Archive for December, 2008

How Can We Turn a Recession into a Depression

Tuesday, December 30th, 2008

I have been telling you a shortened version of how Hoover and Roosevelt managed to turn a bursting speculative bubble, and a moderate recession into THE Great Depression.

In A previous article I gave you some unemployment data,based upon a Vedder & Gallaway  statistical study in their book “Out of Work”.

 Unemployment in November 1929 , was just over 5% almost two  months  after the market crash . 

Unemployment hit a high of 9% + in December 1929, but gradually dropped to mid 6% by the beginning of Summer 1930.

 President Hoover and later FDR began tampering with the economy . They attempting to reduce unemployment  by  imposing  protectionist  tariffs.

This intervention resulted in double digit unemployment , but it was more than a year after the crash.

The more they attempted to fix the economy, the higher the unemployment numbers became.

F D R interfered with the economy more than any President to that time. Previously, it was not considered the business of the Government to  intervene in economic cycles. 

The more Roosevelt tried to use government spending to help the economy, the higher the unemployment rates soared.

The methodology which he used , involved putting people to work!  Sponsoring Publick works! Rebuilding and improving the infrastructure! All honorable intentions.

However, let me explain.

Everyone knows the expression,” the road to someplace is paved with good intentions.”

Here is whar Franklin D Roosevelt and several other well intentioned leaders have done, or are about to do. 

For clarity, lets shrink everything down to a small parable.

Lets say the President has $ 1 million available to stimulate the economy.The money was from the Treasury , and had come via taxes collected.

He looks at the pile of bills.” Not bad,” He thinks. This is quite a large pile. I should be able to help a great many people with all this money.

He scratches his chin,” My citizens are hurting. Unemployment keeps going up. The people are hungry.”

“What should I do?”

OPTION #1

“I know what I have to do.” He picks up the phone. “Mr Secretary, we must do the right thing. The safe thing.  The Politically expedient thing .”

He holds the phone away from his ear. The voice on the line is speaking loudly.

Finally the President becomes impatient. ” Listen” He says, ” Do you want to help the country, or do you want to get reelected?’

There was silence on the other end.

“We must get money and stimulus directly to the people.” He continues,” We will take our $1 million and create public works jobs .Our people will build bridges, repair roads, construct  hydro electric plants and wind turbine farms.”

” Of the $ 1 Million, $400,000 will go to administer the programs, maybe $250000 will go towards advertising and Public Relations, so that the voters know who created all these jobs.The rest will go directly to the people  to put bread on their tables.”  

 The plan was implemented. The money was spent. The people were put to work… For 1 year…Then what?

In this scenario, which is what happened under FDR, the unemployment rate went up to over 20% and stayed there with a few short term exceptions, for over 4 years.

We had created new dams and new roads, but no new jobs, no new industry, and no new wealth.

OPTION #2

The President takes the $ 1million and calls in CEO’s from 5 small but successful private buisnesses.

” Gentlemen,” He says.” Our Nation is in trouble. The economy is in a slide, and unemployment is growing. “He looks around the room.

“We need your help. Your Country needs your help.

Here is $1million. Taxpayer money. A precious public trust.

I want to give it to you Gentlemen to invest.

Take the money, go back to your businesses and invest this public money. Use it to expand your business. Enter new markets, create new wealth.”

THE GREAT DEPRESSION ENDED IN 1932. A GENERATION OF PEACE AND PROSPERITY ENSUED. A WORLD WIDE VISION OF CORNICOPIA BECAME A REALITY. A LITTLE KNOW RADICAL GERMA, ADOLPH HITLER WAS LAUGHED OFF THE WORLD STAGE.THEY DIDN’T NEED HIM, THEY HAD PROSPERITY.

Deflationary Spiral, Are the Bailouts Working?Obama and F D R

Sunday, December 28th, 2008

We have been told many times in the past 6 months, that this is the worst financial crisis since the Great Depression.

As the popular story goes,  the market crash of 1929 , was the result of a failure in our free market system. We were saved from total devistation and massive unemployment, by the gallant dramatic intervention of President Franklin D, Roosevelt , and the creative innovations of his New Deal policies,.

This fairy tale has been repeated for decades, lauding Roosevelts bold moves, and the rescue provided by his Democratic Party.

In the light of the current economic crisis,this is an Urban Legend which must be examined.

