Busted: Bankers and The Global Economy

March 11, 2009

U.S. Economy: Prepare for Depression and Inflation

Central Bankers Support More Inflation Now

European Union Rejects Breakneck Fiscal Stimulus


Article on Associated Content by E. Manning

We are living on the edge of an economic knife. The U.S. government is bailing virtually everyone in the financial system out. If this continues, the U.S. can expect hyperinflation that hasn’t been seen since post-war Germany down the road.

November 24, 2008

Monetary Deflation a Current Danger

banking-gamble-2Concerns about inflation have changed to deflation, considering the sudden drops in many prices, mostly energy, and the radical increase in joblessness. Interestingly, this economic downturn has bad company in the Great Depression, with the Consumer Price Index plunging by 1 percent last month, the largest single fall since 1938. However the extent and breadth is still nowhere near the Great Depression with years of falling prices. The core economic index has declined for six months, the only time since the Second World War.
Most economists aren’t forecasting that 2009 will present persistent price declines that made the Great Depression what it was, but the fact remains that any recovery is largely determined by consumer spending which accounts for two-thirds of the U.S. economy. Barack Obama is preparing to arm his economic arsenal with a major economic stimulus that includes job creation in the expectation of overcoming recent heavy job losses this year. Gordon Brown is already doing similar things in Britain to spice up the economy there.
Meanwhile, a global slump is in process which could easily hold the world in its clutches despite attempts at stimulus. Central bankers and ministers of finance are up nights massaging interest rates, shoring up banking and creating new stimulus programs.
The worse the economy gets, the more banks are battered by loan defaults and the falling value of collateral. Credit becomes less available which further restrains consumer and business activity, grinding the economic action down more. What we have now is classic debt deflation. Debtors across the board are reducing or eliminating debt. When everyone acts at once, prices for capital assets fall precipitously, even below what concerned pundits call market value as consumers wait for better pricing.
The current risk of deflation is compounded and amplified by the global nature of the current crisis. Commodities have fallen hard and fast as investors have bailed out, comeuppance for years of abusive futures investing, albeit legalalized gambling, through investing on the global scene that many believed would never end. ~ E. Manning

October 20, 2008

Federal Reserve Questions National Stimulus

In addressing Congress this morning, Ben Bernanke gave a decent summary of national economic concerns aside from a few inaccuracies. The media is proclaiming that Bernanke is recommending a national stimulus plan. That is not exactly true. The fact is that Congress has been evaluating the possibility of moving on a second fiscal stimulus package for taxpayers. In the eyes of Bernanke,

“Any fiscal action inevitably involves tradeoffs, not only among current needs and objectives but also because commitments of resources today can burden future generations and constrain future policy options–between the present and the future. Such tradeoffs inevitably involve value judgments that can properly be made only by our elected officials. Moreover, with the outlook exceptionally uncertain, the optimal timing, scale, and composition of any fiscal package are unclear. All that being said, with the economy likely to be weak for several quarters, and with some risk of a protracted slowdown, consideration of a fiscal package by the Congress at this juncture seems appropriate.”

For perhaps the first time, Bernanke reflects his concern to Congress regarding the continual expansion of the national debt while using that debt in a responsible manner. From Bernanke’s words, he is clearly not make any predictions for success or encouraging a taxpayer stimulus, instead leaving that decision to the “patient.”

Then, Dr. Ben makes the following recommendation:

Should the Congress choose to undertake fiscal action, certain design principles may be helpful. To best achieve its goals, any fiscal package should be structured so that its peak effects on aggregate spending and economic activity are felt when they are most needed, namely, during the period in which economic activity would otherwise be expected to be weak. Any fiscal package should be well-targeted, in the sense of attempting to maximize the beneficial effects on spending and activity per dollar of increased federal expenditure or lost revenue; at the same time, it should go without saying that the Congress must be vigilant in ensuring that any allocated funds are used effectively and responsibly. Any program should be designed, to the extent possible, to limit longer-term effects on the federal government’s structural budget deficit.

