Econ 2009

[cheesehead]

Originally Posted by davar55

Our paper money may not "seem" to be a store of much value, but it is ultimately backed up. Even e-cash is ultimately convertible into what you termed "hard currency". When we stopped printing "gold certificates" the government hoarded gold. When we stopped printing "silver certificates", silver coins were generally removed from circulation. These metals are still around. Guaranteed.

Not sure what you mean there.

1) If you think that dollar convertibility into gold or silver means merely that one can make a market purchase of gold and silver with dollars: No, that's not what convertibility means, or meant.

Convertibility of dollars into gold or silver meant that one could take dollar bills (or an account balance denominated in dollars) to the U.S. Treasury (or branch thereof) and "demand" to exchange them for the amount of gold or silver having the same value at the official exchange rate. But that's not true now. There's no U.S. government-specified official exchange rate between dollars and gold/silver, as there used to be before 1971.

2) If you mean that the U.S. government possesses gold plus silver whose value equals the amount of U.S. paper currency in circulation: No, it doesn't.

(There is an exceedingly rare exception: still-existing gold-certificate and silver-certificate paper currency is still backed up by those metals, in possession of the government, but only at the exchange rates specified by law when they were discontinued. And every time someone turns in one of them to the government to be converted into the metal -- a foolish act because private-market value for the certificate currency exceeds the value of metal for which they can be exchanged -- the government destroys the currency.)

3) Some e-cash is backed up by hard assets such as gold/silver, but that's strictly a private enterprise connection, not an official government connection. The e-cash is issued by those private enterprises, not the government.

4) When "silver coins were generally removed from circulation", they weren't removed and retained by the government; they were removed by individuals who knew that their silver content's value was higher than the coin's face value. I once bought, and later sold, a bag of silver quarters for about 13-14 times face value late in the 1970s.

It's true that the government did retain some gold and silver coins at various times in U.S. history, but those were mainly just newly-minted coins that had not yet been circulated when the mint stopped producing them and their circulation was barred because of changes in federal law. All or almost all have made their way into private hands by now AFAIK.

5) "These metals are still around. Guaranteed." If you mean that the U.S. (or any other) government still possesses all the gold and silver that ever backed-up dollars or were contained in coins: No, it doesn't.

The metals are still around all right, but mostly in possession of private individuals or companies, not governments.

[ewmayer]

Looks like China is doing all it can behind the scenes to get the hell out of as much of their dollar-denominated "assets" as they can:

China to buy $50B of IMF bonds

China to buy $50B of IMF bonds
Published: Sept. 3, 2009 at 7:28 AM

China's central bank will buy the International Monetary Fund's first set of bonds totaling about $50 billion, the IMF announced.

The purchase agreement with the People's Bank of China is the first such in the Fund's history and calls for the Chinese entity to invest up to $50 billion in IMF notes or Special Drawing Rights.

SDRs are interest-bearing reserve assets and a country holding them can convert them into hard currencies. Some countries reportedly have volunteered to arrange for the buying and selling of SDRs.

The bond sale is part of the IMF's effort to increase liquidity to fight the current global recession by boosting its members' reserves through SDR allocations. As much as $283 billion in allocations were announced at the Group of 20 summit last April in London.

When completed, the IMF's outstanding stock of SDRs would total about $316 billion.

IMF Managing Director Dominique Strauss-Kahn said the Chinese investment will help boost the Fund's lending capacity especially to developing and emerging markets and at the same offer investing countries safety and reasonable returns.

Xinhua news agency said besides China, Brazil, Russia and India, which together constitute what is called the BRIC countries, are potential buyers of the IMF bonds.

Denninger writes about the self-destruction of the credit-expansion-based "economy" and as usual does not mince words:

Why Our Economy Is Utterly Screwed

[CNDC talking head] Steve Liesman once again stunned me with his lack of understanding of matters economic today, when he commented that "in all recessions since 1970 at least the original part of it (recovery) has been jobless."

Yes, Steve, but why is any of this a surprise? What part of this graph isn't instantly obvious to anyone with more than two firing neurons in their head?

That's credit and population growth normed to a base of 1970. Population went from roughly 205 million to roughly 304 million during that time, a 50% increase.

Outstanding consumer credit went from $128 billion to $2,525 billion, or a 1,973% increase - and this is only consumer credit, ignoring mortgages, financial firm credit, business credit, commercial real estate and of course government debt!

Why are we not seeing "robust" economic growth when we exit recessions? Why is there no real hiring going on? Why can we not have a robust economic recovery? Why are we are replacing good jobs with "McJobs" that pay half as much - or less? And more importantly, where did all the "so-called prosperity" really come from, especially from 1994 on?

