Monday, March 7, 2011

US economic divide ever expanding

From: RTAmerica | Mar 5, 2011

The divide between the haves and have-nots in America continues to grow and it appears there is no end in sight. A big factor of this gap is the continued price increases in basic commodities. Staff writer for the Washington Post Ylan Mui says one thing to consider as commodities continue to increase in price, there will be less money a family can spend on discretionary items, one thing that drives the economy.

Bernanke's Unstoppable, Self Reinforcing, Negative-Feedback-Loop

By Davos Sherman Okst:

Our economic death spiral into the Second Great Depression

Wracked up by both parties over many decades our debt has evolved into a yearly deficit that can no longer be serviced with tax revenue and borrowing.

To avoid default Ben Bernanke chose to monetize the un-payable portion of our deficit. Each month about 100 billion dollars are created out of thin air to cover our government's bills.

This has set forth an unstoppable, self reinforcing, negative-feedback-loop whereby:

    1. Debt monetization (printing money out of thin air to cover the portion of governments spending not satisfied by tax revenue and borrowing) reduces the value of the dollar.
    2. The debt monetization triggers dollars to flow out of bonds and into commodities.This increases demand, commodity prices rise.
    3. As commodities make their way into the supply chains businesses and consumers realize higher prices.
    4. Since globalization has caused wages to stagnate at 1970 levels, and with 23% unemployment, businesses try to eat increases, this in turn reduces hiring, causes layoffs and kills expansion.
    5. Consumers reduce their purchases, case in point: Wal-Mart is losing market share to the Dollar Store - that right there spells retail health (read: it's terminal).
    6. Nations whose citizens spend 32%-52% of their entire budget on food are especially affected.
    7. In those nations where citizens spend 32%-52% of total their income on food; food riots erupt, social unrest breaks out, governments topple.
    8. Geographically speaking, many of these nations are in the Middle East where about a third of the world's oil supply comes from - so oil production is adversely affected, the price of oil increases. Drastically increases.
    9. The empire must then send in troops and warships to protect oil assets from being wiped off the map.
    10. Oil is an integral part of everything from farming to manufacturing to transportation, therfore the prices of all goods and services rise.
    11. This of course creates more stress on our economy, which drives tax revenues down, whic creates a greater deficit, which causes idiot Ben to lean on the print button and monetize even more debt.
    12. Like an infinite loop in some errant computer code we go back to #1 above and iterate back through this unstoppable, self reinforcing, negatively-insane-Ben Bernanke-code that we call a negative self reinforcing feedback loop.

Bernanke's Crimes Against Humanity: Exporting Higher Food Prices to Poor Nations

The price of grain and many other foor comodities are set in US Dollars. Creating more dollars reduces the dollars purchasing power. Creating more dollars makes investors flee securities and rush to hard assets, like grain, corn, soy, oil, cotton, coffee, sugar and so on.

In Tunisia on December 17, 2010 a 26-year-old man who tried to supported his family by selling fruits and vegetables doused himself in paint thinner and set himself on fire in front of a local municipal office.

Police had confiscated his produce cart, the cart he needed to earn a living in order to feed his family. With rising prices he coldn't afford a permit. They also beat him when he objected. Local officials then refused listen to him.

His desperation highlighted the public's frustration over living standards and increasingly higher food prices which accounted for 32.4% of their entire earnings.

A month later the ruler of Tunisia was gone, its government collapsed.

Now it is Libya's turn.

In Lybia 37.2% of a families budget goes to food.

Many other oil producing nations have citizens who face the same income to food budget ratios. Map of many of the countries that are experiencing protests.

Organic bond sales have been anemic. Money is flowing out of securities and into commodities. Bernanke's plan to have Quantitative Easing reduce interest rates has so far been a failure because of these outflows. That was Bernanke's first mistake.

Rising commodity prices, which for the most part peg global food prices was his second misstake.

Actually, if you count: Bear Stearns, the housing bubble, subprime contageon, unemployment contageon and recesion contageon they are respectively Bernanke's 6th and 7th blunders. Add to that the fact that he is following the steps that Greenspan used to explain how Great Depression One was created and it soon becomes apparant that Ben Bernanke is, without a doubt, the worlds biggest economic imbicile and shouldn't be allowed to balance a checkbook - let alone run the world's (now thanks to him and Greenspan) third largest economy.

