible to legally carry a gun in New York), the practice has helped drive up the city's marijuana arrests from 4,000 in 1997 to 40,000 in 2007. Marijuana for personal use was actually decriminalized in New York during that period. But you still can't display your pot in public. So the police simply stop people, trick them into emptying their pockets, and then arrest them for displaying marijuana in public.
If you can think of a better word than harassment, please let me know. I can think of a few, but they aren't suitable for family reading.
Once upon a time I believed that police officers were friends of the community. They were what stood between you and the bad guys. They put their lives on the line to keep the community safe. Today I no longer view local law enforcement as offering this protection. In fact, a loved one asked me the other day if I thought it was a good idea to teach her young son that police officers are safe in case he gets lost in a public place. I wasn't sure what to tell her. One would like to think that police officer would be more trustworthy than an average citizen, but does putting on a badge and carrying a gun really bestow that upon a personality? I am inclined to think it does not. The stories above prove it.
by Carlton Smith Print This Post
What Do You Think?
I'm really not sure what to think. My first instinct is to not believe it, and think this was someone's severely misguided attempt at humor. But it appears to actually be from the State of Pennsylvania.
I've often heard people argue that taxation is not really coercion and there is nothing wrong with taking part of what someone produces for the good of everyone. Those of you out there sympathetic with that view, watch this video, and realize that real people are under pressure to pay these taxes for whatever reason. And those people in Pennsylvania are watching this ad on their televisions.
If you don't think that income taxes are coercive, think about what happens when you don't pay them. Who do they send to your house? Men. Men with guns. They know who you are.
by Carlton Smith Print This Post
I Gotta Wear Shades
Some interesting things have been happening of late that I wanted to share my thoughts on. Recently I've been quite concerned that the amount of deficit spending our congress and president have availed themselves of would lead to a systemic crash, the likes of which would make the Great Depression look like a cake walk. I believed this would happen because the well would eventually run dry.
Look at what is happening in Greece right now. No one wants to lend them money and their treasury bonds are on par with war-torn Pakistan. Junk. But Greece, though important to the European economy and troublesome to the fate of the Euro, is not anywhere near the size player that the U.S. is in the world economy. You know the saying, the bigger they are...
I was concerned because I didn't see any scenario playing out where our beloved politicians would pull back the reigns before it was too late. I didn't see them mustering the political will to just say, "no". But now, I wonder, if it just might be happening. The housing subsidy, granting new home buyers up to $8000 in tax breaks for buying a new home and $6,500 for non-first-time-buyers, is actually coming to an end. The papers are now starting to warn of the impacts of expanding the stimulus. And Wall Street might just give the politicos the scapegoat they need to end the madness.
Even today, Ben Bernake said, “Achieving long-term fiscal sustainability will be difficult, but the costs of failing to do so could be very high,” Bernanke said in remarks prepared for a speech today to a White House commission on the budget deficit. “Increasing levels of government debt relative to the size of the economy can lead to higher interest rates, which inhibit capital formation and productivity growth -- and might even put the current economic recovery at risk."
So now, even members of the old guard are beginning to have their doubts as to the wisdom of the current course of action. I can no longer say that I would be entirely awestruck were I to start hearing the politicos and media cheerleaders start trumpeting the line that they need to get out of the way and let the mess the Wall Street banks made clean itself out of the system. Now, that said, I didn't say it wouldn't surprise me, and I don't think it will happen.
I expect that the stimulus will be pulled back for now. And the economy will screech to a grinding halt. Property prices will fall dramatically again (I'm guessing another 25% or so). The commercial real estate bubble, which has been sitting at it's apex will finally burst. People will stop buying things again (with the money they are saving by not paying their mortgages, having caught on to the fact that banks aren't foreclosing). Unemployment will soar again. Then the politicians will start shaking in their boots and start pumping the stimulus prime once again. If they're lucky, the mess in Europe will still be going on and the renewed acceleration in deficit spending won't detonate the U.S. treasuries market. Yet.
The trouble with all of this is that the current deficit spending and the future re-acceleration of it that I predict do nothing but delay the inevitable. There is a ton of misallocated investment out there that needs to fail so that its pieces can be put to productive use once again and the economy can actually recover. All of this stimulus has made it worse. The future stimulus I project will make it worse still.
What we have here are two options. One option is to stop the madness and take the medicine. The economy will fall dramatically for a little bit of time, I'd say between a year and two years, and then it will finally start to climb out of the gutter on a new and healthy footing. The other option is to continue the stimulus madness until the point where the world calls us on our debt and causes a complete system crash, marking an end of the American Empire and the kind of life we've all grown accustomed to.
Of course, while I present this as a dichotomy, there are shades of options between these two extremes. We could spend the next several decades stopping and starting stimulus programs to forestall the pain, hoping for some new magic internet 2.0 type technology which will employ millions of people in some new industry that doesn't currently exist, and grind away in the doldrums in the interim. It's possible that we could keep halting these borrowing spurts before the treasury markets decide to call bull. I don't think it's likely, but it is certainly possible.
The one thing I can say for certain is this supposed "recovery" our politicians are talking about right now is not happening. And it won't happen for a long way off.
"The future's so bright..."
by Carlton Smith Print This Post
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