Archive for ‘Weimar America’

May 29, 2009

Happy News for Weimar America

Silver linings everywhere, says MSNBC:

The data lend weight to the growing notion, supported by more than 90 percent of economists in a recent survey, that the deepest recession since the 1930s may be drawing to a close. . . .
“The developing trend signals this recession — the longest and deepest of the postwar era — is losing momentum,” Wachovia economic analyst Tim Quinlan said in a note to clients. . . .
In another mostly positive sign, the tally of newly laid-off people requesting jobless benefits fell this week, a sign that companies may be cutting fewer workers.
But the number of people continuing to receive unemployment benefits rose to 6.78 million — the largest total on records dating back to 1967 and the 17th straight record week, according to data released Thursday.

Please note this Associated Press graphic that accompanied the MSNBC story. If, as the MSNBC headline says, that’s “Evidence . . . recession may be ending,” I’d hate to see evidence the recession was continuing. The economy is still shedding jobs at a rapid pace and the percentage of people who are unemployed is still rising.

MSNBC’s “90 percent of economists” consensus-mongering is offensive, as if economics were a popularity contest. Deb Cupples observes that Thursday, one top economist saw things much differently:

“One of eight U.S. households with a mortgage ended the first quarter late on loan payments or in the foreclosure process in a crisis that will persist for at least another year until unemployment peaks, the Mortgage Bankers Association said on Thursday. . . .
“‘We clearly haven’t hit the top yet in terms of delinquencies or the bottom of the housing market,’ Jay Brinkmann, the association’s chief economist, said in an interview.

The Wall Street Journal tries to put a happy face on the bond-market jitters:

Federal Reserve officials believe the recent sharp rise in yields on U.S. Treasury bonds could reflect a mending economy and a receding risk of financial catastrophe, suggesting the central bank won’t rush to react — even though some investors see danger in the government’s rising cost of borrowing.
Bond markets continued to gyrate Thursday after a sharp run-up in 10-year Treasury yields the day before. The bond market pushed yields of 10-year Treasurys down to 3.674% from 3.70% Wednesday, but they remain well over mid-March’s 2.5% level. Yields on mortgage-backed securities continued to climb, pushing 30-year fixed-rate mortgages to 5.44%, the highest since early February.

Now, compare those facts to the giddy light-at-the-end-of-the-tunnel tone of the MSNBC story. Is it possible that somebody at MSNBC doesn’t get the significance of the upward trend in interest rates, and what it means for recovery of the housing market? As Instapundit noted Wednesday, Megan McArdle explains the inevitable impact of soaring deficits:

Eventually the treasury has to roll that debt or pay it off, and if interest rates spike, that can prove catastrophic — just ask Argentina . . .. If the longer-yield debt again registers weak demand, the administration is going to have to address this problem.

They’ll “address this problem” one way or another. Let’s just hope they don’t go the Mugabe route.

UPDATE: Over at the American Spectator, I tell this story:

In March 2008, I attended a panel discussion where an economist for a private investment firm explained that rising bankruptcy rates pointed toward an impending financial crisis — which was exactly what happened six months later. At last night’s annual gala for the America’s Future Foundation, I ran into the same economist, who shook his head and said of the current policy, “They’re trying to re-inflate the bubble!”

It’s insane.

May 14, 2009

The Road to Weimar America

Saw this yesterday and didn’t blog about it, but what if Treasury notes become junk bonds?

The US government has had a triple A credit rating since 1917, but it is unclear how long this will continue to be the case.

Hat tip to Ed Morrissey via Ace of Spades, who has a very good round-up of the harbingers of a fiscal/monetary apocalypse. I’ve been warning about this for months, as in February:

Go talk to some people who know a bit about the bond market, and see how they think the global investor class — U.S. debt is a commodity traded globally — will react to the prospect of still more deficit spending piled on top of all the deficit spending for the $152 billion “stimulus” in May, $350 billion for TARP I, and now $789 billion for more “stimulus.” Another $350 billion for TARP II? Oh, they’re going to love that.
If the world’s investor class believes that your Keynesian pump-priming will work, they’ll be happy to buy up all those Treasury notes, just like they’ll be happy to buy stock in U.S.-based corporations. Do you think those people are stupid, sir?

It Won’t Work, The Fundamentals Still Suck, and Economics Is Not a Popularity Contest.

Back in 2007, I was talking to economists who were worried about the impact that the housing bubble collapse (which began in 2006) would have on the economy. And the same economists are now muttering dark forebodings about the impact of this multi-trillion-dollar deficit spending spree.

Well, when the Dow Jones bounced up above 8,000 — after falling below 6,700 in March — some people were saying the worst was over. We had hit the bottom, and now the recovery would begin. Two words: “Sucker’s rally.” The Dow hit 8,575 on Friday and, though I’m no financial guru. my hunch is we’re now beginning another slide downward. Pessimists tell me they don’t think we’ll hit bottom above 4,000.

