Hopefully I won't get thrown off this page for this, but every valid conspiracy theory I have ever seen involved the Wall Street banker class. Why is it that the biggest fraud scheme in the history of the world has not only not been investigated or prosecuted, but the perpeptrators of the fraud bailed out and massively rewarded? This is like going to Federal prison, finding the convicted bank robbers, throwing the judge and jury in prison and giving the convicts the key to the bank and releasing them. This is only about a $5 trillion fraud when you sum it all up and it touches all corners of the world. Guys like Blanfein should be charged and tried. If they are innocent, they have a huge pile of money for a defense, but someone should act. As Karl and others write over and over again (William Black cites the same study), the FBI warned that massive mortgage fraud was going on as early as 2004. What is it that has put the power structure in the US in position that simple shoplifting can get you prison time while massive financial fraud gets you another huge bonus?
I have recently been trying to trade the oil markets short. Once the volume dries up, the robots take over. If there was only one form, trading these markets would make you rich, but the form changes. In order to sell into a market, you need bids and the machines line the bids up to where there is always 1 contract in the front and never over a few behind it. The large bids are phonies and they disappear when the line comes to them. I suspect the bids and the asks are put there quite often by the same entities. You see market orders go right through bids to the bid behind it over and over again, meaning the computers are getting the signals and moving the pawns before the orders hit them. Not only are our securitization markets rife with fraud, our other markets are being manipulated for the profit of the very operations that owe the public fidiciary duty. It is no wonder that Goldman and the other banks are reaping massive trade profits out of the markets. Bull the oil market up $1 or so with minimal cost so you can play the other side after squeezing the ones that are on the right side. You have to watch this a few days to realize what is going on. These guys are more than making the markets. You might as well be playing the roulette wheel and giving the house the vig. The copper market is the same and I am sure the SPX overnight is also manipulated. I doubt there is much left in NYC that isn't some kind of organized crime. Organized crime starts within the government.
There isn't much Karl wrote that I either haven't written myself or that I disagree with. The smokescreen nonsense that heads up every major election always covers up what is really going on. There are also myths about who is who. Bernanke either hasn't a clue what caused the Great Depression (over extention of credit) or he is doing the opposite of what he knows would cure it. Bernanke didn't cause this mess. What caused this mess was the idea that the supply of credit was infinite and it was only a matter of debt service itself that determined how much debt one could take on. This would only be true if it wasn't necessary for some to act as creditors. Thus only a minority few could ever pose at any given time as major debtors. It is clear that one more time we are being forced to bail out our own creditors. FDR bailed out the banks in 1933 along with the Fed. Wall Street created the mess that time as well, but we had one problem then we don't have now, gold. FDR had to devalue gold to balance world financial flows. But, he confiscated gold from the American public in order to relieve the Fed of its duty to redeem all its paper in gold. The Fed was broke then. We will find it broke again.
Why is it that everything seems to be on the table but banking? The compound interest equation always eventually collapses and causes a depression and most likely has for 3000 years or more. It is clear that in order to produce a real return that the yield on loaned funds has to exceed the inflation created by such lending. Once lending becomes speculative, the bubbles arise and then burst. Every form of protection ever created has collapsed into a pile of economic ruin. For some reason, this is a mistake made over and over again by man. Any other form of business that caused such problems would be outlawed immediately, but this one is always deemed essential to the continued operation of the world. The idea that one group gets to draw an income out of the very existance of money while the others pay a penalty and provide the property to create the money/debt is beyond me. It is clear that this seemingly benign operation could be the very synagog of Satan spoken of in the bible. It is also clear that bondage in Egypt was a lien against the entire population for 20% of its income. Moses prohibited usury for the very reason that it would eventually enslave and destroy the society in which it was practiced.
Saturday, January 30, 2010
Wednesday, January 6, 2010
Does Economics Deserve a Nobel Prize
By Michael Hudson Written and published December 18, 1970
I moved this here because I couldn't get it all to show up on the windown on his site.
It is bad enough that the field of psychology has for so long been a non-social science, viewing the motive forces of personality as deriving from internal psychic experiences rather than from man's interaction with his social setting. Similarly in the field of economics: since its “utilitarian” revolution about a century ago, this discipline has also abandoned its analysis of the objective world and its political, economic productive relations in favor of more introverted, utilitarian and welfare-oriented norms. Moral speculations concerning mathematical psychics have come to displace the once-social science of political economy.
To a large extent the discipline’s revolt against British classical political economy was a reaction against Marx¬ism, which represented the logical culmination of clas¬sical Ricardian economics and its paramount emphasis on the conditions of production. Following the counterrevolution, the motive force of economic behavior came to be viewed as stemming from man's wants rather than from his productive capacities, organization of production, and the social relations that followed therefrom. By the postwar period the anti-classical revolution (curiously termed neo-classical by its participants) had carried the day. Its major textbook of indoctrination was Paul Samuelson's Economics.
Today, virtually all established economists are products of this anti-classical revolution, which I myself am tempted to call a revolution against economic analysis per se. The established practitioners of economics are uniformly negligent of the social preconditions and consequences of man's economic activity. In this lies their shortcoming, as well as that of the newly-instituted Economics Prize granted by the Swedish Academy: at least for the next decade it must perforce remain a prize for non-economics, or at best superfluous economics. Should it therefore be given at all?
This is only the second year in which the Economics prize has been awarded, and the first time it has been granted to a single individual—Paul Samuelson— described in the words of a jubilant New York Times editorial as “the world’s greatest pure economic theorist.” And yet the body of doctrine that Samuelson espouses is one of the major reasons why economics students enrolled in the nation's colleges have been declining in number. For they are, I am glad to say, appalled at the irrelevant nature of the discipline as it is now taught, impatient with its inability to describe the problems which plague the world in which they live, and increasingly resentful of its explaining away the most apparent problems which first attracted them to the subject.
The trouble with the Nobel Award is not so much its choice of man (although I shall have more to say later as to the implications of the choice of Samuelson), but its designation of economics as a scientific field worthy of receiving a Nobel prize at all. In the prize committee’s words, Mr. Samuelson received the award for the “scientific work through which he has developed static and dynamic economic theory and actively contributed to raising the level of analysis in economic science. . . .”
What is the nature of this science? Can it be “scientific” to promulgate theories that do not describe economic reality as it unfolds in its historical context, and which lead to economic imbalance when applied? Is economics really an applied science at all? Of course it is implemented in practice, but with a noteworthy lack of success in recent years on the part of all the major economic schools, from the post-Keynesians to the monetarists.
In Mr. Samuelson’s case, for example, the trade policy that follows from his theoretical doctrines is laissez faire. That this doctrine has been adopted by most of the western world is obvious. That it has benefited the developed nations is also apparent. However, its usefulness to less developed countries is doubtful, for underlying it is a permanent justification of the status quo: let things alone and everything will (tend to) come to “equilibrium.” Unfortunately, this concept of equilibrium is probably the most perverse idea plaguing economics today, and it is just this concept that Mr. Samuelson has done so much to popularize. For it is all too often overlooked that when someone falls fiat on his face he is “in equilibrium” just as much as when he is standing upright. Poverty as well as wealth represents an equilibrium position. Everything that exists represents, however fleetingly, some equilibrium—that is, some balance or product—of forces.
Nowhere is the sterility of this equilibrium preconception more apparent than in Mr. Samuelson's famous factor-price equalization theorem, which states that the natural tendency of the international economy is for his wages and profits among nations to converge over time. As an empirical historical generality this obviously is invalid. International wage levels and living standards are diverging, not converging, so that the rich creditor nations are becoming richer while poor debtor countries are becoming poorer – at an accelerating pace, to boot. Capital transfers (international investment and “aid”) have, if anything, aggravated the problem, largely because they have tended to buttress the structural defects that impede progress in the poorer countries: obsolete systems of land tenure, inadequate educational and labor-training institutions, pre-capitalist aristocratic social structures, and so forth. Unfortunately, it is just such political-economic factors that have been overlooked by Mr. Samuelson’s theorizing (as they have been overlooked by the mainstream of academic economists since political economy gave way to “economics” a century ago).
In this respect Mr. Samuelson's theories can be described as beautiful watch parts which, when assembled, make a watch that doesn’t tell time accurately. The individual parts are perfect, but their interaction is somehow not. The parts of this watch are the constituents of neoclassical theory that add up to an inapplicable whole. They are a kit of conceptual tools ideally designed to correct a world that doesn’t exist.
The problem is one of scope. Mr. Samuelson’s three volumes of economic papers represent a myriad of applications of internally consistent (or what economists call “elegant”) theories, but to what avail? The theories are static, the world dynamic.