In each and every instance of recession from 1970 onward we have "pulled forward" more and more demand and created fake "prosperity" through the creation of ever more debt that we have goaded consumers to take on. By doing so we have crippled the ability of the economy to grow, redirecting as much money as possible to a handful of people and firms (commonly known as "banks" and other "financial companies") instead of directing that effort and money into productive enterprises such as building cars, television sets and similar items.

THIS time though the recession didn't come from "ordinary business conditions"; it instead happened because the credit carrying capacity among both consumers and businesses hit the wall - they could no longer make the debt service payments and started to default.

It began with "subprime" mortgages but that was nothing other than the first "hiss" of trouble out of the pressure vessel as the structural integrity of the fraud-laced credit system, where "capacity to pay" became a bad joke, had begun to disintegrate.

We pushed the envelope of fraudulent credit creation and the sale of fraudulently-underwritten debt too far - and it blew up in our collective faces!

Rather than admit complicity in the myriad Ponzi-style scams that underlay all of the financial system for more than thirty years (or have it shoved in their face) The Fed and financial "wizards" along with The Bush Administration (who was responsible for and complicit in refusing to fix the fraud during the 00-07 timeframe) chose to try to sweep it under the rug with "yet more liquidity" and "yet more lending."

President Obama and his administration made a critical error after having won in November by refusing to stand up and take these scammers on face-to-face.

He decided to instead continue and even accelerate the scam!

It can't and won't work because the underlying issues have not been resolved and the bogus debt has not been forced out and defaulted - it remains clogging up the system, destroying the ability of the credit-intermediation system to function properly.

Period.

Folks, the facts are impossible to ignore. We are in this recession because consumer and business borrowing capacity hit the wall. We have removed almost none of that outstanding credit from the top to today, as this chart shows (which I have printed here an endless number of times!)

We have taken a measly 4.5% off the maximum outstanding credit amount (incidentally reached in January of this year) to date. 4.5%! That's nothing - it is absolutely insufficient to return the system to normal functioning and restore sound economic growth - we need five times or more that much contraction!

The bad news folks is that we will get that contraction, and if The Government and Fed do not force it to happen "voluntarily" we'll get double that much - as much as a 50% decrease in outstanding credit - coupled with a deflationary credit collapse.

Moron of the Week: California congressman Pete Stark, who in true "Mr. Bubbles Greenspan"ian fashion is convinced that night is day, up is down, black is white, and (most importantly) that debt is wealth:

Why California is Bankrupt, Installment 117

In a clip that has to be seen to be believed, California Congressman Pete Stark displays the most unbelievable combination of economic incomprehension, stupidity, hubris, and to top it off tells interviewer Jan Helfeld to "get to fuck out" or he will be thrown out of the window for daring to expose just what a sack of... hot air Stark is.

A line that will now live forever, thanks to Congressman Stark: "The more debt we owe, the wealthier we are".

That pretty much sums up political "thought"

My Comment: Actually, that neatly sums up the central premise of neo-Keynesian Ponzi economics. Ben Bernanke has a PhD in this stuff - very reassuring, that.

[Fusion_power]

Unemployment figures released today show an official 9.7% rate after steady jobs loss over the last month. Reading the disingenious reports, you would have thought this was a 'good' thing. Much is made of the decline in losses, much more is made of the nascent recovery enabled by various government spending programs, and various would-be authorities are quoted saying "we expect a recovery"......

Somehow, I thought the news was supposed to be accurate. Do you think maybe we live in a soviet bloc country where the news is always good news?

DarJones

[garo]

Mainstream media in the US has long been captured by the centers of power such as Wall Street and the Government. There are many honourable exceptions but the vast majority just parrots the party line. This holds true whether we talk of coverage of war, foreign policy, business and finance. I would recommend Chomsky's Manufacturing Consent as a somewhat laborious but still worthwhile primer on how this is done and has been done for ages. My wife's Master's thesis was on the US media coverage of Haiti in the years after Duvalier fell and then Aristide was first deposed and I transcribed some tapes of interviews with correspondents in Haiti for her. I was quite frankly shocked by what I heard then.

From the left, you can look at FAIR and MediaLens and from the right you can look at MRC for critiques of main-stream press. Though regarding MRC I have to say that anyone who regards the NYT as liberal and biased against conservatives has to be off their rocker. NYT is the uber-establishment paper.

