The Global Economy Burns, While its Leaders Fiddle

China is by no means a panacea of economic equality or perfect policy. It has a fast growing portion of billionaires and accounts for nearly a third of the world’s luxury goods consumption, while its per capita GDP ranks 125^th globally, and 2.8% of Chinese live below the poverty line (according to ‘official’ stats).

In contrast, the US has an official poverty rate of 14%, though think tanks like the Economic Policy Institute, consider this estimate low. Still, in its latest 5-year economic plan, the Chinese government at least gave lip service to how to deal with its growing inequality - by increasing certain wages by 40%, decreasing taxes on the poor and increasing them on the rich.

The US government has no such strategy, except in campaign speeches, as reflected by our anemic economy. Instead, we witness inane partisan prattling over the deficit and what mini-budget modifications are needed to bring it into line, most of which would disproportionately detract from the people that had the least to do with inflating it. (i.e. anyone not running a bank or hedge fund.)

Yet, like our own, inequality figures will worsen for China, which will ultimately destabilize its economy. The result of attracting that menacing, mercurial entity called ‘global capital’ is inflated growth figures predicated on bulging service sectors and population wealth gaps. The more capital sloshing around a country, the more destabilized it becomes, and the more its leaders pretend that’s not the case. 

Global speculative capital (the kind flowing through any major financial entity) is cunning, aggressive, greedy, shortsighted, and yes, cowardly (it doesn’t stick around when things get shaky.) If it were a person, it would smack down minions of grandmothers and infants to get to the door of a fiery building first, and then deny burn victims healthcare. It hates rules, which is why it likes promoting the notion of markets free of them.

Individual investors in silver are the latest casualties of speculative capital’s fickleness. People that invested their own money in silver were snuffed by the entities that borrowed or invested other people’s money to do the same. The COMEX found the anti-speculation religion it never sought during run-ups of commodities prices for items like food and fuel, and raised silver trading margins.  Though those hikes were the prevalent reason for silver’s price plummet, all they really did was give fast capital a chance to book profits and alter course.

Any investment is subject to fundamental forces, like supply and demand or how much US economic policy is devaluing its currency. But, it’s more subject to speculative whims, like who's in and out, by how much and how fast, whether its a fund or an entire nation.

The time-honored scheme in which controlling capital cons ordinary people (or governments) to join it before crashing or heading for the hills has devastated many individuals and economies. That ploy ran rampant during the crash of 1929. Banks put up their ‘own’ capital, which was really borrowed capital, to spur individuals to do the same with their savings. When banks pulled out, people were hosed thrice – through the loss of their savings, the decimation of their bank accounts that the powerhouses used for speculative purposes  -  under the guise of – serving their clients, and by a raging Depression that killed jobs and hopes.

Not much has changed. Matt Taibbi’s recent excoriation of Goldman Sachs reveals how gray the line is between screwing and screwing, one’s clients. Only now, when banks lose money, governments and central banks reward them with trillions of dollars of subsidies, using the excuse of aiding the population and avoiding larger catastrophe. They say things like - it takes time to increase employment, but we can waste no time in propping up our financial system. Or - pensions and teachers caused budget failures, but we’ll keep holding excess reserves, borne of debt, for banks in case they need it, and pay interest on it.

We are in an ongoing global economic depression. The signs are everywhere, even as they are lost on economic leaders that put private banks and short-term speculative capital before citizens and long-term working capital. Central banks use other people’s future money in the form of debt to do this. No central bank holds, and thus enables, more national debt than the Federal Reserve.

I hate to keep repeating this, but until someone of some ability to do anything gets it, I’m going to keep going. Last week, Fed chairman, Ben Bernanke, co-enabler with Treasury Secretary, Tim Geithner (among others) of our ballooning debt and mis-prioritized economic policy, urged Congress for another debt cap increase, or else.  The guy holds about  $2.5 trillion of debt on his books, being used for – nothing helpful to the general economy. A simple transfer would solve the debt cap problem in a nanosecond. Going a step further, a simple exchange of any of the $1.5 trillion of excess bank reserves receiving interest from the Fed, would do the same.  Instead of defaulting on, how about retiring, some debt? Thinking outside the box.

All around the world, the bodies and countries with the most power keep screwing people (some like IMF head, Dominique Strauss-Kahn, literally) and entire nations, while supporting their banking systems.  Last week, S&P announced it would downgrade Portugal if it didn’t play ball with the IMF and EU over its 4-year 78E billion-bailout program in return for hacking public programs.

Echoing our own Congressional goons spewing spending cuts in the face of inadequate revenues and for-bank-manufactured mega-debt, the S&P noted, “Two-thirds of the projected savings in [Portugal’s] 2012 budget will likely come from spending cuts.”