Ultimately, the problem resolves to a basic difference between economics and the natural sciences. In the latter, the preconception of an ultimate symmetry in nature has led to many revolutionary breakthroughs, from the Copernican revolution in astronomy to the theory of the atom and its sub-particles, and including the laws of thermodynamics, the periodic table of the elements, and unified field theory. Economic activity is not characterized by a similar underlying symmetry. It is more unbalanced. Independent variables or exogenous shocks do not set in motion just-offsetting counter-movements, as they would have to in order to bring about a meaningful new equilibrium. If they did, there would be no economic growth at all in the world economy, no difference between U.S. per capita productive powers and living standards and those of Paraguay. Mr. Samuelson, however, is representative of the academic mainstream today in imagining that economic forces tend to equalize productive powers and personal incomes throughout the world except when impeded by the disequilibrating “impurities” of government policy. Empirical observation has long indicated that the historical evolution of “free” market forces has increasingly favored the richer nations (those fortunate enough to have benefited from an economic head start) and correspondingly retarded the development of the laggard countries. It is precisely the existence of political and institutional “impurities” such as foreign aid programs, deliberate government employment policies, and related political actions that have tended to counteract the "natural" course of economic history, by trying to maintain some international equitability of economic development and to help compensate for the economic dispersion caused by the disequilibrating “natural” economy.
A Revolution
This decade will see a revolution that will overthrow these untenable theories. Such revolutions in economic thought are not infrequent. Indeed, virtually all of the leading economic postulates and “tools of the trade” have been developed in the context of political-economic debates accompanying turning points in economic history. Thus, for every theory put forth there has been a counter-theory.
To a major extent these debates have concerned international trade and payments. David Hume with the quantity theory of money, for instance, along with Adam Smith and his “invisible hand” of self-interest, opposed the mercantilist monetary and international financial theories that had been used to defend England’s commercial restrictions in the eighteenth century. During England’s Corn Law debates some years later, Malthus opposed Ricardo on value and rent theory and its implications for the theory of comparative advantage in international trade. Later, the American protectionists of the 19th century opposed the Ricardians, urging that engineering coefficients and productivity theory become the nexus of economic thought rather than the theory of exchange, value and distribution. Still later, the Austrian School and Alfred Marshall emerged to oppose classical political economy (particularly. Marx) from yet another vantage point, making consumption and utility the nexus of their theorizing.
In the 1920s, Keynes opposed Bertil Ohlin and Jacques Rueff (among others) as to the existence of structural limits to the ability of the traditional price and income adjustment mechanisms to maintain “equilibrium,” or even economic and social stability. The setting of this debate was the German reparations problem. Today, a parallel debate is raging between the Structuralist School – which flourishes mainly in Latin America and opposes austerity programs as a viable plan for economic improvement of their countries – and the monetarist and post-Keynesian schools defending the IMF's austerity programs of balance-of-payments adjustment. Finally, in yet another debate, Milton Friedman and his monetarist school are opposing what is left of the Keynesians (including Paul Samuelson) over whether monetary aggregates or interest rates and fiscal policy are the decisive factors in economic activity.
In none of these debates do (or did) members of one school accept the theories or even the underlying assumptions and postulates of the other. In this respect the history of economic thought has not resembled that of physics, medicine, or other natural sciences, in which a discovery is fairly rapidly and universally acknowledged to be a contribution of new objective knowledge, and in which political repercussions and its associated national self-interest are almost entirely absent. In economics alone the irony is posed that two contradictory theories may both qualify for prizeworthy preeminence, and that the prize may please one group of nations and displease another on theoretical grounds.
Thus, if the Nobel prize could be awarded posthumously, both Ricardo and Malthus, Marx and Marshall would no doubt qualify—just as both Paul Samuelson and Milton Friedman were leading contenders for this year’s prize. Who, on the other hand, can imagine the recipient of the physics or chemistry prize holding a view not almost universally shared by his colleagues? (Within the profession, of course, there may exist different schools of thought. But they do not usually dispute the recognized positive contribution of their profession’s Nobel prizewinner.) Who could review the history of these prizes and pick out a great number of recipients whose contributions proved to be false trails or stumbling blocks to theoretical progress rather than (in their day) breakthroughs?
The Swedish Royal Academy has therefore involved itself in a number of inconsistencies in choosing Mr. Samuelson to receive the 1970 Economics Prize. For one thing, last year’s prize was awarded to two mathematical economists (Jan Tinbergen of Holland and Ragnar Frisch of Norway) for their translation of other men's economic theories into mathematical language, and in their statistical testing of existing economic theory. This year’s prize, by contrast, was awarded to a man whose theoretical contribution is essentially untestable by the very nature of its “pure” assumptions, which are far too static ever to have the world stop its dynamic evolution so that they may be “tested.” (This prompted one of my colleagues to suggest that the next Economics Prize be awarded to anyone capable of empirically testing any of Mr. Samuelson’s theorems.)
And precisely because economic “science” seems to be more akin to “political science” than to natural science, the Economics Prize seems closer to the Peace Prize than to the prize in chemistry. Deliberately or not, it represents the Royal Swedish Academy’s endorsement or recognition of the political influence of some economist in helping to defend some (presumably) laudable government policy. Could the prize therefore be given just as readily to a U.S. president, central banker or some other non-academician as to a “pure” theorist (if such exists)? Could it just as well be granted to David Rockefeller for taking the lead in lowering the prime rate, or President Nixon for his acknowledged role in guiding the world’s largest economy, or to Arthur Burns as chairman of the Federal Reserve Board? If the issue is ultimately one of government policy, the answer would seem to be affirmative.
Or is popularity perhaps to become the major criterion for winning the prize? This year’s award must have been granted at least partially in recognition of Mr. Samuelson’s Economics textbook, which has sold over two million copies since 1947 and thereby influenced the minds of a whole generation of—let us say it, for it is certainly not all Mr. Samuelson’s fault—old fogeys. The book’s orientation itself has impelled students away from further study of the subject rather than attracting them to it. And yet if popularity and success in the marketplace of economic fads (among those who have chosen to remain in the discipline rather than seeking richer intellectual pastures elsewhere) is to become a consideration, then the prize committee has done an injustice to Jacqueline Susann in not awarding her this year’s literary prize.
To summarize, reality and relevance rather than “purity” and elegance are the burning issues in economics today, political implications rather than antiquarian geometrics. The fault therefore lies not with Mr. Samuelson but with his discipline. Until it is agreed what economics is, or should be, it is as fruitless to award a prize for “good economics” as to award an engineer who designed a marvelous machine that either could not be built or whose purpose was unexplained. The prize must thus fall to those still lost in the ivory corridors of the past, reinforcing general equilibrium economics just as it is being pressed out of favor by those striving to restore the discipline to its long-lost pedestal of political economy.
MICHAEL HUDSON is Visiting
I moved this here because I couldn't get it all to show up on the windown on his site.
It is bad enough that the field of psychology has for so long been a non-social science, viewing the motive forces of personality as deriving from internal psychic experiences rather than from man's interaction with his social setting. Similarly in the field of economics: since its “utilitarian” revolution about a century ago, this discipline has also abandoned its analysis of the objective world and its political, economic productive relations in favor of more introverted, utilitarian and welfare-oriented norms. Moral speculations concerning mathematical psychics have come to displace the once-social science of political economy.
To a large extent the discipline’s revolt against British classical political economy was a reaction against Marx¬ism, which represented the logical culmination of clas¬sical Ricardian economics and its paramount emphasis on the conditions of production. Following the counterrevolution, the motive force of economic behavior came to be viewed as stemming from man's wants rather than from his productive capacities, organization of production, and the social relations that followed therefrom. By the postwar period the anti-classical revolution (curiously termed neo-classical by its participants) had carried the day. Its major textbook of indoctrination was Paul Samuelson's Economics.
Today, virtually all established economists are products of this anti-classical revolution, which I myself am tempted to call a revolution against economic analysis per se. The established practitioners of economics are uniformly negligent of the social preconditions and consequences of man's economic activity. In this lies their shortcoming, as well as that of the newly-instituted Economics Prize granted by the Swedish Academy: at least for the next decade it must perforce remain a prize for non-economics, or at best superfluous economics. Should it therefore be given at all?
This is only the second year in which the Economics prize has been awarded, and the first time it has been granted to a single individual—Paul Samuelson— described in the words of a jubilant New York Times editorial as “the world’s greatest pure economic theorist.” And yet the body of doctrine that Samuelson espouses is one of the major reasons why economics students enrolled in the nation's colleges have been declining in number. For they are, I am glad to say, appalled at the irrelevant nature of the discipline as it is now taught, impatient with its inability to describe the problems which plague the world in which they live, and increasingly resentful of its explaining away the most apparent problems which first attracted them to the subject.
The trouble with the Nobel Award is not so much its choice of man (although I shall have more to say later as to the implications of the choice of Samuelson), but its designation of economics as a scientific field worthy of receiving a Nobel prize at all. In the prize committee’s words, Mr. Samuelson received the award for the “scientific work through which he has developed static and dynamic economic theory and actively contributed to raising the level of analysis in economic science. . . .”
