Aug 102011
From Reader JJC:
The budget should be balanced. Public debt should be reduced. The arrogance of officialdom should be tempered, and assistance to foreign lands should be curtailed, lest Rome become bankrupt.-Marcus Tullius CiceroPresident DowngradeAs I write this, the Nikkei is just opening and is following a steady downward trajectory. None of the overnights look better.The table below is from the final bell on August 8th, and I have little confidence that even these depressing –make that scary- figures are going to hold. In fact, if one were to expand this table to include overseas markets and indices, everything is a mess.So far, no floor has been established and you can count on both professional traders and amateurs dumping stock like excess ballast on a leaking tramp steamer. Best guess is the next price support is someplace in the high 900’s.
blog/the-real-economic-story/ Now comes a truly terrifying email from James. He writes, “This is the start of the real deal.” The things I forecast six months ago are now obvious to some but still not all.” He writes that “We have begun the second phase of the meltdown.” He predicts that “Stocks, real estate will collapse and keep falling into 2013. The lows of 2009 will be easily taken out on the downside.”From the start, Fitzgibbon has been impressing on me that we are not facing the normal business cycle of boom and bust, but that we are in the midst of a debt repudiation cycle which comes every fifty or sixty years as debt piles up so high that borrowers stop borrowing and lenders stop lending.Our GDP to Debt ratio is 100%, but as Morris and others are pointing out, adding in Fannie &Freddie, it is larger than that. Fannie and Freddie are two very expensive white elephants that, by virtue of portfolios stuffed with millions of underperforming loans backed by phantom assets, are rapidly burning through multiple billions of dollars. Despite last week’s more positive unemployment report, the reality is that the labor force participation rate has dropped so considerably that it has actually reduced the official unemployment statistics. Jennifer Rubin in the Washington Post stated this quite well earlier when she wrote:When President Obama took office in January of 2009, the labor participation rate was 65.7 percent. Now, “The labor force participation rate is currently 63.9 percent. That is the lowest level since 1984,” says Matt McDonald, a communications and business strategist who previously worked in the Bush administration. “If the labor force participation rate today were 65.7 percent, there would be an additional 4.2 million people in the workforce.” In that case, the unemployment rate would be 11.5percent not 9.1 percent.It seems that Mr. Obama is living in a parallel universe. Just two months ago, Mr. Obama was telling giving us the word that everything was going along quite swimmingly:http://m.whitehouse.gov/the-press-office/2011/05/18/ remarks-president-dnc-event- boston-massachusetts Now, we have spent the last two and a half years cleaning up a big mess. And some of the decisions we took were tough. We had to move swiftly, we had to move boldly, and sometimes they were controversial. But an economy that was shrinking at about 6 percent is now growing again. Over the last 14 months we’ve created 2 million private sectors jobs, starting to recover some of those jobs that were lost during the crisis. The financial system is stable. The stock market has doubled. We’re on track to enjoy in manufacturing, for example, some of the fastest growth and greatest expansion that we’ve seen in about a decade.Of course, he basically went another direction at the delayed and very creaky press conference today. He was unconfident, nervous, and typically insincere until he trotted out his solution to our markets in free fall: class warfare and reheated wealth redistribution. Sure, and how many people think higher taxes and greater confiscation of wealth from our citizens will fix this right up? Regardless, he was confident in telling us that class warfare and higher taxes are just what the doctor ordered. That material he does understand and does feel confident about because when it comes to confiscating people’s income and living off the hard work of others, he is a subject matter expert.So where does this leave us? We have a crisis of leadership and a crisis of vision leading to a crisis of confidence. Partly as a result, we see markets panicking and nations including our own, becoming insolvent- right before our eyes.This is a worry, because left unchanged it will lead to a loss of legitimacy of not only the man, and not just his office, but of our political institutions.