It would seem that the Federal Reserve is hinting at a nationally supportive move, such as a national work program, perhaps modeled to some degree on work programs of the 1930’s. He is also pointing at the possibility of an enhanced U.S. employment program that will show measurable economic results. This is indicated in this statement:

Finally, in the ideal case, a fiscal package would not only boost overall spending and economic activity but would also be aimed at redressing specific factors that have the potential to extend or deepen the economic slowdown.

Bernanke also wants to improve credit exposure to American citizens in an effort to the boost the economy. Once again, Dr. Ben is specifying “easy credit” as the answer to economic growth. Hopefully, the next U.S. President will have enough wisdom to suggest that growing the economy through credit is a failed policy that government has encouraged in the past. Real economic growth is brought about the old-fashioned way: through hard work, wise decisions and a little patience. These concepts have become foreign ideas to many Americans. Easy credit is not an effective way to do anything beyond creating a permanent slavery condition for economic bodies of people. A financial slavery condition is not favorable to the American people or any other nation, but only to bodies that seek to empower themselves. ~ E. Manning


October 2, 2008

Bailout: And Now the Rest of the Story

And now the rest of the story. The U.S. Senate and House have approved and passed the latest U.S. bailout miracle. How will the nation benefit? The rest of the story is there will be very little difference except that the current power structure will remain in place. That, America is exactly what all the hubbub at the top of the U.S. government is all about. The long-term details are of little importance to politicians, bankers and especially not to the central bankers.

Within a month or two, Hank Paulson will buy $250 billion in junk assets using mainly guesswork since there is little transparency in evaluating the quality of what he is buying. Because of the false pride in U.S. government and under the pretense of fairness (can you believe that?), Paulson and his buddies will spend more than market value, even though the junk value is pretty much zero. If the nation is smart, they will elect a president that will promptly dump Henry Paulson onto the job market heap of life. He will spend up that precious $700 billion in credit before he leaves office. If by some miracle Paulson retains his job, he will come with his hand out to Congress for another hefty chunk with little to show for his efforts.

Confidence will improve modestly, mostly due to investment from global central banks as they need somewhere to invest all that devalued cash. Other foreign investors will watch cautiously, but begin to bet on safer risks for the short-haul. Banks will continue to stand on capital and credit markets will stay tight. The economy will continue to shrink and the market liquidity will continue to logjam.

Joe Citizen will continue to cut back because of inflationary pressures and shrinking income. Credit costs will rise and the cost of capital goods will stall. Pressures on foreign markets will continue to put the squeeze on the business world, especially big business and multinationals. Generally, the poor will get poorer and poverty will spike across the globe.

The global economy will continue to weaken focusing initially in Europe, followed by Asia and the emerging markets that business has come to rely on. This is in process now.

Hopes for a speedy recovery by politicians and lapdog economists will wane as the seeds of what Washington has sown come to full fruit. The unpleasant combination of high inflation and economic stagnation will come to bear on the land of the free, followed by the Europe and the rest of the world.
Continued meddling by the U.S. government, foreign governments and central bankers will continue to reinforce inflation. This meddling, like the bailout before it, will merely prolong the economic pain instead allowing the cycle to work naturally. Economic suffering will be great.

The U.S. government will vainly attempt a fiscal stimulus for taxpayers for give a shot in the arm to the economy. An expansion of the bailout will be too little, too late and with little understanding of the real issues because of a lack of understanding of the real issues. Economic recovery is a long-term prognosis.

The United States will be tempted to default on the national debt. Politicians won’t need to worry much. Central bankers have what they want: control of governments and populations, the economic gross national product to fund their quiet rush to superpower status and a new global currency built under the guise of peace and security. It is a dark scenario that must be walked through except for those central bankers that control the gold.~ E. Manning

June 12, 2008

Uncle Ben and the Inflation Demon

On June 9, our Uncle Ben, venerable Federal Reserve chief, provided a note of honesty with a conference of buddies. He blithely admitted that he doesn’t know it all, that the Fed doesn’t know it all and that he needs the opinions of others in the field. That has to be pretty refreshing. Knowing that Uncle Ben struggles at anything is a wonder to consider. “In the spirit of this conference, my remarks this evening will highlight some key areas where additional research could help to provide a still-firmer foundation for monetary policymaking.” Hey babe, that is as close as you are going to get for an admission of fallibility.