What is the nature of this science? Can it be “scientific” to promulgate theories that do not describe economic reality as it unfolds in its historical context, and which lead to economic imbalance when applied? Is economics really an applied science at all? Of course it is implemented in practice, but with a noteworthy lack of success in recent years on the part of all the major economic schools, from the post-Keynesians to the monetarists.
In Mr. Samuelson’s case, for example, the trade policy that follows from his theoretical doctrines is laissez faire. That this doctrine has been adopted by most of the western world is obvious. That it has benefited the developed nations is also apparent. However, its usefulness to less developed countries is doubtful, for underlying it is a permanent justification of the status quo: let things alone and everything will (tend to) come to “equilibrium.” Unfortunately, this concept of equilibrium is probably the most perverse idea plaguing economics today, and it is just this concept that Mr. Samuelson has done so much to popularize. For it is all too often overlooked that when someone falls fiat on his face he is “in equilibrium” just as much as when he is standing upright. Poverty as well as wealth represents an equilibrium position. Everything that exists represents, however fleetingly, some equilibrium—that is, some balance or product—of forces.
Nowhere is the sterility of this equilibrium preconception more apparent than in Mr. Samuelson's famous factor-price equalization theorem, which states that the natural tendency of the international economy is for his wages and profits among nations to converge over time. As an empirical historical generality this obviously is invalid. International wage levels and living standards are diverging, not converging, so that the rich creditor nations are becoming richer while poor debtor countries are becoming poorer – at an accelerating pace, to boot. Capital transfers (international investment and “aid”) have, if anything, aggravated the problem, largely because they have tended to buttress the structural defects that impede progress in the poorer countries: obsolete systems of land tenure, inadequate educational and labor-training institutions, pre-capitalist aristocratic social structures, and so forth. Unfortunately, it is just such political-economic factors that have been overlooked by Mr. Samuelson’s theorizing (as they have been overlooked by the mainstream of academic economists since political economy gave way to “economics” a century ago).
In this respect Mr. Samuelson's theories can be described as beautiful watch parts which, when assembled, make a watch that doesn’t tell time accurately. The individual parts are perfect, but their interaction is somehow not. The parts of this watch are the constituents of neoclassical theory that add up to an inapplicable whole. They are a kit of conceptual tools ideally designed to correct a world that doesn’t exist.
The problem is one of scope. Mr. Samuelson’s three volumes of economic papers represent a myriad of applications of internally consistent (or what economists call “elegant”) theories, but to what avail? The theories are static, the world dynamic.
Ultimately, the problem resolves to a basic difference between economics and the natural sciences. In the latter, the preconception of an ultimate symmetry in nature has led to many revolutionary breakthroughs, from the Copernican revolution in astronomy to the theory of the atom and its sub-particles, and including the laws of thermodynamics, the periodic table of the elements, and unified field theory. Economic activity is not characterized by a similar underlying symmetry. It is more unbalanced. Independent variables or exogenous shocks do not set in motion just-offsetting counter-movements, as they would have to in order to bring about a meaningful new equilibrium. If they did, there would be no economic growth at all in the world economy, no difference between U.S. per capita productive powers and living standards and those of Paraguay. Mr. Samuelson, however, is representative of the academic mainstream today in imagining that economic forces tend to equalize productive powers and personal incomes throughout the world except when impeded by the disequilibrating “impurities” of government policy. Empirical observation has long indicated that the historical evolution of “free” market forces has increasingly favored the richer nations (those fortunate enough to have benefited from an economic head start) and correspondingly retarded the development of the laggard countries. It is precisely the existence of political and institutional “impurities” such as foreign aid programs, deliberate government employment policies, and related political actions that have tended to counteract the "natural" course of economic history, by trying to maintain some international equitability of economic development and to help compensate for the economic dispersion caused by the disequilibrating “natural” economy.
A Revolution
This decade will see a revolution that will overthrow these untenable theories. Such revolutions in economic thought are not infrequent. Indeed, virtually all of the leading economic postulates and “tools of the trade” have been developed in the context of political-economic debates accompanying turning points in economic history. Thus, for every theory put forth there has been a counter-theory.
To a major extent these debates have concerned international trade and payments. David Hume with the quantity theory of money, for instance, along with Adam Smith and his “invisible hand” of self-interest, opposed the mercantilist monetary and international financial theories that had been used to defend England’s commercial restrictions in the eighteenth century. During England’s Corn Law debates some years later, Malthus opposed Ricardo on value and rent theory and its implications for the theory of comparative advantage in international trade. Later, the American protectionists of the 19th century opposed the Ricardians, urging that engineering coefficients and productivity theory become the nexus of economic thought rather than the theory of exchange, value and distribution. Still later, the Austrian School and Alfred Marshall emerged to oppose classical political economy (particularly. Marx) from yet another vantage point, making consumption and utility the nexus of their theorizing.
In the 1920s, Keynes opposed Bertil Ohlin and Jacques Rueff (among others) as to the existence of structural limits to the ability of the traditional price and income adjustment mechanisms to maintain “equilibrium,” or even economic and social stability. The setting of this debate was the German reparations problem. Today, a parallel debate is raging between the Structuralist School – which flourishes mainly in Latin America and opposes austerity programs as a viable plan for economic improvement of their countries – and the monetarist and post-Keynesian schools defending the IMF's austerity programs of balance-of-payments adjustment. Finally, in yet another debate, Milton Friedman and his monetarist school are opposing what is left of the Keynesians (including Paul Samuelson) over whether monetary aggregates or interest rates and fiscal policy are the decisive factors in economic activity.
In none of these debates do (or did) members of one school accept the theories or even the underlying assumptions and postulates of the other. In this respect the history of economic thought has not resembled that of physics, medicine, or other natural sciences, in which a discovery is fairly rapidly and universally acknowledged to be a contribution of new objective knowledge, and in which political repercussions and its associated national self-interest are almost entirely absent. In economics alone the irony is posed that two contradictory theories may both qualify for prizeworthy preeminence, and that the prize may please one group of nations and displease another on theoretical grounds.
Thus, if the Nobel prize could be awarded posthumously, both Ricardo and Malthus, Marx and Marshall would no doubt qualify—just as both Paul Samuelson and Milton Friedman were leading contenders for this year’s prize. Who, on the other hand, can imagine the recipient of the physics or chemistry prize holding a view not almost universally shared by his colleagues? (Within the profession, of course, there may exist different schools of thought. But they do not usually dispute the recognized positive contribution of their profession’s Nobel prizewinner.) Who could review the history of these prizes and pick out a great number of recipients whose contributions proved to be false trails or stumbling blocks to theoretical progress rather than (in their day) breakthroughs?
The Swedish Royal Academy has therefore involved itself in a number of inconsistencies in choosing Mr. Samuelson to receive the 1970 Economics Prize. For one thing, last year’s prize was awarded to two mathematical economists (Jan Tinbergen of Holland and Ragnar Frisch of Norway) for their translation of other men's economic theories into mathematical language, and in their statistical testing of existing economic theory. This year’s prize, by contrast, was awarded to a man whose theoretical contribution is essentially untestable by the very nature of its “pure” assumptions, which are far too static ever to have the world stop its dynamic evolution so that they may be “tested.” (This prompted one of my colleagues to suggest that the next Economics Prize be awarded to anyone capable of empirically testing any of Mr. Samuelson’s theorems.)
And precisely because economic “science” seems to be more akin to “political science” than to natural science, the Economics Prize seems closer to the Peace Prize than to the prize in chemistry. Deliberately or not, it represents the Royal Swedish Academy’s endorsement or recognition of the political influence of some economist in helping to defend some (presumably) laudable government policy. Could the prize therefore be given just as readily to a U.S. president, central banker or some other non-academician as to a “pure” theorist (if such exists)? Could it just as well be granted to David Rockefeller for taking the lead in lowering the prime rate, or President Nixon for his acknowledged role in guiding the world’s largest economy, or to Arthur Burns as chairman of the Federal Reserve Board? If the issue is ultimately one of government policy, the answer would seem to be affirmative.
Or is popularity perhaps to become the major criterion for winning the prize? This year’s award must have been granted at least partially in recognition of Mr. Samuelson’s Economics textbook, which has sold over two million copies since 1947 and thereby influenced the minds of a whole generation of—let us say it, for it is certainly not all Mr. Samuelson’s fault—old fogeys. The book’s orientation itself has impelled students away from further study of the subject rather than attracting them to it. And yet if popularity and success in the marketplace of economic fads (among those who have chosen to remain in the discipline rather than seeking richer intellectual pastures elsewhere) is to become a consideration, then the prize committee has done an injustice to Jacqueline Susann in not awarding her this year’s literary prize.
To summarize, reality and relevance rather than “purity” and elegance are the burning issues in economics today, political implications rather than antiquarian geometrics. The fault therefore lies not with Mr. Samuelson but with his discipline. Until it is agreed what economics is, or should be, it is as fruitless to award a prize for “good economics” as to award an engineer who designed a marvelous machine that either could not be built or whose purpose was unexplained. The prize must thus fall to those still lost in the ivory corridors of the past, reinforcing general equilibrium economics just as it is being pressed out of favor by those striving to restore the discipline to its long-lost pedestal of political economy.