Why? Well, how about the idiotic noises about health care emerging from Washington? The liberal suggestion that we will actually save money by implementing universal health care is, as Megan McArdle says, “gibberish in a prom dress.”

Unemployment is surging. The Obama administration is meddling with mortage rates and Treasury wants to take over the derivatives market. Liberals are pushing for a “global warming tax.” Government is ripping off investors. The rule of law is trampled underfoot. All the signals from government now point toward more deficits, more taxes, more inflation, more regulatory restrictions to impede the private sector.

Hello, Weimar America.

(Cross-posted at Hot Air Green Room.)

UPDATE: Linked at Kuru Lounge and Creative Minority Report. Meanwhile, Mary Katharine Ham observes:

With utterly unprecedented spending and build-ups in deficits with utterly no attempt to control either, despite promises to do so from Obama on the trail, the American people may be looking for anti-establishment comfort in 2010. By then, it won’t be about being Republican, but about being responsible. Democrats have been so deliberately, demonstrably irresponsible in just four months, that making the argument for Republicans (fiscally conservative ones) becomes easier and easier by the day.

“Fiscally responsible Republicans” = Not Charlie Crist. More like Jim DeMint and Tom Coburn.

Tigerhawk wonders if Team Obama believes they’ll be able to blame Bush forever. But how will they blame Bush for Obama’s job-killing tax plans?

(Graphic by Heritage Foundation.) More commentary at Memeorandum.

The New York Times is trying to cover up Democrats’ blame for the mortgage crisis.

UPDATE II: Obama demagogues credit cards:

People are “getting ripped off by anytime, any reason rate hikes… all kinds of harsh penalties and fees that you never knew about,” Obama said. “Enough is enough, it’s time for strong protections for our consumers.”
And his audience cheered.

Good God. If you don’t like the rate, don’t use the card. How simple is that? Caveat emptor. But by limiting rates, you would necessarily limit the availability of credit, since banks have to calculate the likelihood of default into their rates.

Ergo, limiting rates means less credit for the poor, which is certainly going to hinder economic recovery. And yet Obama’s audience cheered his nonsense!

March 24, 2009

And the bad news is . . .

. . . there is no good news:

American consumers still have debt coming out of their ears, and they’ll be working it off for years. House prices are still falling. Retirement savings have been crushed. Americans need to increase their savings rate from today’s 5% (a vast improvement from the 0% rate of two years ago) to the 10% long-term average. Consumers don’t have room to take on more debt, even if the banks are willing to give it to them.

Via Hot Air, where the one-day “Geithnermaniabounce is examined from several points of view. My own point of view is that last week’s Fed buy-up of Treasury notes represents the fateful step into the fiscal/monetary abyss of Weimar America. We are so f****d now that the only question is what kind of financial rubble we will find most useful in rebuilding the shattered wreck of an economy that will be left desolated by the remorselessly descending spiral of inflation/stagnation that now begins in earnest.

How bad will it get? Nobody knows. A friend of mine remarked to me last week . . . well, I won’t repeat it. Bad. Very bad.

Look: The Geithner bounce caused Citigroup to close over $3, but for most of the past few weeks, you could buy a share of Citigroup for less than the fee you pay every time you use your ATM card. And my hunch, although only a hunch, is that Citigroup will be down around $2 again by next week. (Richard Bernstein: SELL!)

What’s going on? Let Alex Knapp and Andrew Sullivan encourage others to sneer at the “Going Galt” phenomenon, but the simple facts are (a) we entered 2009 facing a severe capital shortage, (b) the Obama administration’s moves seem calculated to scare capital to death, and (c) without capital, capitalism doesn’t work. (Of course, without capital, socialism doesn’t work either, but I don’t have time to explain that right now.)

More than a month ago, when the Dow had just dipped under 8,000, I noted that UC-Irvine Professor of Economics and Public Policy Peter Navarro was predicting the DJIA to fall to 6,000. It closed Monday at 7,775.86, which means . . .? If you’re in a position to short the financials, do it. But that’s just an economics professor talking. What does he know?

