Financial and Economic Situation Could Get Ugly Fast

[Crewleader]

Nov 21, 2009 - 03:27 AM

By: Mike_Whitney

Things could get ugly fast. With the Democrats backing-off on a second round of stimulus, the Fed signaling an end to quantitative easing, and Obama moaning about rising deficits; there's a good chance that the stumbling recovery could turn into another sharp plunge. Bank lending is shrinking, consumers spending is off, housing prices are falling, unemployment is soaring and the wholesale credit markets are in a shambles. This isn't the time to slash government support in the name of "fiscal responsibility". Obama needs to ignore the gloomsters and alarmists and pay attention to the Nobel laureates like Joe Stiglitz and Paul Krugman. They're the guys who know how to steer the ship to safe water.

But there are troubling signs that Obama has joined the ranks of the deficit hawks and is planning a policy-reversal that will pitch the economy into a nosedive. Here's what he said on his tour through Asia:

"I think it is important to recognize if we keep on adding to the debt, even in the midst of this recovery, that at some point, people could lose confidence in the U.S. economy in a way that could actually lead to a double-dip recession."

http://www.marketoracle.co.uk/Article15214.html

[ixion]

1. The first stimulus should have been a jobs creation package, rather than a handout to Wall St.

We would be worlds better for it, and that is something I could have gotten behind.

I was adamantly opposed to bailing out Wall St., for exactly the reasons we're seeing now. I would have supported, though, a bill that would have a) pushed the creation of 'green' jobs; and b) encouraged the creation of companies that make things here, in the US, rather than importing them from China.

Now, though, we've blown through a few trillion, and the only people who are fat and happy are the folks who caused the mess in the first place, and the rest of us are looking down a none-too-pleasant path.

[wuvuj]

13. The end is near....

http://www.alternet.org/story/144109/15_signs_american_society_is_coming_apart_at_the_seams?page=entire


Editor's note: The following is an edited excerpt from the Amped Status report, "The Critical Unraveling of U.S. Society."

The economic elite have launched an attack on the U.S. public and society is unraveling at an increased rate. You may have missed it in the mainstream news media, but statistical societal indicators are reading red across the board. Let’s look at the top 15 statistics that prove we are under attack.

....

So let’s break down these numbers.

You have a population of 50 million people who are in desperate need of money, they most likely have no health insurance and can’t afford to get health care or help of any kind. Part of this population probably also has loved ones who can’t get life sustaining medical treatments, or loved ones who have already died due to lack of costly medical treatment. The clock is ticking loud for these people and they are running out of options fast, and time delayed is time closer to death.

While the richest 1 percent have never had it so good, a significant percentage of the U.S. population now has firsthand experience in this. Millions upon millions of Americans are poor, broke, struggling, starving, desperate… and armed.

We are sitting on a powder keg!

We are now witnessing the critical unraveling of U.S. society.

[ozymandius]

2. The decision process is handicapped through an inaccurate assessment of our situation.

We are in a depression. This is not our grandparent's depression of eighty years ago. We do not have soup lines and people selling apples and pencils downtown to feed their families. But we are in a depression nonetheless.

Similar to our situation eighty years ago, though, is that Obama appears willing to make the same mistake FDR made in 1936. Government stimulus was withdrawn too soon and the nascent economic recovery froze, then fell into recession.

It is not time to blink on revamping our economic model. To withdraw government support for new industries and new directions for existing ones will yield the same results as that similar mistake in 1936.

Obama has received nothing but bad advice from his leaders Geithner and Summers. Why these two, now closely identified with their doggish devotion to the big banks, remain so influential with Obama is truly a mystery. One could deduce that Geithner and Summers have convinced Obama that now all is well since the big banks have been rescued. So no additional government support is needed. Should this advice be taken and exercised to its full extent then Obama does so at his and the Democratic party's electoral peril.

[Coyote_Bandit]

3. Obama

has several problems:

(1) He doesn't have any real training in economics.
(2) He has surrounded himself with economic advisers who are good old Wall Street fellows.
(3) Both his loyalties and his measure of economic success lie on Wall Street.

He ain't no New Deal Roosevelt and he does not have the potential to become one. He is not a reformer. He just wants to make whatever patchwork repairs are necessary to keep our same old broken system functioning. His loyalties and priorities do not rest with the unemployed, the underemployed, the uninsured or the underinsured. Those folks just weren't good enough to make it in the Ivy League or in corporate Amerikkka. Not everybody can do that and those who do are worth more in our society don't you know?

