Friday, December 24, 2010

Welcome to the Illusion: Economic Recovery Forthcoming

There are several key indicators to look at in understanding that America's economy is rigged; chief among the indicators are the fact that we have historically low trading volumes driving the market to pre-crisis highs, a Federal Reserve paying banks interest rates which exceed the rate of short-term Treasury yields to park their excess reserves at regional Feds around the country, and the news that businesses have trillions in cash reserves awaiting deployment.  

In the case of the low trading volumes, the fact that our economy has shot back up to pre-crisis levels even with some 16% real unemployment and a staggering amount of underemployment on top of that figure is an indicator that the recovery in the stock market is not being driven by consumer spending.  Simply put, Americans don’t have money to pay their mortgages, much less buy finished goods and manufactured products.  Given that a significant amount of underwater mortgages are still awaiting foreclosure or modification, you can’t argue that the banks are truly solvent or in a position to resume normal lending.  Only the federally mandated suspension of normal accounting rules has allowed banks to maintain any semblance of profitability or fiscal health. Simply enough, banks do not have to report their bad assets on their balance sheets.  

If the recovery isn’t being driven by consumer spending, or by any broad-base of participants, who is driving the economic uptick in the stock market?  The simple truth is that banks and the Federal Reserve are the drivers of a mirage recovery, and they are doing it by trading in the open market and driving share prices upwards in the process.  The Federal Reserve accomplishes this through its own trading desk, and the banks do the same through their investment arms and through their relationship with the Fed.  

The Federal Reserve’s interest rates on excess reserves are relevant in the following manner: at the time the interest payments were hiked, the amount of excess bank reserves on hand at regional Feds around the country was a mere $2 billion.  Today, the amount of excess reserves on hand is a stunning $981 billion and counting.  Where the business community is concerned, there are over $3 trillion in reserve funds waiting for investment or expenditure.  

To the extent that this crisis has lasted as long as it has, it has been largely due to the willful reluctance of businesses and banks to use the money they already have in order to spur investment and economic expansion.  In essence, both banks and businesses have withheld their reserves in order to bring about a more favorable political environment which will enable further systemic abuses in the form of greater fraud, malfeasance, and regulatory circumvention.  They now have the government they paid to get.  

In the White House, there is a president who has already presided over two bailouts, both of which were illegal and unconstitutional, one for the financial sector and another for the automotive industry.  The president also looked the other way while the Federal Reserve pumped trillions more into the financial sector both domestically and abroad.  Whatever reforms were pushed through were largely cosmetic, meaningless, and will ultimately result in greater expense to American homeowners and small business borrowers.  The TARP bailout’s cost to the American people is said to have been minimized, but the truth of the matter is that the banks borrowed the money from the TARP funds and paid them back with funds borrowed at below market rates of interest from the Federal Reserve after investing those funds in marginally higher interest bearing market opportunities.  

In Congress, a Republican Congress is poised to effectively blockade any attempt to hold the banks accountable for their role in the largest fraud in American history.  For the better part of a decade, the FBI warned the Justice Department and other agencies within the federal government that mortgage fraud was rampant.  To date, few if any meaningful prosecutions have taken place.  Not only was the over lending and mortgage fraud rampant, it was deliberate.  Banks knew that people with no incomes, no jobs, and no assets were granted mortgages, and they did nothing to put a stop to such practices.  

Today, banks are foreclosing on properties that are paid for, properties they have no documented claim to, and they are doing so in blatant violation of the law.  No one is stopping them.  The foreclosure madness has extended to homeowners who have made their payments on time because servicers make more money foreclosing on properties than they make on modifications or simply allowing homeowners to make their payments continually and on time.  America has become a place where even if you pay your bills on time, your home can be repossessed by unscrupulous servicers.  Even if you paid for your home in cash, you can still face attempted foreclosure. The audacity is stunning.  

Between lawless conditions and nearly $4 trillion in reserves held at regional Feds or in bank accounts belonging to American businesses, we are on the verge of a market being flooded with $4 trillion in liquidity over the next two years.  If you want to see what a fake recovery looks like, you’re about to see just that.  While the deficit remains tremendously high, and the national debt has exploded, what you will see over the next year will be the beginnings of a recovery and bubble formation unlike any other.  Combined with the quantitative easing and whatever other covert Fed programs are on the horizon, we could be looking at nearly $5 trillion in liquidity to spike a U.S. economic recovery.  

The end result will be higher prices, rising home valuations even with delinquent mortgages, and rising tax revenues, for with rising valuations come higher property taxes.  The wages of American workers will rise, but the increase in wages won’t lead to higher purchasing power because inflation devalues currency.  You may see a marginal decrease in annual deficits, but the marginal decrease will only lead to more confidence on the part of Congress where spending is concerned.  The long term effects will be as follows: greater unfunded liabilities and long-term obligations at both the federal and state level.  State and municipal debts are already being funded by federal guarantees and on bond issues.  

When the next collapse comes, and it will, the recriminations will be bitterly exchanged, but whatever happens, it will be a bipartisan result to a problem forged with bipartisan effort and complicity.  We don’t have $5 trillion worth of legitimate, viable demand for liquidity.  What this means, plainly and simply, is that a significant portion of any liquidity pushed into the current market will go to people who cannot and will not pay back what they owe, and their debt will be securitized in much the same way the debt of the past ten years was, with stunning ramifications for the global economy and American security.  