What Sully and the other economic ignorati don’t seem to see is how Obamanomics is leading us into the deadly fiscal/monetary pincers:

  • There is a market for debt. At any given time, there is a finite amount of capital liquidity in the world. When the U.S. government goes on a massive deficit spending spree, this represents . . .? Increased demand for capital via the debt (bond) market. Very good, class. But the increased capital demand created by Uncle Sam’s deficit spree results in greater scarcity of capital for other purposes, including investment in private industry (stocks). And as Uncle Sam’s demand is piled onto his already ginormous stack of unpaid debt, the natural workings of the debt market would cause interest rates to rise, but . . .
  • The Fed is rigging the game. By ginning up phantom dollars to purchase Uncle Sam’s debt, Bernanke is engaged in legalized counterfeiting. The inflationary effect is not immediately reflected in consumer prices because we’re in a deflationary cycle where nobody’s buying anything anyway. The effect of Bernanke’s phantom-dollar swindle, therefore, is to devalue investment dollars. Even if your 401K got a miniscule bounce Monday, your real net worth has been diminished by Bernanke’s devaluing of the dollar. And finally . . .
  • Unfunded liabilities are coming due. The first Baby Boomers, born in 1946, will begin turning 65 in 2011 — just 21 months from now — and Uncle Sam’s got no legit way to meet the senior-citizen entitlement obligations that will continue to escalate through 2029. With no legit means to meet the looming entitlement crisis, Uncle Sam will therefore resort to illegitimate ways (including still more inflation) to swindle the old folks out of what they’ve been promised.

“The fundamentals suck,” Michelle Malkin said last September, and no rational person with a minimal understanding of basic economics could disagree that the sucking has only become louder since then. We are looking at an ill-designed house of cards on top of a Ponzi scheme erected over the San Andreas Fault. The question is not whether disaster will result, but when.

When that disaster finally hits — when capital freaks the hell out and the bond market goes sideways — the lone sanctuary of sanity and calm will be Galt’s Gulch.

People who are seriously talking about “Going Galt” are not parroting partisan political rhetoric. They are not engaged in a symbolic “protest” tantrum. They are talking about doing what savvy, affluent people have been doing for many months: Attempting to put their economic assets beyond the reach of government policy.

For people who don’t have seven-figure bank accounts, their primary asset is their earning ability. Ergo, the fellow with a day job at JiffyLube or Aamco is putting in fewer hours there, and more hours working at home as a “shade-tree mechanic,” doing simple repairs on a cash basis for his friends and neighbors. (Call this the “Don’t Ask, Don’t Tell” economy.) And that’s a smart investment of time for many workers, since there are millions of Americans now working full-time jobs who will be unemployed a year from now.

Go with what you know. Invest in yourself. You have skills that have real dollar value. If you’re looking at a 401K or mutual fund that’s worth 40% of what it was worth at Christmas 2005, ask yourself what you could do with what you’ve got left. Think of the long-term picture.

If Professor Navarro is right about the Dow eventually falling to 6,000 — and frankly, I think he’s probably being too optimistic — then the DJIA is currently almost 30% above where it will be when it hits bottom. What would the tax penalty be if you zeroed out your 401K? Less than 30%? And considering the inflationary effects of the Bernanke/Geithner strategy, what would be the real value of that 70% you’d have left in your 401K when the market finally bottoms out? So if you cashed out and bought gold now . . .

Well, I’m not an economics professor or a financial advisor, so pay no attention to the mere speculative hypotheticals of a damn blogger. But if what I’m saying makes more sense to you than what you’re hearing on CNN or reading in the Wall Street Journal, please listen to our good friend, Gunnery Sgt. Hartman.

UPDATE: Dan Riehl is of a similar attitude, while Mary Katharine Ham discusses the idiotic details of the latest idiocy from the Idiot-in-Chief and his idiot henchmen. This ongoing Carnival of Idiocy in D.C. is starting to remind me of that scene in “Blazing Saddles” where Mel Brooks as Gov. LePetomaine says, “I didn’t get a ‘harumph’ out of that guy!”

UPDATE II: Professor William Jacobson and Professor Donald Douglas both have more. Hmmm. When will Professor Cthulhu weigh in on this meme?

UPDATE III: Welcome, Instapundit readers! (See: Rule 1.) Please remember that it’s almost Our Favorite Day of the Week.

P.S.: Be sure to check out MELTDOWN, Professor Thomas Wood’s new bestseller about the financial crash and why Obamanomics won’t work.

March 20, 2009

U.S. spawns record number of bastards

No, we’re not talking about Tim Geithner or Chris Dodd, but those 1,714,643 babies born to unmarried women in 2007, according to the National Center for Health Statistics (PDF). Way to go ladies! Just glut the market with free milk so nobody can sell a cow! And congratulations is also due to America’s teenage boys and all you other guys who like to shag teenage girls, the New York Times reports:

Also in 2007, for the second straight year and in a trend health officials find worrisome, the rate of births to teenagers rose slightly after declining by one-third from 1991 to 2005.

Score! And of course, we must celebrate diversity:

Racial and ethnic differences remain large: 28 percent of white babies were born to unmarried mothers in 2007, compared with 51 percent of Hispanic babies and 72 percent of black babies. The shares of births to unwed mothers among whites and Hispanics have climbed faster than the share among blacks, but from lower starting points.

More bastards, more knocked-up teenagers — the future of Weimar America looks bright!