[ewmayer]

Originally Posted by Fusion_power

Unemployment figures released today show an official 9.7% rate after steady jobs loss over the last month. Reading the disingenious reports, you would have thought this was a 'good' thing. Much is made of the decline in losses, much more is made of the nascent recovery enabled by various government spending programs, and various would-be authorities are quoted saying "we expect a recovery"......

Didja notice how the BLS quietly revised the June and July numbers down (i.e. more job losses than initially better-than-expected! announced). So the "better-than-expected headline" number for August in fact is about the same as originally announced July number, and will surely get revised downward over the next months. Great scam, things always end up looking BTE even though they're not changing one goddamn bit, i.e. the job losses continue at a rapid clip, albeit one less horrifying than during the initial mass-layoff tsunami last winter. The GDP only looks BTE due to massive government deficit spending, car sales only look BTE due to pulled-forward demand from the C4C giveaway and are going right back into the toilet (worse than pre-C$C because of the pulled-forward demand and consumers will now be expecting "free money" to "incentivize" them to buy cars), bank profits only look BTE due to government-sponsored accounting fraud (e.g. the wholesale abandonment of any semblance of mark-to-market and the continued encouragement of massive off-balance-sheet accounting "magic"), and business "profits" only look BTE due to massively lowered earnings forecasts (i.e. set the bar so low that you can clear it even if you fall flat on your face) and the replacement of real (i.e. GAAP) earnings in the announcements with phony-baloney "operating earnings", which allow you to in effect discount "huge and likely long-term earnings drop due to secular change in consumer habits" as a series of recurring "one-time chargeoffs".

What a fucking joke America has become. Welcome to the Ponzi economy...

[Edit:] Calculated Risk has a nice chart of the U.S. employment/population ratio for the past 50 years, with accompanying explanation of some of the secular shifts portrayed therein (e.g. huge numbers of women entering the workforce in the 60s and 70s), here:

http://3.bp.blogspot.com/_pMscxxELHE...PopAug2009.jpg

The plunge in e/p ratio during the current recession is unprecedented in the past 50 years, and we clearly have not bottomed yet. You'll never see this chart on CNBC...

[Edit²:] ZeroHedge has a copy of David Rosenberg's latest Breakfast With Dave newsletter, which looks behind the headline unemployment numbers - really good stuff.

[garo]

Didja notice how the BLS quietly revised the June and July numbers down (i.e. more job losses than initially better-than-expected! announced).

Yup I did. After all the hollering last month about how job losses had really slowed down, it turns out that they didn't. This is becoming so old that those in the know consider this as par for the course and those not in the know... well hooray... job losses are slowing down. The BLS would do Pravda proud.

[garo]

Ernst you f****** anti-American Amerika hater. Why do you want the country to fail? I bet you are short you f****** commie. Well, Wall Street is going to rip you a new one and teach you never to short again.

[cheesehead]

Originally Posted by Fusion_power

Unemployment figures released today show an official 9.7% rate after steady jobs loss over the last month. Reading the disingenious reports, you would have thought this was a 'good' thing. Much is made of the decline in losses < snip >

Originally Posted by ewmayer

i.e. the job losses continue at a rapid clip, albeit one less horrifying than during the initial mass-layoff tsunami last winter.

Now, now, guys -- as I pointed out a month ago,

Originally Posted by cheesehead

Should we not find a mathematical "green shoot" in this surge of second-derivative awareness?

This recent emphasis on the rate of change of the rate of change is merely a result of increasing mathematical sophistication among those commenting on the economic front. Personally, I found it a bit boring that none of the math in my (introductory, it's true) economics courses went beyond first-derivatives.

This modern second-derivative awareness seems right in line with the increasing sophistication of today's high school science courses (that is, the non-creationist parts). I recall that just a few years ago, when I tried to help my nephew with his high-school chemistry study, I found that his course covered some concepts that even my late-1960s college chemistry course had not included.

[Fusion_power]

Once in a blue moon, I get the impression that Cheesehead has a sarcastic sense of humor. Second derivative that is.

DarJones

[cheesehead]

Originally Posted by Fusion_power

Once in a blue moon, I get the impression that Cheesehead has a sarcastic sense of humor. Second derivative that is.

Sarcastic about use of the second derivative in the context of news-media, pundit, or political administration interpretation of economic news? Me??

Why, no, ... no, I was ... um ... just looking up the definitions of sarcastic ... and dissemble.

[ewmayer]

Consumer credit dives by 10%: Outstanding credit declines by a record $21.6 billion in July -- the sixth consecutive month.