If Obama really wanted to institute some changes to bring economic stability and growth he could do a number of things (assuming of course that he has the political skills to enact a legislative agenda - which is a completely different issue):

(1) He could have enacted the credit card reforms immediately.
(2) He could more aggressively pursue anti-trust activities to break up (or prohibit mergers and acquisitions) the mega corporations.
(3) He could provide significant stimulus money for the purpose of small business creation and development - as opposed to Wall Street bailouts.
(4) He really could have fought for meaningful healthcare reform instead of the currtent POS INSURTANCE reform that is on the table.

Meaningful healthcare reform is my line in the sand. Aside from that monetary and financial policies and issues often determine my political choices. I am completely unimpressed with the current administration. Once again Wall Street is served at the expense of Main Street. That is not a sustainable policy. Fuck the arrogant bastards who are too ignorant or self-interested to realize that.

[notesdev]

4. Obama alone can't enact anything

Congress writes and passes laws. Well, their industry donors write the laws and Congress passes them.

Either way, Obama is not in control of the situation. The key person driving legislative policy is Nancy Pelosi.

Obama himself appears to be little more than a figurehead.

[DemReadingDU]

5. Exactly.

The lobbyists and banksters 'write' the bills for the politicians to enact. Our government really doesn't support we the people anymore. The gov passes rules and regulations to benefit the wealthy and to keep their status quo.

We are in for some rough times ahead.
:(

[IrateCitizen]

7. That may be true, BUT...

He has something that none of the members of Congress have -- the bully pulpit of the Presidency.

It may not provide the ability to WRITE and PASS laws, but it sure has the ability to affect the process.

The fact that he has chosen not to use it for the purpose of meaningful reform speaks volumes. And, in the end, it appears to validate your assessment of him as a "figurehead".

[westerebus]

9. I expect a cruise missile attack, but..

Our President, the Head of our Democratic Party, the Commander in Chief of this great Nation is
Ronald Regan part II.

Doesn't matter what he says or does, (a lot of) people just love him. And he gives a great speech.

It's the people around him that keep giving him bad advice that's causing so many problems.

If he just knew......

He has a plan...just wait..

The Congress won't listen to him....but that will change..just wait..

He's working hard to get it fixed right... Rome wasn't built in a day...just wait...

He inherited this mess....He's doing all he can...honest, just wait...

We mise well go watch re-runs of Happy Day's.

Rant over.

[bvar22]

6. Lets see:

1) Keep the WARS/Occupations fully funded....DONE

2)INCREASE "defense spending".....DONE

2) A Trillion Dollars to friends and campaign contributors on Wall Street....DONE

3)Another Trillion Dollars to campaign contributors in the Health Insurance Industry (Wall Streets' incestuous 1st Cousin).....Almost done.

4)Cry about not having any money for "entitlements" or other unnecessary domestic social programs that help the Working Class and The Poor....Off to a Great Start.


MISSION ACCOMPLISHED!

The DLC New Team

(Screen Capped from the DLC Website)

[glitch]

19. +14,000,000,000,000. nt

[roamer65]

8. I think the Chinese gave Obama an ultimatum.

Support the dollar or we won't either.

[Ghost Dog]

11. Yes. And not only China:

Germany warns US on market bubbles

Frankfurt November 20 2009 19:48 Germany’s new finance minister has echoed Chinese warnings about the growing threat of fresh global asset price bubbles, fuelled by low US interest rates and a weak dollar.

Wolfgang Schäuble’s comments highlight official concern in Europe that the risk of further financial market turbulence has been exacerbated by the exceptional steps taken by central banks and governments to combat the crisis.

...

He said: “More likely today is a scenario in which excess liquidity globally creates a new asset market bubble.”

He added: “That low interest rate currencies such as the US dollar are increasingly being used as a basis for currency carry trades should give pause for thought. If there was a sudden reversal in this business, markets would be threatened with enormous turbulence, including in foreign exchange markets.”

/... http://www.ft.com/cms/s/0/4ec41a1a-d616-11de-b80f-00144feabdc0.html

[amandabeech]

12. Both China and Germany export much more than they import.

The last time that the dollar went to $1.60 per Euro, Germany's export engine seized up. Of course they're having a fit now. They want high interest rates so that the dollar will rise against the Euro, keeping their exports cheap. However, our economy does not warrant anything but a drop against the Euro, and there is no reason why we should help the Germans keep their export machine going. They haven't exactly been helping us lately.

Of course, the Chinese are nervous about the value of their dollar holdings, but they are a huge country and can buy the best financial advice available on the planet. They are sophisticated investors. If they make a bad investment decision, like buying too many treasuries, then it is no fault but their own.