Bernanke couldn't find cause and effect in a dictionary. He is an economic moron, and a master of global disaster. The only bigger fools are our leaders who:

  1. Haven't fired him.
  2. Still listen to him.

Now we have 2008 redux. Commodity prices and oil prices are headed up. Will they crash or will the dollar crash? If commodity prices and oil prices crash again this time I'll be surprised if money flows into securities again. The dollar is no longer looked at as secure now that Bernanke is monetizing the debt.

The gig is up, the game is almost over.

When High Frequency Algorithmic Trading (insider trading) became responsible for 70% of stock trades I tossed the term "stock market" out of my vocabulary and replaced it with "rigged casino."

When Bernanke began monetizing insane amounts of money the term "Bond Vigilantes" got tossed into that same trash heap. "Bond Vigilantes" are like ants with Bernanke counterfeiting over a trillion a year.

There are no more Bond Vigilantes.

Ben Bernanke IS the bond market and so far he hasn't even stepped in enough to keep yields down, but he'll have to.

It is not the smartest or the fittest that survive, it is those who notice change first.

Ben Bernanke cannot stop Quantitative Easing. Stopping the monetization of debt means that the United States of America defaults on its obligations. That's right, the government stops sending out Social Security payments, government workers stop getting checks, companies who do business with the government stop getting paid, Medicare stops - well, you get the picture.

The other fallacy is that we can make cuts and balance this mess. When 23% of the deficit is debt service and 57% goes to keeping grandma eating. With those two facts in mind, we quickly realize that the deficit can't be cut. Not without default and total restructuring.

Debt is monetized when the Fed creates money with a computer and credits the Treasury Department for the Bonds it "purchased". The treasury takes this "money" and pays the government's bills so it can stay open. So those thinking there is no velocity may want to think that through again.

With 23% unemployment and with 43 million Americans on Food Stamps and a 1.5 trillion dollar deficit the Fed can not let interest rates rise. Rising interest rates would create massive deficit pain and inflict more debt servicing nightmares. There will be no Paul Volckler's this time. Bernanke will - en-masse - drive bond prices back up and rates back down by creating massive fake demand for bonds at auction when interest rates get too out of hand.

When he does that the value of our dollar will really tank, investors will step up their continued flight to safety by purchasing commodities and commodity prices will increase even more. Higher oil prices will likely cause investors to flee the stock market, but with thin volume and 70% HFAT who knows what the rigged casino will do. They've made a sincere joke of the market, which for people in retirement with funds chained to the rigged house - well this is nothing but a sorrowful situation.

Saudi's king is buying time on his remaining years - he's 87 - by handing money out. Like the fine ZeroHedge piece said:

"Unfortunately for Saudi, Bahrain tried this and failed. Also, once you start down this path, there is no turning back, as people demand more and more."

China is faced with its Jasmine protest.

Bernanke, the other central banks, our leaders and the leaders of the rest of the world still have time to exit this endless loop. Just about every country is broke and needs to re-value their dollar and let the people, the local and state and federal governments get out of debt.

The concern I have is that other countries may exit the loop by announcing a new world reserve currency, which may be composed of one or several [other] currencies - all but ours - or with ours being a fraction of the total reserve.

"If" (please read: When) the United States loses the reserve currency its printing and current debt levels will equate to an ugly and very weak exchange rate. In short, food priced in some other currency will leave us looking like Libya.

You can go back through thousands of years of economic history and realize one fact: No country has ever printed their way to prosperity, all who have tried have wound up in hyperinflation, war or demise. How a guy can teach himself calculis, get into Harvard, become a professor at Princeton and NOT understand that - well it totally defies logic. The idiot was asked about the one time in our history that we had no debt. (Please don't think we balanced the budget during the Clinton years - for you can't debt (apply IOU's in the Social Security Trust Fund) as income.) Andrew Jackson balanced the budget and wiped away our debt by using non debt based money. Bernanke was asked about this during a recent hearing and he scoffed at it - his merit? Because it happened before the Civil War.

Davos Sherman Okst was invited to blog the Daily Digest for and did that for about a year after a billionaire investor sent me a link to Chris's site. Became fascinated with the economy in 2007, particularly with the correlation of depleting resources against a growing population. Enjoy reading and writing on the economy. I'm an ex-airline captain with about 15,000 hours and am amazed at all the BS we are taught. Most of my friends still in the business were also taught the wrong aerodynamic principles with respect to what makes planes fly. Aviation or economics, Keynes to Austrian - Bernulli to Newton we've been sold bad goods. It's amazing anything works as backwards as we do things.