After the market crashed in October 1929, economic activity slowed down as would be expected . A crashing Dow Jones is an obvious ,in your face ,sign of economic distress.

A speculative bubble had burst, and a recession was being announced.

In a recent article by Thomas  Sowell  he quotes unemployment statistics from a Vedder and Gallaway book, “Out of Work”. This enables us to follow unemployment statistics for the early years of the Great Depression.

The numbers are very telling. In November 1929 the unemployment rate was 5 percent. By December of that year unemployment had spiked to 9 percent.

Between December 1929 and June 1930, unemployment had dipped to 6.3 percent . A good healthy recession was  developing, but not the Depression which was to come.

What turned the Recession into a Depression?

In June 1930, Congress passed the Smoot- Hawley tariff act, in an attempt to protect American jobs, by restricting imports.

Within 5 months,the unemployment rate  had jumped to over 10 percent.

This initial tampering with the economy was followed by a series of  escalating, increasingly desperate

stimulus packages, eventually turning into FDR’s New Deal.

Public Works projects, the TVA, and a torrent of additional spending stimuli, transferred wealth from the private sector to the public sector, with the Government becoming our largest employer.

All of this redistribution and publick works stimuli resulted in an unemployment rate above 20 percent for for more than 3 years beginning in February 1932.

Throwing money at a recession by providing publick works jobs does not work.

Classic Big Government spending, even in massive record amounts did not work in the 1930’s.

A similar attempt to control recession by stimulating  inflation during the 1970’s engendered a decade long Stagflation.

President Elect Obama’s stated intention of providing a MASSIVE stimulus package to save the economy, sounds uncomfortably similar to FDR when he came into power.

Blaming all of this new spending upon his predecesors failings, parallels previous political expediency.

Overlooking the real cause of the problem, and  choosing to ignore the lessons of history are short sighted and dangerous .

The Stock Market Crash of 1929 did not cause the suffering and unemployment of the next 7 or 8 years. Roosevelts tinkering with the economy and the massive Government intervention  was what depressed the economy.

Take money out of the private sector and redistribute it to the population through stimulus employment, takes a pie that is already shrinking and gives it out to hungry people, but now there is no more pie, and the company that baked the pie has been  taxed out of business.

Let Them Eat Cake!!!

Next: Recession, Stagflation, Depression, what great choices.

Our dreams have turned into the nightmares of our past.

The Troll Wars, Getting Ugly

Saturday, December 27th, 2008

For thousands of years, the Troll population of the world has worked with a  dilligent subterranean  purpose.

Nesting under bridges, they have spread their foul fetid refuse as a contribution to the worldwide pollution . Their gaseous carbon and sulphur emissions have been a constant, odorific addition to the greenhouse effect, which is a factor in global warming.

Due to the corrosive nature of these gasses, the infrastructure in many places is beginning to crumble. The Bridge collapse in Minneappolis last year was accelerated , due to the Troll population of Minnesota . A massive politically correct coverup, has blamed this unfortunate disaster on other factors. 

Those that are savvy acknowledge that the  current Senatorial election  mess  in Minnesota is an attempt to divert attention from the comming Troll Wars. 

During the past decade, a major rift has begun  developing in the world of Trolls.

A Danish manufacturer of Troll dolls has been intentionally disguiseing the true nature of Trolls.

They have portrayed the troll population as “Good Luck” beings. Showing them to be cute and cuddly, with fuzzy, brightly colored hair that  stands straight up.

Nothing could be farther from the truth. The Trolls are wicked, selfish hedonistic opportunists, who pollute as part of their daily existence. They constantly growl about Global Warming and greenhouse gasses, but their emissions are particularly  odorous and corrosive.

A new company has entered the Troll manufacturing market. With the slogan ” Conservative truth in advertising, lets call a Troll a Troll” they have begun marketing a very different version of the Troll personna.

Their Trolls are made of rigid plastic, with heavily creased  wicked visages. Their hair is coarse and wild, their mouths are in a constant frown. The greedy eyes are very small and set close together. They have been named the “Dammit Dolls”, and reveal more of the true nature of the Troll.

An ideological  battle is brewing, for the hearts and minds of the Troll population.

Will the Trolls continue on their dastardly devious descent into the draconian deeds  of deceptive destruction on our environment.

Or,  will the New Age Trolls manage to curtail those gaseous emissions, and perhaps face up to the guilt which is truthfully theirs.