What is more, there is no bastion of strength to withstand further bubbles and the abuses that accompany such fiscal and monetary overreach.  China is the largest property and real estate bubble in the world. The Chinese are building entire cities only to have them stand largely vacant due to the fact that in an economy with a per capita GDP of around $4,000, there is no demand for luxury high rise residential living commensurate with the supply being constructed at the behest of the Chinese government.  What no one is bothering to question is how much of the Chinese GDP is real.  It stands to reason that totalitarian governments overstate their economic performance in order to appear stronger than they actually are, and why China should be any different is something that no analyst is bother to explain.  

In essence, we are entering a phase of global economic inflationary expansion, and while the ideologues will crow that the the tax cuts and austerity measures worked, in all truth, we will be back in the same dire straits we were in in 2008 within three years.  Welcome to the illusion, economic recovery forthcoming. 

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Wednesday, December 22, 2010

Representative Peter King, Bringing Back McCarthy One Step At A Time

New York representative and incoming Homeland Security chairman Peter King is rumbling about holding hearings on the threat of domestic terrorism, as though a hearing could do anything to dispel the threat of domestic terrorism.  What a hearing will do is what all hearings do for committee chairs and committee members: afford a chance for grandstanding and pontification on an enormous scale.  In short, it's a good way to get some headlines and look tough.  

The reality of the matter is that such hearings will do little if anything to address the real issue of homegrown terror, and everything to increase the sorts of resentments, angst, and marginalization that go into transmogrifying ordinary youths into petulant posturing terrorists with more bravado than competence in their craft.  The recent revelation that the FBI had walked one of those youths through the process of planting a fake bomb in Seattle rather than simply arresting his ass immediately and giving him the wake up call that might have jolted him back to reality does not give one comfort about how our domestic efforts are going.  As a 19 year old Somali youth, Mohamed Osman Mohamud wrote that he had been betrayed by his family, who were apparently not overwhelmingly enthused about his turn towards radicalism.  Mohamud received far more practical assistance from the FBI in carrying out his murderous plans than he did from other Somali Muslims in his mosque or within Washington state.  Granted, it was a sting operation, and the bomb Mohamud planted was a fake, but still...within a short time, the mosque Mohamud attended irregularly had been targeted by arsonists.  Imagine how many minds were rendered a bit more amendable to the idea of terrorist resistance by that useless little gesture.  

If Peter King wanted to hold the FBI's feet to the fire for their asinine conduct during a sting operation that amounted to pure entrapment of a 19 year-old who possessed nothing beyond an attitude problem and rebelliousness before they encouraged him along the wrong path in order to generate headlines with his arrest, I'd be fine with that.  But that's not what Peter King is after, and we all know it.  Peter King wants to generate sensational headlines, much like those FBI agents working in Corvallis and Seattle.  He wants to promote the idea that eight million or so Muslims are run through with radicalism, even though the vast majority of them are law-abiding citizens with businesses and jobs who will never come close to involvement with a terrorist attack.  

Therein lies the problem: when their children, impressionable as they are, see the world's most powerful government sicced on their parents and their community, they will be ripe for recruitment by actual terrorists or undercover FBI agents.  What no one bothers to ask is why we're even bothering with the little fishes when we know that the Council on Islamic Relations is little more than a front group for Hamas, that lot of Holocaust supporters and hate-mongers who have yet to get their just desserts from anyone.  If Peter King and the FBI really wanted to deal with the problem of terrorist recruitment, logistical support, and aid within these United States, we'd have the offices of CAIR stormed quickly and Ibrahim Hooper marched out in handcuffs like the little simpering terrorist sycophant and sympathizer he is.  

But Peter King isn't after the elimination or curbing of domestic terrorism on any meaningful scale because it's just too useful to his bottom line: generating headlines and getting re-elected.  His is a crass, cynical game, and what is more, that game comes at the expense of America's national security and the safety of average citizens.  What is more, in the name of getting headlines and notoriety, it's not overwhelmingly hard to imagine Peter King making revelations about existing investigations and making it harder for undercover agents targeting real threats to America's security to do their already difficult jobs.  The presence of Peter King as the chair of the House committee dealing with issues of Homeland Security will likely create an atmosphere of vigilance among those groups dedicated to attacking America from within, which in turn will make it far more difficult to infiltrate those groups.  

It's okay, though.  Peter King will get to become this generation's McCarthy, and that's fine, because his political notoriety and advancement are far more important than actual progress in combatting domestic terrorism.  Would it were that the GOP leadership would get a clue and clamp down on rogue elements like Peter King who are simply in the business of self-aggrandizement, but that's not going to happen, because a good many of the GOP's leadership are in the same business. Welcome to the two years of idiocy that will pave the way for the re-election of one of our most incompetent presidents and the re-emergence of his party.  When you look back on the two upcoming years, consider it a lesson learned about squandering efforts on a GOP establishment who's members are better at being provocateurs than they are at actually governing.  




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