On a roll, the IMF also declared Italy needs ‘structural reform’, meaning labor market reform, less public ownership and more private investment to “unlock its growth potential.” (aka invite more speculative capital at its earliest convenience.)

Meanwhile, thousands of people are again striking in Greece, as the IMF and EU discuss more austerity measures, following the bank bailout that provoked public outrage a year ago, and a rating downgrade by S&P. The EU remains more concerned with investors regaining confidence in Greece than economic stability of its citizens. Then, there’s Ireland, for whom its last bailout didn’t dent its 14.5% unemployment rate, or fill in the gaping holes its banks dug.

In short, the global ‘remedy’ for depressed economies and debt-bloated banking sectors remains to do  – more of the same - and pretend  this will beget a different outcome. Yet, there is no way this strategy will result in more stable economies.  What we can expect instead is further widespread deterioration.

Captain Obvious (S&P) vs. Captain Oblivious (Tim Geithner)

Last week, President Obama driveled on about nothing of consequence in his budget speech. Yeah, he said he’d push to roll back tax cuts for the wealthy and close some off-shore corporate tax loopholes, but he’s said both (many times) before and neither happened, so in terms of revenue enhancement, it’s a non-starter.

Today, S&P – that beacon of toxic asset rating foresight (which has yet to be slapped with any monetary accountability for its collusive role in bringing down our economy) came to the astonishing conclusion that the United States has a debt problem, and tagged the country with a 'negative watch' label. The S&P report proceeded to highlight fiscal spending issues, related political debating, and our ridiculously high debt vs. GDP percentage, which is only a few points below 100, as points of main contention. It paid minor lip service to the ‘financial crisis’ as being a factor. It shied away from blaming ongoing and potentially further devastating fallout from the overleveraged mortgage-related assets still clogging the books of the Fed, housing agencies and financial firms. It ignored the fact that the banking system maintains the appearance of solvency only through federally supported accounting gimmickry and an exceedingly generous and ‘easy’ Federal Reserve keeping assets bid and rates low in the face of inflation it chooses to ignore.

Meanwhile, the media and Washington have been laser focused on $38 billion worth of budget cuts, a whopping 1 percent of the entire budget, which as slight as it is in the scheme of things, disproportionately chops public good buckets. Rather than the excruciating time sink and mind-numbing arguments, it might have been best to just lop 1% off the top of everything proportionately, but that would have been too easy, and not political enough. Maybe then we could have shifted focus to the real cause of our budget woes – which is that our economy continues to deteriorate and the people with the power to do something about it are lying about its very cause and thus its remedies.

The flashing fuchsia elephant at the core of our economic, and thus budget problems – remains the response to the financial homicide imparted by the big-banks and abetted by the Federal Reserve and the Treasury Department. There was a choice to be made in Washington in the fall of 2008 - smack Wall Street into place, do a good-ole free-market – you fail if you deserve to fail, we’ll protect consumer assets and that’s it maneuver - and deal with possibly intense, but definable fall-out for a short period.  Or - lavish bailout upon guarantee upon subsidy upon asset purchase upon the lowest rates in our nation’s history on Wall Street, and wring the very possibility of a recovery out of the general economy from the get-go. Of course, the brilliant minds of our exceedingly-privileged, out-of-touch, economic leadership decided on the latter, and are acting their asses off to pretend that that decision, in itself, wasn’t the cause of the economic problems that followed, from Main Street anemia, to commodity inflation to international disdain and a weak currency that has no right to even have the purchasing capacity it still does.

And, yet Tim Geithner had the audacity of job-security to take his debt ceiling ‘plea’, on the Sunday Morning talk show circuit – really, we will be in crisis and other countries will think poorly of our ability to pay our debts if we don’t raise the ceiling and increase our debt. In truth, it is Tim Geithner’s ego on the line, while his boss, through staggering absence of mention, is fine with assuaging it. Federal Reserve Chairman, Ben Bernanke remained silent about the topic, not least because between the Fed and the Treasury department, more debt has been racked up and issued in the past two years than ever before.  Of course, the debt cap will get raised, just as it got raised under Treasury Secretaries Paul O’Neil, John Snow and Hank Paulson.

When Geithner got elevated from the NY Federal Reserve head position of aiding Wall Street in its time of need to the Treasury Department, from where he could rubber stamp the entire bailout notion as being essential to our survival as a nation, the amount of Treasury Security debt outstanding was $5.7 trillion (in tradable securities, and $591 billion in nonmarketable ones.)  In August 2008, just before the most powerful banks sucked the soul out of the country in every manner possible, Treasury debt outstanding was  $4.9 trillion.