US Prepares To Tap Strategic Oil Reserve

From Zero Hedge:

With ICE and CME margin hikes - that last bastion of supply/demand imbalance suppression - no longer having an impact on crude price, it was only a matter of time before the last theatrical measure in the price arsenal was used.

Per Dow Jones: "White House Chief of Staff Bill Daley said on Sunday the Obama administration is considering tapping into the U.S. strategic oil reserve as one way to help ease soaring oil prices." Speaking on NBC television's "Meet the Press," Daley said: "We are looking at the options. The issue of the reserves is one we are considering. ... All matters have to be on the table." There has been support among Senate Democrats for tapping the reserves. Senator Jay Rockefeller on Thursday became the third Democrat to ask President Barack Obama to tap America's emergency oil supply to cool prices that have risen past $100 a barrel on the strife in Libya."

What our esteemed politicians fail to realize that tapping the SPR is analogous to Lehman filing an 8K declaring to the world it is now tapping directly into the Fed's discount window for its liquidity - that didn't end too well. The problem with the SPR is that as a non-marginal replacement of supply it is largely a puppet: with a capacity 726.7 million barrels, the SPR holds a 34 day reserve at the US daily consumption of 21 million barrels. The picture is slightly better when considering that the US only imports 12 MMbd, meaning there is a 58 day supply. But the biggest issue that nobody is considering, is that the maximum total withdrawal capacity is physically limited to just 4.4 million barrels per day. In other words, should the MENA escalation flare up, there is no way to physically replace all the lost output. Yet what is most troubling is that even as the US is about to start using up its reserves, Asia is actively shoring up its oil, meaning that as our own oil buffer gets ever smaller, Asia could easily dictate economic terms over the OPEC cartel as soon as a few months from now if the Bernanke liberation wave does not end any time on

Ireland - Voter betrayal: FG/Labour to ditch pledges on economy

From the


Sunday March 06 2011

The Fine Gael/Labour coalition Government is to implement in detail the outgoing Government's four-year austerity plan as approved by the EU-IMF, the Sunday Independent can reveal.

In what will amount to the most barefaced breach of election promises ever perpetrated by an incoming Government, the coalition partners' programme for government will cause uproar when it is published today.

While an attempt will be made to dress up the programme as a new plan by a new Government, when it is analysed it will be seen for what it is -- the continuation of the economic policies of Fianna Fail and the Greens, virtually in minute detail, as laid down by the EU-IMF.

If anything, Fine Gael will be seen to have capitulated more as it is handing over responsibility for reform of the public sector to Labour, whose core support is drawn from the public sector.

The programme envisages no more than 22,000 voluntary redundancies in the public sector, a long way short of Fine Gael's election promise to reduce the numbers employed by 30,000.

Fine Gael is expected to defend this U-turn by stating that 2,500 voluntary redundancies have already taken place in the public sector since January 2010.

However, the Fine Gael decision to hand reform of the public sector to Labour will provoke fury among many Fine Gael TDs, and cause uproar among the huge numbers who voted for Fine Gael.

Furthermore, it reduces the Government's chances of re-negotiating the EU-IMF bailout since our public spending excess is seen as a chronic problem in Europe.

The new Government will place heavy emphasis on its intention to renegotiate the bailout plan, as imposed on the outgoing Government, but the possibility of such a renegotiation is at least two, maybe three years away.

The omens are not good in this regard as the incoming Taoiseach, Enda Kenny, has already prepared the ground to pull back from his demand for "haircuts" on senior bank debt, saying other ways must be found to cut the cost of Ireland's bank bailout if losses are not imposed on bondholders.

"There is no way we are going to survive as a country unless we successfully renegotiate the EU-IMF deal," a senior Fine Gael source, familiar with the negotiations to form a Government, told the Sunday Independent yesterday.

The new Government will cite briefings on the dire state of the economy, and the banks to explain its decision to slip into the straitjacket imposed by the EU-IMF, just vacated by Fianna Fail and the Greens.

Yesterday, however, a well-placed Fine Gael source did not even attempt to disguise the fact that the new programme for government represents a rip-off of the outgoing Government's four-year plan as signed off on by the EU-IMF.

"Yes, we are going to have to stick with the four-year plan, at least for two or three years, and maybe even go further and deeper than the austerity measures envisaged in that plan," he said. "There is no getting away from that. I cannot deny it.

"The country is banjaxed, worse than we ever imagined. We have no choice." on