MICHAEL HUDSON is Visiting
Tuesday, January 5, 2010
2010 here we come
I guess I will be stuck as a bear for the next several years. But, unlike the past, I think I have a good chance to be right. 2010 holds a lot of interest for us that love markets and economics. It also is leading right into disaster. The end of the world in 2012 could get a real boost this year.
First, there won't be a double dip recession because there really isn't a recovery. There were over 26 million first time claims filed for unemployment in 2009 and yet all we heard about since May was we had a recovery on the way. In examining the consumer confidence numbers last week, which were reported to have improved, I found much of what I found back in the middle of the year, hope 6 months out and a horrible present reading. In fact, the reading for December for the present was so bad it was the worst number in 26 years. That didn't make the bullish news, but it was on the conference board page for the index none the less. 6 months ago, the reading looked the same, a real bearish current reading and a more optimistic 6 month from now reading. So, the 6 month expectation turned out to be a dud.
They had a great housing number, but housing collapsed with boom time sales numbers all the way to the bottom. What is going to happen with housing once they get the last first time buyer to the closing altar? New home sales are at depression levels, so the game is buy a house on the courthouse steps and flip it to a first timer complete with a free downpayment from Uncle Sam and a guaranteed mortgage from FHA. Time is running thin here, as there are too many losses in the system to save it.
Factory orders or something of that sort came out today. They beat expectations, but these orders had fallen a sum of nearly 30% during the period between July 2008 and January 09 and the sum of the rebound has been about 5% since the bottom. Bulls are claiming the numbers indicate a boom, but the sum so far has been a dead cat bounce that is at best a weak inventory rebuild effort. Some boom for $800 billion plus the TARP.
I think the economy just continue to recover until it is discovered to be in a depression. There is too much debt and too much damage and not much other than the desire of China to buy up American goods to put in their empty array of buildings so they at least have the appearance of maintaining a nice group of museums can change this. Just like I heard the Ocean was the icebox in Hawaii, the homestead is the ATM for the US consumer and it has been overdrafted. We had record level auto sales and record level home sales in the US for a good part of a decade and we are still showing high levels of preowned home sales. This pool of autos and homes will carry the US consumer a long way while he gets his house in order. Credit is tapped and card companies have their share of high losses. Not many people that can avoid it are going to pay the rates on these cards, save those that can't pay the debt back.
Forecast: Real US growth will be negative, but reported growth will be around 2%. Real growth is negative because dead cat bounces and government gifts don't count.
China. I don't know what it is going to take to knock over China, but from what I can read, what they call growth is not what I would call growth. If building capacity and buildings that won't be used any time soon is growth then I buy into it. As a result of this policy, China has pinned the price of commodities to the ceiling. Because their necessity is they keep the public employed and the money flowing, this could go on for awhile. Their government isn't much different than ours in this matter. The longer this goes on, the longer the bust will be that follows.
Forcast: China probably reaches its growth goals, but they won't be real. Cracks are already showing in China in the eyes of a lot of analysts, but the public is being told they are hot. I think by the end of the year, the construction industry in China will have officially hit the rocks and the commodity producing countries, namely Australia and Brazil will be having a hell of a hangover. A crash in the stock markets in those 2 countries could very well occur
As a result, world growth will have spent itself. From what I can read, India is a better long term play than China, but it is clear that India will have its own bust. Deflation will have re-established its grip on the US and this will be devastating to world demand. Growth is more than a word, but a business around the world. It must be 30% of the economy around the world. The portion that puts an economy on the plus side is about to vanish.
The financial sector will do well for another 3 months. Though I don't expect another large failure in the US this year, there will be a restart of the crisis. The worst probably hits in 2011. 2 or 3 large US banks will be taken over and broken up before 2012 is over. Their condition currently is being concealed in hopes something doesn't get worse in the meantime. The US isn't the only part of the world that has to liquidate debt and it is quite conceivable that 30% of the worlds supply will be defaulted or liquidated in the next 5 years. This is not conducive to putting things on the installment plan. One of the major Japanese auto companies will be in GM/Chrysler land by mid 2012.
The stock market will finish 2010 lower than it started 2009.
It is quite likely that it could recapture the entire loss that followed the bankrupting of Lehman Brothers. The Dow is already near the bottom it made in July 2008, but the S&P still has another 7% or so to go to make that bottom. The difference is likely due to the fact that the Dow lost points from AIG and Citi while the SPX lost value and the replacements put the points back in the Dow on the rally, but Citi and AIG never came back. There isn't a lot of promise for stocks due to a lot of reasons, but mainly to the fact that the credit flow that created the earnings in the market isn't coming back. Being able to borrow money at less than 1% doesn't make up for the lack of cash flow that is going to continue with the market. The customers are lacking the most important feature of all, credit and cash. Once the market reverses, the liquidity crunch is going to return with vengence, as there won't be a takeout.
The sovereign debt market will get interesting.
I don't believe Greece and Italy will default this year, but I do believe that as time goes forward, these countries are going to default or better yet, repudiate their debt. Currently we are seeing Iceland being tossed a bargaining chip of membership in the Eurozone in order to get them to agree to assume the losses of European investors in their 2 failed banks. I don't believe it is possible for that few people to agree to assume that much debt, nor should they. That will be an early story this year, a sign of things to come, but not much of an event at this time. It will be when Greece, Spain, Italy or Ireland tells them to stuff it.
Funny financing will cease
The focus seems to be on the Fed and the US, but the wildest financing is being done by China and other Asian countries. I do believe we are going to find out there is less to these sovereign wealth funds than has been mentioned. I wonder what kind of duds they contain that we haven't seen. China contains entire vacant cities that must cost tens or hundreds of billions to build. Dubai is todays tower of Babel. Much of the money of the middle east is tied up there. London is going to have its share of problems, especially if they drive their financial mob out with taxes. American commercial property is going to weigh on the US banking system and some are going to begin to question the US commitment to FNM and FRE. It is possible that the US will have to withdraw from its Asian wars.
The Democratic Party will lose one of the houses in Congress
This seems next to impossible at this time, but this economy is going to be hung around the neck of Obama and people are not very interested in the goals of the liberals in Congress. States are about to have to dump a massive number of employees and maybe sue to get out of some union contracts. The Republicans and other parties, should there be other parties, are going to hang the unemployment is going to stop at 8% with this stimulus around the necks of Democrats. The requirement to get health insurance is going to be one more boat rocking event.
Bernanke will be approved, but he will resign by years end
I have contended for some time that the dollar plays too big a role in the world economy to be treated in any fashion imagined on the whim of an economic tyrant. This goes for the government of the US as well. I can see the government being such a burden on the debt market that the private sector will be short of capital. the market will raise rates and the Fed will have to follow. The world will experience another liquidty crisis and that will prevent a dollar collapse.
The economic problems will become officially knows as Depression II
This downturn will become worldwide and it will become significantly worse. The only thing that will prevent collapse of governments will be the fact that money and credit are so short that governments will be able to stimulate without the money collapsing. China and India will join the depression, which will seal the deal.
So much for my bearish predictions. Everyone that was going to survive will. There will be benefits and opportunties for those that have the right strategy and the idea that something can't go on forever will sink in as the truth. There will be a lot of bankruptcy and a lot of liquidation. Unfortunately for most of us, we are going to be wiped out financially either way we go. We should all recognize that any one of us may be anothers only means of survival on a given occasion, so lend a hand if you can.
First, there won't be a double dip recession because there really isn't a recovery. There were over 26 million first time claims filed for unemployment in 2009 and yet all we heard about since May was we had a recovery on the way. In examining the consumer confidence numbers last week, which were reported to have improved, I found much of what I found back in the middle of the year, hope 6 months out and a horrible present reading. In fact, the reading for December for the present was so bad it was the worst number in 26 years. That didn't make the bullish news, but it was on the conference board page for the index none the less. 6 months ago, the reading looked the same, a real bearish current reading and a more optimistic 6 month from now reading. So, the 6 month expectation turned out to be a dud.
They had a great housing number, but housing collapsed with boom time sales numbers all the way to the bottom. What is going to happen with housing once they get the last first time buyer to the closing altar? New home sales are at depression levels, so the game is buy a house on the courthouse steps and flip it to a first timer complete with a free downpayment from Uncle Sam and a guaranteed mortgage from FHA. Time is running thin here, as there are too many losses in the system to save it.
Factory orders or something of that sort came out today. They beat expectations, but these orders had fallen a sum of nearly 30% during the period between July 2008 and January 09 and the sum of the rebound has been about 5% since the bottom. Bulls are claiming the numbers indicate a boom, but the sum so far has been a dead cat bounce that is at best a weak inventory rebuild effort. Some boom for $800 billion plus the TARP.
