The horizon is not so far as we can see, but as far as we can imagine

Tag: economy

Bank Profits And the The Choice America Has Made

Peter Morici points out something which should be obvious:

Monday afternoon, Goldman Sachs reported much larger than expected first quarter profits, and this comes on the heels of Wells Fargo’s strong earnings reported last week.

No one should be surprised.

The Federal Reserve has provided the banks with lots of cheap funds through its various emergency lending facilities and quantitative easing.

The Federal Reserve has permitted the banks and financial houses to park vast sums of unmarketable paper on its books—securities made nearly worthless by the misjudgment and avarice of bankers. In return, the Fed has provided these scions of finance with fresh funds, cheaply, that they may lend at healthy rates on credit cards, auto loans and even mortgages.

While the Fed cuts the banks slack, the bankers are busy turning the screws on their debtors by raising credit card rates and fees, and harassing distressed borrowers with all the zeal of the Roman army sacking Palestine.

Yes, well, there you go.  Morici goes on to point out that low interest rates screw over old people who have certificates of deposit, and that the banks now want to “repay” the loans because when you’re being given money for nothing, and allowed to keep bad assets on your books at whatever price you feel is ok (since mark to market is gone), well, everything is wonderful in banker land.

(Well, unless you’re so far gone, like Citi, or Bank of America, that even in fantasy land you can’t make it work.)

As Stirling Newberry has pointed out, the economy has become clearly divided into two different economies.  One for the people who have access to money cheap and whose job is to take care of foreigners, and the other one, where credit is dear and you’re losing your job.

Guess which economy you live in?

This isn’t just going to be about employment, though that is going to suck for the forseeable future, and will, in effect, never recover.  It is also going to be about real income.  Forget the headline CPI, the costs you pay are going to go up faster than your wages (which are probably going to deflate), and your assets are going to deflate.  Riptide inflation, which catches you on both the up and downsides.

Real standards of living for median Americans are going to drop.  It’s just that simple.

In 4 to 8 years, the Republicans will probably get back in again.  They will do stupd things again.  By the end of their orgy of looting and warring (which will be even worse than Obama’s) the country is going to be extremely damaged.  Right now things could be fixed.  They probably won’t be, because Barack Obama has no intention of fixing main street, but they could be.  By the time the US gets its next real chance, well, this hole is going to be mighty mighty deep.

The US has made the choice of continuing to put its primary efforts into pursuing a chimerical paper economy which promises easy alchemical gold, rather than fixing the real economy.

But there’s no such thing as free money, not on aggregate over the long run.

And the long run is here, and by “aggregate” I mean “you aren’t an executive with the power to pay yourself millions in bonuses for destroying the US’s economy.  But you will have less money because of them.”

(Note: quote from an email from Morici, article does not appear to be online)

Just the Facts, Ma’am

Dave Johnson’s got an excellent piece up in which he points out that laughing at the right is stupid. They’re doing now exactly what they did to Clinton in the 90’s, and it worked then.

In fact they’re back to being as crazy and paranoid as they were when Clinton was President. Remember the accusations that Clinton and Hillary were murderers, that Hillary personally killed Vince Foster, that Clinton ran a drug-smuggling operation out of an airstrip, that he was looking through FBI files, that he fired the travel office to put a cousin in, that he “sold” plots in Arlington cemetery, that he held up runway traffic to get a $500 haircut, that he used cocaine in the White House, that he hung obscene ornaments on the White House Christmas tree and the other fabrications that came daily?

We laughed then, too, and how did that work out? They took over the Presidency, the House and the Senate. Then they started wars. They tortured people. They appointed corporate lobbyists to run every agency. They filled the courts with Federalist Society judges that rule for the corporations and religious right every time. They stole billions…

Let me add two more facts:

  1. For ordinary people, the economy is never going to fully recover, ever (well, not in the next 4 years anyway). The administration’s own numbers show this, with an overoptimistic model that assumes tax cuts will have the average effect of the last thirty years, rather than the effect they had when Bush did them (a big fat flop). But even if you don’t think they’re overoptimistic, it doesn’t matter. Again, their own numbers show employment will not recover before the next recession.
  2. Obama and co. are doing a huge giveaway to the richest people in America.  By the time they’re done it will probably be as large or larger  than anything Bush did. Since it will not work in the sense of helping ordinary people enough, it will be used by Republicans to fuel populist rage. Sure, that’s hypocritical, but does that matter? We all know it doesn’t.

So I’m with Dave.  Enjoy mocking Republicans all you want, but in your cold hard calculating heart, take them very very seriously.

Devestatingly Bad Jobs Report

The headline number you’ll be hearing is 663,000, which is from the survey of businesses (the establishment survey).  The population survey (where they call households) show’s a reduction in employment of 861,000 jobs, with 161,000 leaving the workforce, for a total increase in unemployment of 694,000 (you aren’t counted as unemployed if you’ve given up looking.)

The official unemployment rate jumped from 8.1 to 8.5%.

The only sector still adding jobs is the health sector, though not by much.  Goods producing workers are being hammered, taking almost half the losses despite accounting for less than a sixth of the economy.  The US continues to shed precisely those jobs it needs in order to deal with its addiction to borrowing from foreigners to buy foreign produced goods.

The establishment survey is generally considered more accurate, though the household captures losses and gains of self-employed workers.

Employment is generally considered a lagging indicator, and the general consensus at this point amongst economists is that the leading indicators are beginning to turn around.  I think they’re calling it a bit early, but I expect that when the “recovery” does come it will initially be a jobless recovery, similar to those of the early 2000 and 90’s recessions.  When jobs do start to be created they will not be created fast enough, or in great enough quantities to make up the job losses, and the economy will shake apart due to inflation into the next recession long before all jobs have been regained.  I wouldn’t be surprised if this occurs by late 2010 or early 2011, since the actual stimulus spending is neither sufficient nor well put together.

Remember that any “recovery” won’t hit you for quite some time  unless you’re attached somehow to the spigot of money that Bernanke and Geithner are spewing into the financial sector.

In the meantime I’d expect that we’re going to see quite a few more devastating months.  I wouldn’t expect to see any job gains before 2010. and they won’t be very large.  I would, however, expect to start seeing some inflation in parts of the economy, while deflation continues in other areas.

The Market is Not The Economy

Image by Admit One

Image by Admit One

Repeat after me: “The market is not the economy.  The market is not the economy.”

Of course the market is doing well.  Geithner, Bair and Bernanke promised to put around $2-$3 trillion more into the market in various forms.  Everyone now knows that the Obama administration will do whatever it takes to turn the market and financial sector around— even if that means trillions of dollars of risk for taxpayers.

Rule of Investing: when the government puts its full muscle behind something, be sure to ride it, and don’t get in the way.

What you want to watch now are:

  • Currency Rates
    Does the dollar go up or down?  The government printing and borrowing tons of money may not look so good to foreign debtors.  Or they may decide it’s the only game in town.
  • The Treasury Market
    Same thing.  Are private investors and foreign governments willing to buy?  Or will the Fed have to buy more treasuries?
  • Oil prices
    All of this money is going to show up somewhere, and a lot of people are (literally) betting on it showing up in energy prices.

What’s probably going to happen is a technical recovery that shakes apart based on unacceptable inflation before the recovery has reached a lot of people at the middle and bottom of the economy.  Unless  Geithner’s plan fails in absolute rather than relative terms, in which case there isn’t enough lube in the universe to make what will occur even tolerable, let alone pleasant.

In the meantime, remember that the market isn’t the economy, and unless you’re connected to the financial sector, odds are you aren’t going to see much of all this money.  The banks are being bailed out, not you.

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