WASHINGTON (Reuters) -- Total U.S. consumer credit fell by a record $21.6 billion in July, Federal Reserve data showed on Tuesday, while June's decline was bigger than previously thought.

July consumer credit outstanding fell at a 10.4% annual rate to $2.47 trillion, suggesting that households were shying away from credit amid rising unemployment.

Analysts polled by Reuters had forecast consumer credit dropping by $4 billion in July. June's figures were revised to show a $15.5 billion drop, previously reported as a $10.3 billion drop.

Consumer credit has now declined for six consecutive months, the first time this has happened since the period from June 1991 to December 1991.

Nonrevolving credit, which includes closed-end loans for big-ticket items like cars, boats, college education and holidays, plunged a record $15.4 billion, or at a 11.7% annual rate, to $1.6 trillion.

Revolving credit, made up of credit and charge cards, dropped $6.1 billion, or at 8.1% rate, to $905.6 billion, the data showed.

My Comment: August will likely show an uptick (or at least a less-dramatic plunge in CC) due to the "debt incentivization" known as the cash-for-clunkers subsidy, along with the seasonal effect of increased purchases related to to the start of the school year. But the trend is crystal-clear: whatever the government may prattle about "green shoots" and consumers may tell pollsters about their "confidence" level, their actions speak louder than any words - consumers are deleveraging in a major way. This is in fact necessary (and will need to go on for years, if not decades) in terms of getting our economic fundamentals back onto a sustainable path, but deleveraging is anathema to the Bernanke-led Fed, which knows only one "cure" for all economic ills: get credit (i.e. debt) expanding again.

And speaking of debts, both personal and collective: Playing on the ridiculous brouhaha about Obama wanting to video-address the nation`s schoolchildren (which the right-wing nutbags are treating as if he were going to "convert them all to Islam or Atheism and tell them to get pregnant and have an abortion"), Karl Denninger has a message of his own to America`s youth:

An Address to Our Schoolchildren

That's right my fellow Americans - you are in debt for more than $200,000 - each and every one of you, including every school child in America.

Why?

Because our government is lying about how much everyone owes. See, our government has promised everyone free medical care and free retirement money. But our government doesn't have the money to pay for that, since every penny that the government has must come from either borrowing or taxing, and the government isn't forced to follow the law when it comes to honest accounting - that is, honest math.

When you cheat on your math test in school you get an "F".

But when the government cheats on its math they get re-elected, because our schools refuse to teach students just like you how math applies to finance, and as a result 95% of Americans don't understand that they're being screwed to the tune of $200,000 each.

That's because the schools are run by the government, and for that reason the government controls what you learn - and what you don't.

Our debt is supposedly $11 trillion dollars. But the money the government must have in the future to pay for those free benefits, Social Security and Medicare, doesn't exist. The former Comptroller of the Currency of America (that's a fancy word for the chief guy who keeps track of the books), David Walker, has said that the real debt is more than $53 trillion dollars, or almost five times what you see in the graph above.

Why was this allowed to happen?

It really is quite simple:

They're big, and you're small. They're right, and you're wrong.

Just because they said so.

While you were out playing in the back yards and playgrounds of America both Democrats and Republicans were making promises they could not keep. Instead of raising taxes right now for whatever they wanted to promise they instead decided to send you the bill, and your parents went along with it.

So when you come home from school this afternoon say "Thanks" to your Mom, Dad, Grandpa and Grandma for selling you into slavery.

For obligating you to pay for the stealing that has gone on for nearly ten years on Wall Street and in Washington DC.

For allowing those very same lies to cost your family (or that of someone you know and love) their house, their job, and their future.

And finally, make sure you thank your Teachers and Principal for not teaching you the math you need to be able to understand what is really going on with your government, so you don't get mad enough to put a stop to it - or demand that your parents do so.

After all, they're right and you're wrong.

They're big and you're small.

They, including your school teachers, principals and school boards, won't teach you about how math applies to all of this, because if they did, they couldn't lie to you any more and you might revolt (quite literally) - either now or later.

So sit back and enjoy your childhood; your time to become a slave, when you leave school and start having to pay that $200,000 by having it taken from you in the form of taxes will be here soon enough.

Wall Street and the politicians, both Democrats and Republicans, thank you for quietly accepting your role as a slave to pay for their yachts, along with the lies, cheating and stealing that have been going on literally every day for more than ten years.

Now sit down at your desk, shut up and behave while your teachers show you only what the government wants you to know.

Wall Street and Washington DC are relying on you, our nation's youth, refusing to demand the truth.

They're sure you won't disappoint them.