I think the economy just continue to recover until it is discovered to be in a depression. There is too much debt and too much damage and not much other than the desire of China to buy up American goods to put in their empty array of buildings so they at least have the appearance of maintaining a nice group of museums can change this. Just like I heard the Ocean was the icebox in Hawaii, the homestead is the ATM for the US consumer and it has been overdrafted. We had record level auto sales and record level home sales in the US for a good part of a decade and we are still showing high levels of preowned home sales. This pool of autos and homes will carry the US consumer a long way while he gets his house in order. Credit is tapped and card companies have their share of high losses. Not many people that can avoid it are going to pay the rates on these cards, save those that can't pay the debt back.
Forecast: Real US growth will be negative, but reported growth will be around 2%. Real growth is negative because dead cat bounces and government gifts don't count.
China. I don't know what it is going to take to knock over China, but from what I can read, what they call growth is not what I would call growth. If building capacity and buildings that won't be used any time soon is growth then I buy into it. As a result of this policy, China has pinned the price of commodities to the ceiling. Because their necessity is they keep the public employed and the money flowing, this could go on for awhile. Their government isn't much different than ours in this matter. The longer this goes on, the longer the bust will be that follows.
Forcast: China probably reaches its growth goals, but they won't be real. Cracks are already showing in China in the eyes of a lot of analysts, but the public is being told they are hot. I think by the end of the year, the construction industry in China will have officially hit the rocks and the commodity producing countries, namely Australia and Brazil will be having a hell of a hangover. A crash in the stock markets in those 2 countries could very well occur
As a result, world growth will have spent itself. From what I can read, India is a better long term play than China, but it is clear that India will have its own bust. Deflation will have re-established its grip on the US and this will be devastating to world demand. Growth is more than a word, but a business around the world. It must be 30% of the economy around the world. The portion that puts an economy on the plus side is about to vanish.
The financial sector will do well for another 3 months. Though I don't expect another large failure in the US this year, there will be a restart of the crisis. The worst probably hits in 2011. 2 or 3 large US banks will be taken over and broken up before 2012 is over. Their condition currently is being concealed in hopes something doesn't get worse in the meantime. The US isn't the only part of the world that has to liquidate debt and it is quite conceivable that 30% of the worlds supply will be defaulted or liquidated in the next 5 years. This is not conducive to putting things on the installment plan. One of the major Japanese auto companies will be in GM/Chrysler land by mid 2012.
The stock market will finish 2010 lower than it started 2009.
It is quite likely that it could recapture the entire loss that followed the bankrupting of Lehman Brothers. The Dow is already near the bottom it made in July 2008, but the S&P still has another 7% or so to go to make that bottom. The difference is likely due to the fact that the Dow lost points from AIG and Citi while the SPX lost value and the replacements put the points back in the Dow on the rally, but Citi and AIG never came back. There isn't a lot of promise for stocks due to a lot of reasons, but mainly to the fact that the credit flow that created the earnings in the market isn't coming back. Being able to borrow money at less than 1% doesn't make up for the lack of cash flow that is going to continue with the market. The customers are lacking the most important feature of all, credit and cash. Once the market reverses, the liquidity crunch is going to return with vengence, as there won't be a takeout.
The sovereign debt market will get interesting.
I don't believe Greece and Italy will default this year, but I do believe that as time goes forward, these countries are going to default or better yet, repudiate their debt. Currently we are seeing Iceland being tossed a bargaining chip of membership in the Eurozone in order to get them to agree to assume the losses of European investors in their 2 failed banks. I don't believe it is possible for that few people to agree to assume that much debt, nor should they. That will be an early story this year, a sign of things to come, but not much of an event at this time. It will be when Greece, Spain, Italy or Ireland tells them to stuff it.
Funny financing will cease
The focus seems to be on the Fed and the US, but the wildest financing is being done by China and other Asian countries. I do believe we are going to find out there is less to these sovereign wealth funds than has been mentioned. I wonder what kind of duds they contain that we haven't seen. China contains entire vacant cities that must cost tens or hundreds of billions to build. Dubai is todays tower of Babel. Much of the money of the middle east is tied up there. London is going to have its share of problems, especially if they drive their financial mob out with taxes. American commercial property is going to weigh on the US banking system and some are going to begin to question the US commitment to FNM and FRE. It is possible that the US will have to withdraw from its Asian wars.
The Democratic Party will lose one of the houses in Congress
This seems next to impossible at this time, but this economy is going to be hung around the neck of Obama and people are not very interested in the goals of the liberals in Congress. States are about to have to dump a massive number of employees and maybe sue to get out of some union contracts. The Republicans and other parties, should there be other parties, are going to hang the unemployment is going to stop at 8% with this stimulus around the necks of Democrats. The requirement to get health insurance is going to be one more boat rocking event.
Bernanke will be approved, but he will resign by years end
I have contended for some time that the dollar plays too big a role in the world economy to be treated in any fashion imagined on the whim of an economic tyrant. This goes for the government of the US as well. I can see the government being such a burden on the debt market that the private sector will be short of capital. the market will raise rates and the Fed will have to follow. The world will experience another liquidty crisis and that will prevent a dollar collapse.
The economic problems will become officially knows as Depression II
This downturn will become worldwide and it will become significantly worse. The only thing that will prevent collapse of governments will be the fact that money and credit are so short that governments will be able to stimulate without the money collapsing. China and India will join the depression, which will seal the deal.
So much for my bearish predictions. Everyone that was going to survive will. There will be benefits and opportunties for those that have the right strategy and the idea that something can't go on forever will sink in as the truth. There will be a lot of bankruptcy and a lot of liquidation. Unfortunately for most of us, we are going to be wiped out financially either way we go. We should all recognize that any one of us may be anothers only means of survival on a given occasion, so lend a hand if you can.
Friday, November 20, 2009
Recovery, " A Cruel Hoax"
Thursday, November 19, 2009 certain treasury bills traded at a premium to discount, meaning the interest rate was negative on them. This isn't a sign of an improving economy, but instead a total lack of demand for cash to make economic transactions and an extreme aversion to risk in the market place. All the same, the game of running commodity prices along with rallying stock markets defy the picture shown in the treasury markets. Add to the fact that t-bills are some of the most shorted assets in the world can only mean the other side of the trade is massive.
I watch repeatedly as stories of massive budget shortfalls in tax revenues in states and localities which reflect roughly 10% declines are fronted by stories that the economy grew by 3.5% in the third quarter. Which one is it, as retail sales and economic activity show up in tax revenues as fast as they show up in economic growth. Asian reports, one of the most recent being China great 10% while its exports dropped in the 15% range don't wash. Retail sales are up while sales tax receipts are down. Also, there is a massive reduction and payoff of consumer credit going on at this time, which implies that the retail sales figures are a hoax. Job losses are 500,000 a week while there are 6 people looking for every potential job available. In the past, there were twice as many job vacancies and close to 200,000 fewer layoffs weekly which implies to me that the story that the economy is only losing about 180,000 jobs a month is a boldfaced lie.
Mish Shedlock posts charts from time to time which show that prior to the 1991 recession, unemployment rallied with the end of a recession, while afterwards unemployment kept increasing. What this means is they understate unemployment when the recession is occuring and then overstate growth when it comes to an end. Clearly we have recoveries that are nothing more than downsizing procedures to add to corporate profits while employment suffers. Also, there is some kind of statistics that are twisted to show a recovery is occuring when one hasn't started.
Currently talk is turning to the double dip idea. From what I can gather, there hasn't been a recovery, else after nearly 2 years job losses wouldn't still be exceeding any seen for the first year of the recession. Instead, employers would be holding onto workers if new orders were rolling in. It costs money to lay off and rehire workers, so why get rid of them a mere few weeks or months before you need more help?
News about this recession has been cooked from the start. It was a year old before they declared it and proponents of a healthy economy kept preaching we might miss a recession all the way to the point that we had an almost total collapse of the economy. Then, out of the blue in late 2008, recession was reported to have started in December 2007. The bulls then proposed that recessions only last x months and this one was already over. Next we had the Obama stimulus which was designed to stop unemployment at 8%, as recovery was already in sight. 8% became road kill for the stimulus and the bank stress test. All of this is forgotten as the banks are now in a pile of rubble while people wonder why they aren't lending and why they are paying huge bonuses. in the meantime, Obama is claiming all the jobs he saved (for $700 billion one could have hired a new US army along with a new arms business and $700 billion was enough to pay 14 million people $50,000 a year)
More than anything, I am amazed and stunned at the dishonesty and blatant crookedness of the American system. There aren't any dictatorships on earth as dishonest as what we have going here today. Reports come out of strange options trades on Bear Stearns prior to failure on deep out of the money puts with 9 days left to expiration that netted $270 million and the SEC says they have no clue. The SEC can find a transaction that size easier in an 8 hour day than the average person with 20/20 vision can find the moon in the sky once a year in the high desert. So can the Fed as transactions that size aren't that easy to miss. Next we have former Goldman CEO's at the Fed front running news about AIG (the NY Fed, which he was a part of) making Goldman whole in the default swaps, making the trades nearly 6 months ahead of the release of the news. These aren't mailroom employees getting a tip, but rich pigs that can't get enough and have probably never made over a few thousand honest dollars in their lives. It is like the ship is going down, so lets loot the safe and get the first lifeboat.