He has changed his tune about the recovery of the U.S. economy to a more realistic model. “Over the remainder of 2008, the effects of monetary and fiscal stimulus, a gradual ebbing of the drag from residential construction, further progress in the repair of financial and credit markets, and still-solid demand from abroad should provide some offset to the headwinds that still face the economy.” This isn’t going to be a one-quarter gas attack any more.

“Inflation has remained high, largely reflecting sharp increases in the prices of globally traded commodities.” Uncle Benny, it just can’t be! Inflation is high at 3%? How is 3% inflation today higher than 3% inflation a year ago or thirty years ago? Now the collective economy knows that Uncle Benny and his cohorts have been handing us a zinger for the last thirty years about the eternal 3% inflation rate.

What’s more, he’s decided that globally traded commodities are to blame for high prices. For anyone that knows what he is talking about, the admission is stunning and revolutionary. Well, perhaps only to the less ingeniously-minded. The brains of America have began to pick up on the gross corporate and investor profit-taking that has magically and mysteriously appeared on the scene, almost as if by divination.

Uncle Ben is more than comforting in his analysis. The FOMC (that’s the Federal Open Market Committee to you) will strongly resist an erosion of longer-term inflation expectations. Are you happy to have someone so determined at the helm? “Economists within the Federal Reserve System and at other central banks have made and will continue to make important contributions in these areas.” It almost takes your breath away.

Now the good news of recognition comes to play. “Rapidly rising prices for globally traded commodities have been the major source of the relatively high rates of inflation we have experienced in recent years.” He is all about forecasting and understanding what mysteriously drives those changes outside of the desire to make lots of money.

Any takers on what drives “the factors” aside from monetary glee? Please share your thoughts on this one! “Policymakers and other analysts have often relied on quotes from commodity futures markets to derive forecasts of the prices of key commodities.” I would suppose that Uncle Ben and his friends have been looking at the wrong keys in the hopes that they wouldn’t be found it. It’s too late now. The futures markets are in control.

Uncle Ben is the master of ten dollar words when he wants to be. However, he does speak one truth. “Investors in commodity futures can expect to earn supernormal risk-adjusted returns.” Touché, Uncle Ben! It’s time to get rich quick!

Here is the absurd part. Uncle Ben wants to forecast greed and profit in the market. In essence, he is predicting another bank scandal with CDOs and the like, except with market futures. He admits that “futures prices may not effectively aggregate all available information.”

Uncle Ben then discusses the theoretical analyses about economic outcomes. Insanity has been coined as doing the same thing over and over and expecting a different result. The only problem here is that Uncle Ben wants a different result with the next new investor foray into “economic bubbles”.

He has one idea of truth on his side. Behavior in the market is idiosyncratic to supply and demand factors. In other words, you can safely believe that “the law of supply and demand” has nothing to do with out-of-control prices and investor profits.

Ben Bernanke is convinced that he can do it all with the Phillips curve, if he can just get enough information. Like a scientist, if he can know more, he can come up with all the answers before the problems happen. Does that sound likely?

Essentially, Bernanke has admitted that central bankers have been all wrong about inflation, especially where labor has been concerned. With uncertain times comes the uncertainty of real time policymaking. He isn’t sure, but wants to “ignore noisy output gap measures.” For years, Fed politicos have ignored the importance of energy costs and the price of food in their economic equations and inflationary measurements. Now, Uncle Ben is working on deciding what the Fed should ignore next as they build new policy.

He is desperately seeking the core inflation rate so that economists can continue to manipulate the figures into a nice clean 3% inflation rate that won’t hurt anyone. The only problem is that you see the difference in your life. Are you willing to bite off on this years’ version of 3% inflation or do you finally see the light? Can you take being manipulated and lied to by economic theorists and “our government”?

Uncle Ben and his cohorts are counting on the possibility that you won’t notice the difference.

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