If I were advising the Chinese, I'd tell them to sell U.S. treasuries into the current dollar rally, which is a flight to quality in a time of uncertainty, and look for chances to diversify.

Then I'd tell them to quit whining.

[ozymandius]

14. The carry trade is the most devilish aspect of this bubble.

Easy money combined with the carry trade make asset bubbles all too easy to create. Borrow cheap currency in the U.S., then funnel that into emerging markets to make some quick cash. Is it any wonder why the flow of "hot money" has steadily increased in southeast Asia over the past five years? Since the weak strong dollar policy has been dutifully supported with empty words?

I wish there were a panacea to normalize market and currency relationships globally, with honest valuations among all components that are being used for systemic abuse today. It seems as though the Greenspan era of easy money that began thirty years ago has spawned new forms of systemic abuse that, otherwise, would have been confined to any race track or a Las Vegas casino.

[Ghost Dog]

16. My impression is that we have already seen the shit hit the fan,

Ozy, (updating the slow trainwreck metaphor) and we are now witnessing the consequences (visualize the effects of a bird-strike on the turbo-fan of a jet engine). Viz: the fan-blades themselves have broken and are flying apart; not only has the engine seized-up, but the collateral damage is threatening the integrity of the aircraft (society) itself.

Then, consider the altitude and how far there is to fall.

The, um, let's say 'humanist' environmentalists amongst us have long wished events would never arrive at this break-up stage. But, it seems, our (so-called 'democratic', but maybe not so 'meritocratic', in rational terms?) methods of administration and governance here in 'The West' have failed us.

Fortunately, the human family is diverse, large and, maybe, still willing and able to adapt to changing circumstances.

(Having learned a lot about economics (and its socio-psychological vertients) in recent years, I'm returning to concentrate much more on environmental and governance issues right now, and am offeing, again, my services).

Interesting times, indeed. Stay safe.

[roamer65]

22. I agree. A carry trade in a reserve currency is extremely dangerous.

As Nouriel Roubini calls it, "The mother of all carry trades".

Imagine what will happen when the Fed decides to increase interest rates.

[Ghost Dog]

10. I would suggest that elements of the "progressive left"

could usefully seek to forge alliances with some not-so-insane "libertarian" elements, if such can still be found...

See for example (but, notice the usual mis-characterisation of so-called "socialism"):

Country at a Crossroads
by John Browne, Senior Market Strategist, Euro Pacific Capital | November 18, 2009

The U.S. economy is in uncertain times. Analysts are split between those seeing recovery and those fearing a second downturn. This confusion is being echoed in the highest levels of government as President Obama simultaneously speaks about the need for more federal spending and warns of the dangers of increased debt. As the volatile markets indicate, investors are not only confused - they are seriously concerned.

The country appears to be going through a period of buyer's remorse over the election of Barack Obama. The majority cobbled together by the President one year ago included the Democratic base, independents hoping for "change," and many disaffected Republicans betrayed by the Bush Administration's big-government neoconservatism. It is unlikely that most of these voters favored an overt push toward socialism; however, this is what they have received. As the 'tea parties' illustrate, voters are not only confused - they are seriously concerned.

These concerns are justified. The Administration's hard-left turn was evident from the outset. Ignoring expert advice to spend on job-creating infrastructure, Obama spent wildly on entitlements. Now, with rising grassroots discontent, a falling currency, and threats to America's AAA credit rating, there is some evidence that the Administration is trying to hedge its bets through tough talk. Yet, they still have not taken any tough action. As their gold stockpiling highlights, foreign governments are not only confused - they are seriously concerned.

Over at the Federal Reserve, no such soul-searching appears to be underway. Its chairman, Ben Bernanke, is clearly intent on avoiding deleveraging. He has charted a course of massive liquidity injections, financed by hitherto unimaginable levels of monetary inflation. He has even attempted to coordinate these expansionary policies on an international basis.

For the moment, the cheap liquidity has saved Wall Street. To the delight of the Goldman Sachs, et al., the Fed has created a boom in financial assets, including equities, bonds and commodities. These rallies have stimulated a nearly universal belief that the worst has past. This feel-good attitude could be clearly seen on a recent cover of The Economist that read: "After the Storm - How to Make the Best of the Recovery."

But, to many people, life looks increasingly desperate. Official U.S. figures admit to some 15 million unemployed. Despite the massive stimulus packages, American consumers are still in shock and not spending as they once did. Already, the fall in consumer demand is larger than that of the early 1930's. The authorities now face a moment of truth: admit that they don't have the power to bring the consumer back to life or redouble their efforts, consequences be damned.

The whole world awaits the decision, which could indicate a wild inflation, a major recession or the worst of both.