I don't believe the economy is doing as well as they state, neither do I believe we will have a double dip recovery because I don't buy what has happened as a recovery. Double dip implies that what they did worked or we went back down because we quit doing what they were doing. It is a lie that is meant to allow for more theft and a transfer of liabilities from the few to the many. In the meantime, we have Goldman and the hedge funds throwing stock back and forth between themselves hoping to excite the poor idiots that have been busted by them already. We will get the bill for Goldman and the hedges or they will totally collapse.
I watch repeatedly as stories of massive budget shortfalls in tax revenues in states and localities which reflect roughly 10% declines are fronted by stories that the economy grew by 3.5% in the third quarter. Which one is it, as retail sales and economic activity show up in tax revenues as fast as they show up in economic growth. Asian reports, one of the most recent being China great 10% while its exports dropped in the 15% range don't wash. Retail sales are up while sales tax receipts are down. Also, there is a massive reduction and payoff of consumer credit going on at this time, which implies that the retail sales figures are a hoax. Job losses are 500,000 a week while there are 6 people looking for every potential job available. In the past, there were twice as many job vacancies and close to 200,000 fewer layoffs weekly which implies to me that the story that the economy is only losing about 180,000 jobs a month is a boldfaced lie.
Mish Shedlock posts charts from time to time which show that prior to the 1991 recession, unemployment rallied with the end of a recession, while afterwards unemployment kept increasing. What this means is they understate unemployment when the recession is occuring and then overstate growth when it comes to an end. Clearly we have recoveries that are nothing more than downsizing procedures to add to corporate profits while employment suffers. Also, there is some kind of statistics that are twisted to show a recovery is occuring when one hasn't started.
Currently talk is turning to the double dip idea. From what I can gather, there hasn't been a recovery, else after nearly 2 years job losses wouldn't still be exceeding any seen for the first year of the recession. Instead, employers would be holding onto workers if new orders were rolling in. It costs money to lay off and rehire workers, so why get rid of them a mere few weeks or months before you need more help?
News about this recession has been cooked from the start. It was a year old before they declared it and proponents of a healthy economy kept preaching we might miss a recession all the way to the point that we had an almost total collapse of the economy. Then, out of the blue in late 2008, recession was reported to have started in December 2007. The bulls then proposed that recessions only last x months and this one was already over. Next we had the Obama stimulus which was designed to stop unemployment at 8%, as recovery was already in sight. 8% became road kill for the stimulus and the bank stress test. All of this is forgotten as the banks are now in a pile of rubble while people wonder why they aren't lending and why they are paying huge bonuses. in the meantime, Obama is claiming all the jobs he saved (for $700 billion one could have hired a new US army along with a new arms business and $700 billion was enough to pay 14 million people $50,000 a year)
More than anything, I am amazed and stunned at the dishonesty and blatant crookedness of the American system. There aren't any dictatorships on earth as dishonest as what we have going here today. Reports come out of strange options trades on Bear Stearns prior to failure on deep out of the money puts with 9 days left to expiration that netted $270 million and the SEC says they have no clue. The SEC can find a transaction that size easier in an 8 hour day than the average person with 20/20 vision can find the moon in the sky once a year in the high desert. So can the Fed as transactions that size aren't that easy to miss. Next we have former Goldman CEO's at the Fed front running news about AIG (the NY Fed, which he was a part of) making Goldman whole in the default swaps, making the trades nearly 6 months ahead of the release of the news. These aren't mailroom employees getting a tip, but rich pigs that can't get enough and have probably never made over a few thousand honest dollars in their lives. It is like the ship is going down, so lets loot the safe and get the first lifeboat.
I don't believe the economy is doing as well as they state, neither do I believe we will have a double dip recovery because I don't buy what has happened as a recovery. Double dip implies that what they did worked or we went back down because we quit doing what they were doing. It is a lie that is meant to allow for more theft and a transfer of liabilities from the few to the many. In the meantime, we have Goldman and the hedge funds throwing stock back and forth between themselves hoping to excite the poor idiots that have been busted by them already. We will get the bill for Goldman and the hedges or they will totally collapse.
Wednesday, November 4, 2009
Executive Powers, it is all in the hands of the President. Keep your eyes open
I wrote this May 26, 2004
http://www.depression2.tv/nwo/archives/000039.html
I'm sorry to say, but this mess is a lot older than the current administration. The bubble popped in 2000 and we should be not in a recession, but a full blown depression. I too think they should get the power out of DC, but this wasn't arranged in the 1960's, 1970's, 1980's, 1990's or in Y2K. It was created to start by giving popular election of the Senate in 1913 and moving the representation of the states from the legislature in most cases to the multinational corporate world. There was also the passage of an income tax, which wasn't a direct tax as levied, but an excise tax to be passed on as a cost of doing business. There was so much done under the eyes of Woodrow Wilson and his crony, Colonel Mandel House, a new world order communist that just slipped by us. The Federal Reserve was one of the planks of the communist manifesto and one of the organizations that few of our founding fathers favored. It transferred all money power from the people to a few.
One of the things that happened in the Wilson administration was we went to War in Europe. Our history books blame the Lucitania incident, but that occurred in 1915 and Wilson was re-elected on a platform of, he kept us out of war. Back in that day and time, the inaugeration of the President was the first week in March, not in January as we have it today. By March 1917, we were of course in war. With war came the passage of war power acts, which allowed the executive to prosecute the war. Among these powers was a law called the trading with the enemy act, the act of October 6, 1917.
Going forward, in 1933, the Federal Reserve bank was bankrupt and so were most of the other banks. The currency was not any good. Coming to the rescue was Franklin Roosevelt and his moral equivalent of war. What was this moral equivalent of war? Well, it was the repeal of traditional constitutional limitations on government under the concept of emergency and it is codified in 12USC95a and together with 12USC95b, made the President, the Secretary of the Treasury and others with delegated power dictators. Roosevelt replaced the liabilities of the Federal Reserve with liabilities to the Federal Reserve. Instead of the Federal Reserve owing us, we owed it and the only remedy was to try to borrow ourselves to prosperity.
You can also find this 12USC95a codified in 50USC5b. If you don't know what 50USC5b is, go check and you will find out. Senate report 93-547 was put out after the Vietnam war and it discusses this law broadly.
What happened under this law? Well, you have all heard of War on Poverty, War on Drugs, War on Crime, etc. In times of war, there is no constitution or private property. You might have heard of the Schecter poultry case where the New Deal was overturned. It basically said that a tax was for the legitimate support of government and what was being practiced was socialism, in direct violation of the 5th amendment of the constitution. See, there is no just compensation for taking of property and when one group is fed the property of another group by the government, that is taking and not tax. Like it or not, we have been deluded in thinking we live in a government set up in 1787 by our founding fathers.
Roosevelt and then Truman took this mess one step farther. At the end of world war II, the United States was made the banking system for the world. One of the reasons our trade deficit runs so high is we are the only country in the world that can create good and unlimited credit. Money when needed takes the path of least resistance. There are always rumors that such and such a country is going to quit buying our bonds, but the truth is that Japan and Europe went broke fighting wars decades and in some cases close to a hundred years ago. The Federal Reserve was created for no other reason but to allow for the continued modern fighting of more wars.
To wit: Much was made of the recent massive buying of treasuries by the Japanese with dollars bought with yen. Japan has tried to interest rate themselves out of their bankruptcy, social spend their way out of their bankruptcy, but the only way they could produce money for their system with any validity was to use American credit in the form of banknotes.
The 1990's and the Clinton administration was an economic nightmare. I can't say much about the administration since or the ones before either, but Robert Rubin with the assistance of Greenie created and perpetuated a bubble. Did anyone notice the Congress voting money to bail out Mexico in 1994 or 1995? No, Rubin acted on his own, a few months after he and his former employer, Goldman Sachs took all the money out of Mexico to help finance this bubble. The United States leveraged the credit out of Asia, then the IMF came in and replaced it.
What we really need is a cleanout, but that isn't politically feasible. We are in a time of permanent financial overhang and the times are going to get rough. Had Roosevelt left the situation alone and people taken their losses in the 1930's, we would be a prosperous country today, but the fib is that he saved the country. Instead he put us under the same system as Adolph Hitler set up within weeks of the same event, corporate socialism, better known as fascism. Like a frog in a cold pot of water put on the stove, we have been boiled and never knew it was happening.
