Monday, January 21, 2008

More Government BS Amidst Real Economic Disaster

More BS Amidst Real Economic Disaster

“The banks and other financials have more losses from the subprime-mortgage mess on their books that they haven't yet confessed. Worse, the mortgage debacle has spread to other types of debt, with banks and other financial companies reporting mounting losses in their credit card and auto loan portfolios. And worst of all, the next big leg of the crisis -- the one I think will mark the true bottom -- has just started. As the economy slows, the default rate is rising for corporate debt, especially for the high-risk, high-yield corporate debt called ‘junk’ by many of us. That's opening a Pandora's box of potential write-downs that could dwarf the losses in the mortgage market.” The next banking crisis on the way By Jim Jubak

The US economy is in deep trouble but for the most part AmeriKKKans have no clue just how precarious the situation really is. AmeriKKKans are woefully ignorant about how the economy works for numerous reasons: an educational system that fails to teach real world realities, a mass media wedded to the class interests and agenda of the ruling oligarchy whose mission is to distract and bamboozle us. The media and government treat us like mushrooms, they deliberately keep us in the dark and feed us excrement so we will not connect the dots and comprehend the totality of corruption, fraud and treachery that exists. The government lies and manipulates the figures in their economic reports and statistics. Not just the Bu$h administration although they are the most egregious liars in AmeriKKKan history but every administration since WWII. “The popularly followed economic series are subject to two forms of manipulation. First is the event-driven alteration of data, where specific employment numbers, for example are massaged to help political circumstances. Such is the nature of what appears to be happening at present, with presidential approval ratings doing some historical bottom bouncing. The second type of manipulation is more insidious, though, where reporting methodologies are altered so as to build reporting biases into a series. Changes in CPI weighting methodology during the Clinton administration (and as proposed by the earlier Bush administration), for example, were designed to understate the CPI so as to cheat social security recipients out of some of their cost of living adjustments. That purpose was espoused particularly by former Fed Chairman Alan Greenspan. Here is how the reporting system shenanigans have evolved over time. The first regular reporting of now-popular statistics such as gross national/domestic product (GNP/GDP), unemployment and the consumer price index (CPI) began in the decade following World War II. Modern political manipulation of the government's economic data began as soon as practicable thereafter, with revisions to methodology often incorporating positive reporting biases. As a result, investors and most economists, relying on the government's data, often miss underlying economic reality.” MANIPULATING THE MASSES
by John Williams
By that reckoning, if Henry Paulson the Secretary of the Treasury and the Federal Reserve Chairman Ben Bernanke are calling for immediate government intervention to stem an impending economic downturn, you know things are really really bad. Yet George W Bu$h a man with subterranean public approval rating and no credibility whatsoever expects the public to believe “the economy is strong.” Bu$h gives an entirely new meaning to the term “village idiot”. Conditions are so bad the worst news has yet to be reported. The whole system is imploding and the various components are starting to topple like dominoes. There are so many bubbles out there that have burst or that are about to burst its scary: mortgage, credit, credit card and soon the shadow banking industry, hedge funds and derivatives, will soon start to unravel.
“But it's the emerging problems in the corporate-junk-bond market that really worry me. The sector and the problems are big enough to produce another big setback for financial companies and the economy as a whole. Actually, I'm worried not so much about the junk-bond market itself as the huge market for a derivative called a credit-default swap, or CDS, built on top of that junk-bond market. Credit-default swaps are a kind of insurance against default, arranged between two parties. One party, the seller, agrees to pay the face value of the policy in case of a default by a specific company. The buyer pays a premium, a fee, to the seller for that protection. This has grown to be a huge market: The total value of all CDS contracts is something like $450 trillion. Because buyers and sellers of insurance usually create multiple "policies" as they attempt to control risk, that number includes a lot of duplication. Real exposure, says the Bank for indefensible Settlements, may be only 20% of that, or $90 trillion. Some studies have put the real credit risk at just 6% of the total, or about $27 trillion. That puts the CDS market at somewhere between two and six times the size of the U.S. economy. The CDS market has been a good place to make money in the past few years because default rates in the junk-bond market have been historically low. The default rate for all junk bonds declined to 1.7% in 2006. That's the lowest rate since 1996. With defaults that low, sellers were paid insurance premiums but didn't have to cough up much in return. But that default rate started to rise in 2007, climbing to 2.6%. And Standard & Poor's projects the rate will climb to 3.4% by October. At that rate, 56 bonds would go into default in 2008, compared with 14 in 2007.” The next banking crisis on the way By Jim Jubak