/... http://www.financialsense.com/fsu/editorials/schiff/2009/1118.html

[ozymandius]

15. Mischaracterization is right.

The second paragraph suggests that "teabaggers" (heh!) are somehow mainstream and cognizant of the issues their activities bring to the fore. Concern, as far as I can tell, is over federal spending and knee-jerk fear over healthcare reform. Healthcare reform aside - if spending were an issue then where these "teabaggers" during the years when their beloved King George was in power? Mr. Browne takes these kooks way too seriously.

[Ghost Dog]

17. Well, here's another, I think 'anti-government' example:

... Meanwhile the Eagle sits on its perch, fighting wars in foreign lands while spending billions of American dollars doing it. The average American will see no benefit or harm whether we win or lose against the Taliban in Afghanistan. What we will have done however, is strap Americans with more debt and more use of precious resources. The American eagle is getting a little bit wobbly on its perch and it wouldn’t surprise me to see all American soldiers taken from all overseas assignments and brought back to this country just to deal with the economic collapse, and because we can no longer afford to keep them overseas.

We need to start thinking about where we live and how we will survive an economic collapse. When the federal government can no longer function, what will we do to replace it? How are individuals to survive when essential goods and services become extinct? This isn’t a future scenario that will happen twenty or thirty years from now, no! We are already experiencing it.

We can continue to live our daily lives watching TV and the advertisements that lull us into a false sense of security that everything is well, or we can start making provisions to deal with the calamity that lies ahead. We can provision staples, use alternative energy sources to heat our homes or assist us in heating them, and we can start talking with each other and get to know the neighbor that lives across the street that you have never talked to.

I’m really not an alarmist, but I see the merit of what so many scientists are predicting. Not only will Peak Oil stop economic growth, but climate change according to a UN report will bring desertification to 70% of the planet by 2025. Maybe petroleum peaking out is in reality what may save our planet. Maybe a return to simpler ways to live and work will stop the CO2 emissions, but I don’t think so. Third world countries are surpassing the industrialized countries in carbon emissions by burning coal. What I would like to know is who is really minding this nation’s business? What is the Federal government doing when scientific fact is thrown in their face? While Obama listens to Timothy Geitner and Ben Bernanke and other Goldman Sacks alumni, a company that produces nothing and makes money by buying low and selling high with government funds, where are the people that see what’s happening? If I can understand the ramifications of what is happening in front of my face, what about the President of the United States? Is he really ignorant or does he just not wish to deal with it? I’m curious; maybe someone in the executive branch can give us answers. It would be in everyone’s best interest to have people starting to deal with reality instead of putting their head in the sand. Maybe the American eagle should be replaced with the ostrich.

/... http://www.informationclearinghouse.info/article24020.htm

(I confess I've been trying to listen to / read some of the nutcase extremists over there recently. In spite of being so ill-informed and essentially wrong both in mind and spirit, in much they are sometimes also right? (eg. the bribed/blackmailed politicians and the corporate-owned State?).

Reason why above I suggested some room for a forging of mutual understandings and alliances (and try to educate them some), given the extreme circumstances you (USA) find yourselves in. Otherwise, who isn't foreseeing a terribly violent hell.

[abelenkpe]

18. one problem

is that on closer inspection all the libertarians I've ever spent any time around turn out to be quite insane and unreasonable. It would be like partnering up with dynamite thinking one could control the blast.
Liberal/progressive are the majority. Surely we can focus on the economy without inviting in an element that seeks to undo all social programs and tends to spout off against immigrants and minorities.

[Ghost Dog]

20. Huge problem, for sure. Why I emphasise possible opportunities for education

through better communication.

In order to remove those entrenched corrupt corporate interests from your system of (self-)government (and mass communication), some hopefully controlled but nevertheless relatively 'extreme' measures may need to be taken?

Edit: Understanding, of course, that "rule of (impartial but reasonable and effective) law" is an even better/less worse invention than so-called "representative democracy".

Eg. Anti-Trust, anyone?

[IrateCitizen]

21. In a society facing some serious entropy such as ours...

... it's not quite certain that we can really rely upon social programs in the future. I don't say that because I don't think that society has a duty to help the less fortunate. I say that because many of the programs that we currently view as the core of our social safety net may just be unsustainable in the face of severe economic uncertainty.

Anti-immigrant feelings are not anything new -- they are as American as mom, baseball and Apple Pie. Benjamin Franklin used to rant against the German-speaking population of PA and how they would never integrate into the emerging "American" culture (in the case of the Amish, turned out he was right). The point is to avoid eliminating potential allies due to a few issues when, the reality is, you can actually agree on a great majority of things.