Why do you think every socialist in the United States walked up to the stand in DC when a man was nominated to the Supreme Court by the name of Robert Bork, who favored something called original intent? I think people on that side of the aisle didn't want to be reminded of the law. They would rather deal with these illegalities like some right to privacy that only applies to right to privacy from other private citizens, not the government itself. Who cares about right to privacy when we are having our capacity to act as living humans taken from us by some system that now can tell us when to jump, when and where to empty our pockets, look in our bank accounts over some assinine international war or some war on drugs. Someone mentioned buying land, well Roosevelt nationalized farming in 1933 and now there aren't any farmers left, only corporations who run on huge central planned agriculture programs and subsidies.
You don't have to take my word for it. Plug in a search for war and emergency powers and look for a guy named Eugene Schroeder. Schroeder published a book called "Constitution, Fact or Fiction". Do your best to find Senate Report 93-547, as it has some very interesting statements in it. You will probably have to go to a Federal Repository. We aren't a constitutional republic any more, but an excutive branch bureaucracy that enforces and carries out powers given it by Congress and never gives the power back. In the meantime states are now sucking on the central planning tit and jump when the Feds say, do so or lose your Federal Funds.
http://www.depression2.tv/nwo/archives/000039.html
I'm sorry to say, but this mess is a lot older than the current administration. The bubble popped in 2000 and we should be not in a recession, but a full blown depression. I too think they should get the power out of DC, but this wasn't arranged in the 1960's, 1970's, 1980's, 1990's or in Y2K. It was created to start by giving popular election of the Senate in 1913 and moving the representation of the states from the legislature in most cases to the multinational corporate world. There was also the passage of an income tax, which wasn't a direct tax as levied, but an excise tax to be passed on as a cost of doing business. There was so much done under the eyes of Woodrow Wilson and his crony, Colonel Mandel House, a new world order communist that just slipped by us. The Federal Reserve was one of the planks of the communist manifesto and one of the organizations that few of our founding fathers favored. It transferred all money power from the people to a few.
One of the things that happened in the Wilson administration was we went to War in Europe. Our history books blame the Lucitania incident, but that occurred in 1915 and Wilson was re-elected on a platform of, he kept us out of war. Back in that day and time, the inaugeration of the President was the first week in March, not in January as we have it today. By March 1917, we were of course in war. With war came the passage of war power acts, which allowed the executive to prosecute the war. Among these powers was a law called the trading with the enemy act, the act of October 6, 1917.
Going forward, in 1933, the Federal Reserve bank was bankrupt and so were most of the other banks. The currency was not any good. Coming to the rescue was Franklin Roosevelt and his moral equivalent of war. What was this moral equivalent of war? Well, it was the repeal of traditional constitutional limitations on government under the concept of emergency and it is codified in 12USC95a and together with 12USC95b, made the President, the Secretary of the Treasury and others with delegated power dictators. Roosevelt replaced the liabilities of the Federal Reserve with liabilities to the Federal Reserve. Instead of the Federal Reserve owing us, we owed it and the only remedy was to try to borrow ourselves to prosperity.
You can also find this 12USC95a codified in 50USC5b. If you don't know what 50USC5b is, go check and you will find out. Senate report 93-547 was put out after the Vietnam war and it discusses this law broadly.
What happened under this law? Well, you have all heard of War on Poverty, War on Drugs, War on Crime, etc. In times of war, there is no constitution or private property. You might have heard of the Schecter poultry case where the New Deal was overturned. It basically said that a tax was for the legitimate support of government and what was being practiced was socialism, in direct violation of the 5th amendment of the constitution. See, there is no just compensation for taking of property and when one group is fed the property of another group by the government, that is taking and not tax. Like it or not, we have been deluded in thinking we live in a government set up in 1787 by our founding fathers.
Roosevelt and then Truman took this mess one step farther. At the end of world war II, the United States was made the banking system for the world. One of the reasons our trade deficit runs so high is we are the only country in the world that can create good and unlimited credit. Money when needed takes the path of least resistance. There are always rumors that such and such a country is going to quit buying our bonds, but the truth is that Japan and Europe went broke fighting wars decades and in some cases close to a hundred years ago. The Federal Reserve was created for no other reason but to allow for the continued modern fighting of more wars.
To wit: Much was made of the recent massive buying of treasuries by the Japanese with dollars bought with yen. Japan has tried to interest rate themselves out of their bankruptcy, social spend their way out of their bankruptcy, but the only way they could produce money for their system with any validity was to use American credit in the form of banknotes.
The 1990's and the Clinton administration was an economic nightmare. I can't say much about the administration since or the ones before either, but Robert Rubin with the assistance of Greenie created and perpetuated a bubble. Did anyone notice the Congress voting money to bail out Mexico in 1994 or 1995? No, Rubin acted on his own, a few months after he and his former employer, Goldman Sachs took all the money out of Mexico to help finance this bubble. The United States leveraged the credit out of Asia, then the IMF came in and replaced it.
What we really need is a cleanout, but that isn't politically feasible. We are in a time of permanent financial overhang and the times are going to get rough. Had Roosevelt left the situation alone and people taken their losses in the 1930's, we would be a prosperous country today, but the fib is that he saved the country. Instead he put us under the same system as Adolph Hitler set up within weeks of the same event, corporate socialism, better known as fascism. Like a frog in a cold pot of water put on the stove, we have been boiled and never knew it was happening.
Why do you think every socialist in the United States walked up to the stand in DC when a man was nominated to the Supreme Court by the name of Robert Bork, who favored something called original intent? I think people on that side of the aisle didn't want to be reminded of the law. They would rather deal with these illegalities like some right to privacy that only applies to right to privacy from other private citizens, not the government itself. Who cares about right to privacy when we are having our capacity to act as living humans taken from us by some system that now can tell us when to jump, when and where to empty our pockets, look in our bank accounts over some assinine international war or some war on drugs. Someone mentioned buying land, well Roosevelt nationalized farming in 1933 and now there aren't any farmers left, only corporations who run on huge central planned agriculture programs and subsidies.
You don't have to take my word for it. Plug in a search for war and emergency powers and look for a guy named Eugene Schroeder. Schroeder published a book called "Constitution, Fact or Fiction". Do your best to find Senate Report 93-547, as it has some very interesting statements in it. You will probably have to go to a Federal Repository. We aren't a constitutional republic any more, but an excutive branch bureaucracy that enforces and carries out powers given it by Congress and never gives the power back. In the meantime states are now sucking on the central planning tit and jump when the Feds say, do so or lose your Federal Funds.
Wednesday, October 14, 2009
Its still debt
The inflationists are missing the boat. In fact, those in mortgage lending mess are right on the money, not making loans. The only outfits making loans are the ones controlled by the government. That won't last for long as debt is going to continue to pile up as trash on the curve. The inflation worm turned a long time ago and the money machine was destroyed with the housing bubble. Inflation to maximum potential has occurred.
Right now the Fed is buying mortgages and to some extent treasuries. The act is being called printing money, but at this time I see it as changing who holds the debt. The money was already printed by the banking system, spent bullets. The problem we face is debt not inflation. Now the Fed owes for what someone else owes, to someone who isn't even involved. The link is debt and liquidity,not printing money. The liabilities have to be solved. There isn't any running off the roll of toilet paper, only another note for another note.
We have had a bad stock market for 10 years now. IN fact, if you go back to 1968 when the SPX first crossed 100, the dividend yield was right on 3%. If the SPX was priced to yield 3% right now, it would be priced at 732, according to SPX data. The Shiller data from June 68 showed a price of 100.5 and the CPI divisor to August 2009 was 6.22, meaning to keep up with inflation the SPX would need a price of 625. This means that if you were constantly invested in the SPX for the past 41 years, you would have beaten inflation by 17% total, less than 1/2% per year. BBB bonds did better than that. In deflation, the market is going to fare even worse, as the relative volume of business is going to fall. Back to the 1929 peak, the SPX would adjust out to 395, still less than a double over 80 years, evidence the real return on stocks over an entire cycle is less than 1% over risk free.
Knowing the SPX has the potential to fall 80% or more, I can see that people are about to get tight. Those that don't eat at home are going to be looked at as spendthrifts. Debt is going to get tighter and tigher. There is almost no way we don't deflate and this depression will be longer and harder to exit than the last one.
Right now the Fed is buying mortgages and to some extent treasuries. The act is being called printing money, but at this time I see it as changing who holds the debt. The money was already printed by the banking system, spent bullets. The problem we face is debt not inflation. Now the Fed owes for what someone else owes, to someone who isn't even involved. The link is debt and liquidity,not printing money. The liabilities have to be solved. There isn't any running off the roll of toilet paper, only another note for another note.