Troll Power!!!!!

A Truly Amazing Coincidence You Can’t Make This Stuff Up

Thursday, December 25th, 2008

An Amazing CoincidenceYou Couldn’t Make this Stuff Up

by

Charlie Champion

Wall Street tops off in October 07.

Oil begins a very rapid very steep climb in January 08, hitting its peak in July-August 08.

The housing slowdown which had begun in 06-07 turned into a torrent of defaults and foreclosures

during 08.

First the U S is beaten down with inflation ,a disaster in real estate, and lastly a stock market in

free fall.All of this has become the perfect storm of financial disaster, Worldwide.

How quickly we have been reconditioned into a lower standard of living is breathtaking..

First us, now the World follows.

A lower standard, and redistribution to make everyone satisfied with less.

What is behind this series of disasters and reconditioning which is going on.

People are worried, and willing to settle for less. We are being acclimated to government

intervention and direction.

Raise the price of gasoline to almost double, then after its damage is inflicted, bring it down by 2/3.

The return to pre 08 prices at the pump is now a gift.

Take away, from the masses, the steak and potatoes, let them live on bread and water for a while

, then when you give them a little ground beef and of course lots of beer and vodka, no one will

notice the passing of a way of life, and the end of our culture.

I NOTICED

HOW ABOUT YOU

Holiday Season 2008, the end of an Era?

Thursday, December 25th, 2008

The new world is dawning.

Not a pretty sight,but a realistic look at our future.

We are just beginning to see the wheels come off our bus

.The undercurrent of sentiment is becoming a  torrent of resignation.

” Things are bad, and they are going to get much worse. “I hear these phrases uttered several  times a day.

” They aren’t going to get better any time soon.”

” Get used to difficult times. ”

“The good old days are gone.”

The Bernard Madoff rip off and scandal was the final nail in the coffin of public sentiment.

The American people are  overdosed on traumatic events and failing institutions.

Our leaders lie to us.

Out banks have failed.

We find that our respected friends are nothing more than master con men.

We are Americans!

Citizens of the greatest country on Earth!

This is not supposed to happen to us.

We have been sold out by our leaders for 30 pieces of  silver.

We are too shell shocked to get angry.

…….so far…….

Deflationary Spiral, Will we spend ourselves into a Depressed State

Tuesday, December 23rd, 2008

Deflation is usually precipitated by a recession, or the bursting of an economic bubble .

As demand for products falls ,deflation results in a steady erosion of prices.

As we have seen, the real estate bubble popped, resulting in a dramatic decrease in real estate values.

The sub prime lending mess, has accelerated the falling prices. There is now an avalanche of houses for sale or foreclosed , causing a glut on the real estate market.

The lack of down payment requirements of these dubious mortgages, has made it easier for people to walk away from their homes, once the values began to drop below the amount still owed on their mortgages.

In hindsight, some of these subprime recipients should not have taken on the responsibility of owning a home. Giving them these mortgages was a gamble, with the World economy unraveling based upon a bad bet.

The lenders and investors who packaged these shakey loans to leverage and maximize their profits, should be out of a job, and prosecuted for incompetence and fraud, but instead many of them have been bailed out, by us.

The classic response to a deflation has been for the Federal Reserve to lower interest rates, and gently expand the money supply. Lowering taxes and encouraging spending, is designed to restimulate business activity.

The problem we are faceing today is unfortunately more complicated.

The $trillions of dollars of  subprime loans were packaged into new very risky investment vehicles, which were them marketed throughout the World financial community as higly leveraged “safe ” investment vehicles.

This worked, until the real estate bubble finally burst. As property values fell, the risky mortgages, began to unravel. The highly leveraged (as much as 30x’s) investment vehicles began to crash, exposing a very highly leveraged collateral asset on the books of most banks, Wall Street firms, Insurance companies, and even personal and Hedge fund portfolios..that were basically worthless.

Margin calls and capital requirements became  a torrent of financial agony.

Credit and lending stopped! Abruptly!

No mortgages! No auto loans! Shrinking credit card limits! No business loans!

Worst of all, the entire banking system was locked down and dangerously close to disaster,World Wide!!!

Next: Deflationary Spiral. Are the Bailouts Working?

A Deflationary Spiral- Let the Bailouts Begin

Monday, December 22nd, 2008

The falling real estate market exposed the excessively  speculative and previously transluscent credit derivative market.