If bond and insurance markets start to fall and the evaporating trust between bankers spreads across the board, major panic will set in. Eventually the whole house of cards will tumble. Quiet as its kept, Bu$h’s “economic stimulus” is more smoke and mirrors designed to dupe the masses into thinking the government’s actions will jump start a collapsing economy. The “stimulus package” Bu$h , the Democrats, Paulson and the Fed are pushing is nothing more than a PR scam. It represents more of the same, fiscal irresponsibility and failed policies that got us in this mess in the first place. Cranking up the Fed printing presses, borrowing to dole out “tax rebates” or passing more tax reductions for business will further drive the value of the US dollar down and drastically increase the already indefensible federal debt. Additional money stock (true inflation) will cause the cost of living to increase but only producing marginal results employment wise.
“Critics contend that rebates ‘inject’ new money into the economy, increasing demand and therefore production. But every dollar that government rebates ‘inject’ into the economy must first be taxed or borrowed out of the economy (and even money borrowed from foreigners brings a reduction in net exports). No new spending power is created. It is merely redistributed from one group of people to another. The same critics respond that redistributing money from ‘savers’ to ‘spenders’ will lead to additional spending. That assumes that savers store their savings in their mattresses, thereby removing it from the economy. In reality, nearly all Americans either invest their savings (where it finances business investment) or deposit it in banks (which quickly lend it to others to spend). Therefore, the money is spent whether it is initially consumed or saved. Given that reality, isn't it more responsible for the saver to keep that money and save for a new home or their children's education, rather than have Washington redistribute it to someone else to spend at Best Buy?” Tax Rebates Will Not Stimulate The Economy by Brian M. Riedl
The problem with Brian Riedl’s explanation is, AmeriKKKa has a negative savings rate. “According to the Bureau of Labor Statistics, the savings rate in January was a negative 0.7% -- that is, the average American household spent 0.7% more than it made. I'm not going to get into whether the savings rate is an accurate measure of American household wealth; whether it is or isn't, the savings rate has been in a steady decline since spending most of the 1970s above 10%. We've now had a complete year of a negative savings rate -- the first time since the Great Depression.” AmeriKKKans don’t have any savings. We spend more than we make because our wages are stagnant while the cost of living is rising steadily. Household debt is off the hook. “Americans have increased their borrowing on their credit cards to the point that the credit card industry took in $43 billion in fee income from late payments, over-limit, and balance transfer fees in 2004, up from $39 billion in 2003. In 2005, credit card late fees alone totaled over $11 billion. Consumer debt has doubled since 1990, to $7.5 trillion—-more than $50,000 per household, over $25,000 for every man, woman and child in America. Average household credit card debt has increased 167% between 1990 and 2004.” Economic Cannibalism
Keep in mind, the federal government is broke and in hock also. This means most of the money for the tax rebates must be borrowed or printed out of thin air by the Federal Reserve. Either way it will not solve the problem because the Fed’s inflationary policies caused the problems in the fist place!
By now you get the drift, Bu$h’s “stimulus package” is more okey-doke, more PR smoke and mirrors. Bu$h tried that in 2001 and it didn’t work. Just like then, the rebates did not really stimulate the economy nor did they trickle down and improve the lot of the majority of AmeriKKKans. The so called recovery didn’t produce the requisite number of jobs to meet annual increases in the work aged population, which is why unemployment is so high.
Bu$h’s latest tax rebates are not going to stop the off shoring of AmeriKKkan jobs nor will they reverse the negative impacts of globalization. The US economy will continue to stagnate. AmeriKKKans’ purchasing power and standard of living will continue to decrease while debt will rise (unless we wake up and stop being mindless consumers) due too the workings of compound interest. Nevertheless Joe and Jane Sixpack will take the rebates and run, not realizing they will suffer in the long run. They will spend the money oblivious to the truth, there is no free lunch.



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