We have had a bad stock market for 10 years now. IN fact, if you go back to 1968 when the SPX first crossed 100, the dividend yield was right on 3%. If the SPX was priced to yield 3% right now, it would be priced at 732, according to SPX data. The Shiller data from June 68 showed a price of 100.5 and the CPI divisor to August 2009 was 6.22, meaning to keep up with inflation the SPX would need a price of 625. This means that if you were constantly invested in the SPX for the past 41 years, you would have beaten inflation by 17% total, less than 1/2% per year. BBB bonds did better than that. In deflation, the market is going to fare even worse, as the relative volume of business is going to fall. Back to the 1929 peak, the SPX would adjust out to 395, still less than a double over 80 years, evidence the real return on stocks over an entire cycle is less than 1% over risk free.
Knowing the SPX has the potential to fall 80% or more, I can see that people are about to get tight. Those that don't eat at home are going to be looked at as spendthrifts. Debt is going to get tighter and tigher. There is almost no way we don't deflate and this depression will be longer and harder to exit than the last one.
Sunday, October 11, 2009
New loans will never come back
There are a lot of green shoots, but they don't make a meal for a small horse. It will never get out to people why this depression is happening because those in charge don't want a nation of people to catch on as those in bondage in Egypt did 3000 plus years ago. There will be all kinds of explanations like Black Swans and the last administration or subprime lending, but there will never be allowed to slip the deadly nature of credit and debt in general.
We are in a mess. The entire survival of modern civilization may rest on the solution to the current financial/debt system. It would be easy enough to get rid of the debt, but few understand the power that amassed debt considered money gives an economy when it is nearing peak. The massive amounts of performing debt represents capital, retirement, savings and money all at the same time. Problem is, it is also a cancer to the economic well being once it becomes excessive.
One of the paradoxes in this economy is that savings is debt. Debt is savings, debt is money and it is the basis of rasing more debt, more money and creating more savings. But, as more is generally better, more against something relatively fixed like the size of the economy eventually becomes overwhelming. To say that they can pile debt to the moon is only true to the extent that the expectations of it being serviced or repaid.
There is more to the debt than meets the eye. The dollar is debt. It is the debt that the Euro is largely based on. It is the backbone of the Chinese financial system. If another currency was to step forward and take the place of the dollar, it would imply that the country of origin had created enough debt to sustain that much debt outside the country. Most countries don't have private property rights or enough property to float enough currency to support the credit systems of the world. It would be nice to have something like the Swiss franc as a reserve, but it would only be a few weeks that Switzerland would be drained of money and a few years of borrowing it that it would be broke. The Euro would work, but the internal and external debt of Europe is massive. The yen might work, but the asset base of Japan has been eroded by deflation and to utilize the yen would drain what was left.
What is about to transpire is the no mathematical solution problem. This past week the former risk evaluator of FNMA from the 1980's came out with a loss projection for the FHA. With it were studies that raised the question of why defaults and foreclosures on mortgages were going up during the 1990's despite a good economy. It is pretty clear with some lookback that the general level of debt in the economy was making it more and more difficult to service existing debt. Once asset inflation stopped, the game was up.
Now governments around the world are trying to stimulate borrowing and lending to get the economies going and I don't believe it is going to work. Instead, we are going to find that all new debt is going bad in with the pile of the other bad debt. The maximum debt capacity of the economy has been reached and all new debt is merely adding to the losses.
Stock market bulls think the Fed has solved this and all we need is for banks to start lending money again. Of course, the nature of the stock market is all involved have stock for sale, meaning they are really only promoting what they have,like Kroger promotes groceries. The difference being that you have to come in and buy groceries from somewhere. You don't have to buy anything financial with your money if you don't want to.
The implications of what I write are dire for stocks, which are priced at levels where only more leverage can ever make the prices go up. Corporations may have a lot of cash, but they also have record levels of debt and any that get more debt are raising their odds of going broke. I am convinced that US corporations drew their credit lines last year as the crisis approached so they would be certain to have money. Though this action may have helped many avoid bankruptcy, it may have also ensured others they were going broke. GE could very well be one of them, with the government getting the bill for the insolvency.
The level of debt has to decrease and it cannot decrease without also decreasing the pool of savings and the money supply. The Fed is attempting to keep cash in accounts by buying debt, but I suspect they are going to run in place at best. Savings has increased, but I believe this is more a matter of consolidating ownership of cash balances in the hands of fewer people and the paying down of existing debt. We will see if I am correct soon.
Going forward I sense that bankers are going to realize as well that any new debt they issue is merely going bad with the rest. As the system deflates worldwide, which it will, prices of everything will collapse as those selling literally everything will need cash to attempt to service debt. That is how liquidations occur.
At this time, the banking system is choosing to speculate rather than make loans. This is in part providing liquidity for assets, but it has it dangers. Putting out cash for assets is just as deadly as lending cash. Once it becomes clear that the bigger fools are already in the game, banks and brokers who have been throwing stock between themselves to inflate prices are going to find they are the bigger fools. We are headed for a liquidation as we saw between spring 1930 and summer 1932. I am betting the SPX goes to under 400 for certain and the Dow under 4000, taking out the entire post 1995 bubble. Tens of millions are going bankrupt and the financial bubble in Asia is going to implode along with ours. The housing market decline is going to resume, as all in the making of mortgages are going broke and the government is going to have to adapt to survive itself.
We are in a mess. The entire survival of modern civilization may rest on the solution to the current financial/debt system. It would be easy enough to get rid of the debt, but few understand the power that amassed debt considered money gives an economy when it is nearing peak. The massive amounts of performing debt represents capital, retirement, savings and money all at the same time. Problem is, it is also a cancer to the economic well being once it becomes excessive.
One of the paradoxes in this economy is that savings is debt. Debt is savings, debt is money and it is the basis of rasing more debt, more money and creating more savings. But, as more is generally better, more against something relatively fixed like the size of the economy eventually becomes overwhelming. To say that they can pile debt to the moon is only true to the extent that the expectations of it being serviced or repaid.
There is more to the debt than meets the eye. The dollar is debt. It is the debt that the Euro is largely based on. It is the backbone of the Chinese financial system. If another currency was to step forward and take the place of the dollar, it would imply that the country of origin had created enough debt to sustain that much debt outside the country. Most countries don't have private property rights or enough property to float enough currency to support the credit systems of the world. It would be nice to have something like the Swiss franc as a reserve, but it would only be a few weeks that Switzerland would be drained of money and a few years of borrowing it that it would be broke. The Euro would work, but the internal and external debt of Europe is massive. The yen might work, but the asset base of Japan has been eroded by deflation and to utilize the yen would drain what was left.
What is about to transpire is the no mathematical solution problem. This past week the former risk evaluator of FNMA from the 1980's came out with a loss projection for the FHA. With it were studies that raised the question of why defaults and foreclosures on mortgages were going up during the 1990's despite a good economy. It is pretty clear with some lookback that the general level of debt in the economy was making it more and more difficult to service existing debt. Once asset inflation stopped, the game was up.
Now governments around the world are trying to stimulate borrowing and lending to get the economies going and I don't believe it is going to work. Instead, we are going to find that all new debt is going bad in with the pile of the other bad debt. The maximum debt capacity of the economy has been reached and all new debt is merely adding to the losses.
Stock market bulls think the Fed has solved this and all we need is for banks to start lending money again. Of course, the nature of the stock market is all involved have stock for sale, meaning they are really only promoting what they have,like Kroger promotes groceries. The difference being that you have to come in and buy groceries from somewhere. You don't have to buy anything financial with your money if you don't want to.
The implications of what I write are dire for stocks, which are priced at levels where only more leverage can ever make the prices go up. Corporations may have a lot of cash, but they also have record levels of debt and any that get more debt are raising their odds of going broke. I am convinced that US corporations drew their credit lines last year as the crisis approached so they would be certain to have money. Though this action may have helped many avoid bankruptcy, it may have also ensured others they were going broke. GE could very well be one of them, with the government getting the bill for the insolvency.
The level of debt has to decrease and it cannot decrease without also decreasing the pool of savings and the money supply. The Fed is attempting to keep cash in accounts by buying debt, but I suspect they are going to run in place at best. Savings has increased, but I believe this is more a matter of consolidating ownership of cash balances in the hands of fewer people and the paying down of existing debt. We will see if I am correct soon.
Going forward I sense that bankers are going to realize as well that any new debt they issue is merely going bad with the rest. As the system deflates worldwide, which it will, prices of everything will collapse as those selling literally everything will need cash to attempt to service debt. That is how liquidations occur.
At this time, the banking system is choosing to speculate rather than make loans. This is in part providing liquidity for assets, but it has it dangers. Putting out cash for assets is just as deadly as lending cash. Once it becomes clear that the bigger fools are already in the game, banks and brokers who have been throwing stock between themselves to inflate prices are going to find they are the bigger fools. We are headed for a liquidation as we saw between spring 1930 and summer 1932. I am betting the SPX goes to under 400 for certain and the Dow under 4000, taking out the entire post 1995 bubble. Tens of millions are going bankrupt and the financial bubble in Asia is going to implode along with ours. The housing market decline is going to resume, as all in the making of mortgages are going broke and the government is going to have to adapt to survive itself.
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