Today, outstanding Treasury debt stands at $9.1 trillion, an increase of $4.2 trillion since the big bailout began, most of which occurred under Geithner, though it started under Hank Paulson, who in 2007 and recently on Tim's behalf, has used all of Geithner's current arsenal of reasons to request a sizeable debt cap increase. All of it, allegedly to avoid a Depression and propel us to what has been deemed a slow recovery by none other than the Treasury Department, the White House and the Federal Reserve.

Geithner can (and will) keep pretending that this seismic debt increase was a requirement to fix our main economy, even though the actual fiscal stimulus package of the Obama administration accounts for only 18% of this increase, so the numbers just don’t fly.  Indeed, they only make sense if you take into consideration other diversions, like the $1.37 trillion of Treasuries, about a trillion of which is in excess bank reserves, and the nearly $1 trillion of mortgage-related securities parked at the Fed, the $142 billion of mortgage-related assets at the Treasury deparment, and various remaining FDIC guaranteed bank debt hangover from the bailout period, and sundries like JPM Chase’s ongoing Fed backing for its Bear Stearns’s acquisition.

Meanwhile, our debt interest will be more than $430 billion this year, or more than ten times the amount being quibbled about by the elected partisan politicians that are debating it, as the value of our debt and debt-worthiness diminishes.

Anyone can make promises that at some time in the future, some of any budget will be more in check, or even that unicorns will overtake the oval office and do a better job running the economy, but the fact remains – misguided, larcenous policies created a boatload of debt to float a financial system that continues to suck us dry (near zero borrowing costs from non-zero lending through mortgage, personal loans, credit cars, or whatever), and until this fact is given even an iota of a percentage of the time that the smaller bantering is given, we will continue to sink further into a financial abyss of the Fed’s, Treasury department’s, bi-partisan Congress’ and executive leadership’s making, no matter who’s in charge. For now, there are those excess reserves at the Fed - just saying.

Did Tim Geithner really say something that dumb?

It's been at least a week or two (or maybe I've just been paying attention to other things that he doesn't appear to be noticing), since Tim Geithner reminded us how little he understands (or cares) about - everything. But, his Bloomberg Breakfast statement this morning, just nailed it. 

"The global economy is in a much stronger position to handle rising oil prices than it was in 2008 when crude shot up to a record US$147.27 a barrel in New York... Central banks have a lot of experience in managing these things.”

I mean, really ?!? What part of the global economy basking in the stability of its strength would that be, Tim?

The part uprising in the streets, in nations where a third of the population lives in utter poverty? The part getting kicked out of homes, while lenders stash their subsidization money with the Fed, and get interest on it? The part that has all but stopped searching for employment, as the pool of applicants drowns the drop of available jobs? The part that can't afford to eat? The part being asked to give up their right to collective bargaining, so that the part that collectively bargains constantly (under the corporate collective bargaining label 'lobbyists') can defund state and federal revenues while chewing on unnecessary tax breaks?

What part?

A significant chunk of the Middle East and Northern Africa is in revolt against corrupt governments and soul-destroying economic conditions - chief amongst those, a hopeless level of unemployment, particularly for the growing youth populations in those regions (and by the way, Tim - also in our own country), as well as a paralyzing financial chokehold unleashed by record high food and agricultural prices and rising oil ones. No, Tim, the global economy doesn't need more pain.

But wait. Tim, maybe you've got a point about crisis management. Central banks, especially ours, are really good at managing crises on behalf of - banks. They are brilliant at manifesting any required amount of money to subsidize the crisis creators, and patting themselves on the back when that money pumps up stock market prices, corporate cash reserves, and commodity costs. And, when this wall of 'so-called recovery' that you talk about, shows fractures you strive to conceal, due to the reality of an anemic, depressed economy, our central bank is excellent at springing to action. Bernanke just lobs a QE maneuver to inflate the value of our debt and deflate the value of our currency, much the same way the ECB moans a bit, each time a Greece, or an Ireland, or a Portugal begs for a reprieve from the international capital regime that colluded with their local banking systems to trash their citizen economies.

And you, Tim, so heroically helped our central bank manage the crisis, as the Treasury department issued $4 trillion of debt (in two years!) while now, nervously talking about budget spending cuts and deficit reduction and hoping no-one will remember your part in the financial imbalance that is our national economy. This, in co-hoots with a reckless Federal Reserve determined to pretend that the cheap money it continues to pump into the speculative class has nothing to do with the inflation in commodity prices it refuses to acknowledge, and that the trillions of dollars manufactured to enable our negligent, accountability-immune (h/t to the magnificent Matt Taibbi) banking system to remain functional was no hardship to our country, whereas say, advocating the raising of taxes and revenue seeking measures on those recipients would be.

Yeah. Nothing like management experience.