The highly leveraged  banks and Wall Street firms Worldwide were in a very exposed and undercapitalized  DANGER zone. As banks toppled or teterer on the edge, the stock market continues to tank, dragging the entire credit system to the spectre of collapse.

The derivatives,  exposed by the subprime lie , have brought the world wide banking system to the brink of implosion. The effects from the massive $750 billion bailout bill has been almost invisible . The infusion of capital has saved some banks from going under,  but liquidity has, if anything, shrunk.  

The dramatic slow down in the economy has caused major disruptions .

Lending from the “bailed out” banking system is in virtual shut down, with loans ,personal and corporate becoming almost impossible if not nonexistent.

No personal loans, raised interest rates ,and shrinking credit lines from the credit card companies.. Auto loans have become difficult , hence fewer cars get sold. All consumer credit is in distress.

Commercial banking is not much better.Lines of credit are being chopped, and applications are more demanding and more stringent.

This unraveling of the credit system is still an evolving disaster in the works.

Coupled with the layoffs, and loss of millions of jobs, demand is shrinking.

Oil has lost almost 4/5 of its value since July, a direct result of lack of demand. Stores and restaurands are either cutting staff or going out of business.

When an asset bubble is popped, the economy slows down.

When the real estate bubble popped it did something brand new and very terrible.

It exposed a basic lie that had been kept very secret by a great many people.

This lie has been either fortered or initiated  as an instrument of greed and power. This knowledge provided a distinct advantage .

What is this secret?

Worldwide credit is all connected.

Worldwide credit has been based upon lies, and resting on a bananna peel for 10 – 15 years.

You talk about a Madoff ponzi scheme.

Our economy has been a giant ponzi scheme, and just as with Madoff, our scheme is unraveling , and picking up steam

 NEXT: Deflationary Spiral, Will We Spend Ourselves into a Depressed State? 

A Deflationary Spiral -We have invented a new Cause and effect

Saturday, December 20th, 2008

A deflationary spiral is a very serious problem in a modern economic system.

Historically this may be caused when an asset bubble is burst. In this case the real estate market.

Decrease in prices leads to lower demand as people delay purchases ,with the expectation of lower prices tomorrow.The beginning stages of the real estate crash began this way, as demand for new houses was delayed, with the anticipation that prices would stabilize and begin to fall.

While  prices of new and existing homes fell in 06 and 07, construction of new homes, and real estate speculation continued. This resulted in an ever increasing glut of house inventory, at the same time as the credit markets began to freeze up.

The lower the prices fell, the more homes became valued beneath the mortgage that was owed. 

Many home owners had become owners with little or no down payment.

Many of these purchasers were granted loans beyond their ability to pay the mortgages, counting on the continued appreciation of real estate to produce equity that would  secure mortgage payments.

This risky “bad” paper (loans) had been combined in various investment packages, and leveraged in the secondary market as  “sub prime” assets. These risky mortgages were labeled secure, due to booming real estate collateral.

Banks and Wall Street titans carried these intrinsically risky loans at irresponsible multiples( up to 30x and more) to value their own stability and balance sheets.

As the falling housing market picked up speed, the vulnerability of these sub prime assets became more and more obvious.

The lower prices fell, the more demand dried up, and the more critical and obviousthe banking vulnerability became.

                                                    *                                  *                                  *

      Chapter II

A Deflationary Spiral

Let The Bailouts Begin

The Threat is Now Deflation

Wednesday, December 17th, 2008

The value of everything is falling.

With the 0% discount rate as the last gasp of the Federal Reserve we are moving into uncharted waters.

Consumer price inflation was actually  down 1.7% in November.This is a sharp contrast to an annual inflation rate of almost 6% in July.

With all the money being printed, inflation should become a worry, but it is not.

The value of the dollar, and our ability to service our national debt should become less than negative in the next few months.

Watch out below, a bigger crash is on the way, and it will leave us with a society of the rich and powerful, and the very poor(Us)

There will no longer be a middle class.

Sorry, but the truth is the truth.

Madoff or Madoff whats in a name

Tuesday, December 16th, 2008

When I met him 40 years ago he was known as Bernie Maydoff(may)

Yesterday he was known as Bernard L Madoff(mad)

Today his name is Mud(MUD)

It’s all in the perception.