“Shopping has become a patriotic duty in America,” writes Tom Leonard in the Telegraph.
Remind us how that works again…
Let’s see, the Wall Street insiders made billions in bonuses and fees during the Bubble Epoque – and they were smart enough to take the money off the table. Then, when the bubble popped, they were a little short of money down at the shop. And since they didn’t have any money, they couldn’t lend any. And since they couldn’t lend, well, Americans couldn’t borrow…and since they couldn’t borrow…they couldn’t shop…and since they couldn’t shop…the whole kit and caboodle of the U.S. economy came to a halt.
Worse, it started going into reverse. According to the official numbers, it went backwards 0.5% in the 3rd quarter.
And because businesses are selling anything, profits are falling…and investors are pulling out their money.
Last week, it looked like the much-anticipated Obama Bounce had finally gotten off the ground. But Monday, it was back into the mud. The Dow lost 679 points yesterday. Oil fell $5. Gold dropped 8 bucks to $770.
And get this: the yield on a 10-year T-note has fallen to 2.719%. We believe that is the lowest level ever recorded.
Bloomberg says the recession actually began in 2007. That means it is already the longest recession in nearly 20 years.
And it’s not just in the United States. Shipping has sunk. Manufacturing in Britain has had it biggest drop since the early ’90s. And house prices in the United Kingdom are back to where they were three years ago. India reports the first decline it in its exports in seven years. And in Iceland, people are holding rallies to “protest the economic meltdown.”
If you lived in Iceland, you’d think you’d be pleased to have a meltdown of any sort. The Icelanders are clearly wasting their time. Meltdowns are inevitable. They’re just part of the process of capitalism – wiping out mistakes so it can get on with things. They might just as well protest death…
But all over the world, people are getting edgy…depressed…worried…
O! Bama! Where is thy bounce?
Of course, everybody thinks we have a big problem on our hands. And they’re pretty sure what caused it – too much borrowing and too much spending in the bubble years.
The funny thing is that most people also are pretty sure that if we don’t start shopping more, things will get even worse.
And that’s where we come up short. But you’ll have to excuse us because we’re just a country lawyer… Or, we would be a country lawyer…if we lived in the country…and if we were a lawyer.
Well, what we’re really trying to say is that we’re a little slow, here at Markets and Money. Sometimes we just can’t keep up with these smart fellas from the big city…
Let’s try again.
The U.S. government borrows money from taxpayers…gives it to Wall Street so they can lend it back to the taxpayers at a profit. Wall Street borrows ‘our money’ from the Fed at, say, 1%…then they lend it back to us at, say, 6% or 7%. That way, Wall Street makes money and we can still borrow what we need.
Nice system huh?
And take that Hank Paulson…please! Now, there’s a big city guy we admire. He made a fortune running Goldman, right up until he was tapped to run the U.S. Treasury. He knows all about those CDOs, SIVs, MBDs, – heck, he probably knows every letter in the entire alphabet. And he’s used them too – putting together those fancy sub-prime investments and such.
Well, that’s why he was the perfect guy to be the honcho at the Treasury Department. He knows all about that toxic investments that are causing so much trouble – after all, his firm created them.
Of course, if you ask him, he’ll deny it. He’ll say it was just some rogue investment engineers down in the basement who did all the bad stuff. He was attending important meetings and saving nature; how was he supposed to know what they were up to? Yes…he was the CEO. But c’mon…no chief exec can keep up with all that alphabet stuff, can they?
But that’s the kind of guy you want running the economy, right? Keeps his eye on the big picture…not distracted by the details…
And then there’s his replacement, Tim Geithner. We know he’s the man for the job. Why? Because he’s got experience. He’s been on the case for years. As head of the Fed in New York, he was right there while all those investment scientists were conducting their experiments…he was practically right in the room – keeping a watchful eye open – when they ran those fancy linear regression models…mixed in some subprime mortgage debt…and then tossed in a whole ton of fizzy derivatives. Nobody really knew what happened next. The windows blew out and a cloud of smoke rose so high in the air you could see it from New Jersey. But heck, it wasn’t his fault the stuff blew up!
And since these guys know so much about how we got ourselves into this crisis, they are clearly the ones to help us get out… Makes sense, right?
Sure, they’re going to give money to their old friends back on Wall Street…and do everything in their power to prevent the cost of living from going down…
…and of course they’ll be encouraging people to borrow and spend… then people can spend more money they don’t have on more things they don’t need. And then they’ll be deeper in debt than ever before.
…But that must be just the way this money thing works. We shouldn’t be so thick about it…
*** Wonder why government economists favor inflation over deflation? We’ll give you a hint. Everybody always wants to get something for nothing. In that regard, paper money is one of the greatest inventions of all time. You can get an almost unlimited amount of something for about as little nothing as you can get. Want more something? Just add more zeros. Here’s another explanation from Jorg Guido Hulsman at the Mises Institute…
“Fiat money [the kind of money you get from trees]… allows the owners of the printing press and their political and economic allies to enrich themselves far quicker and at much lower cost than any other producer in any other field. This explains why governments have for centuries sought to establish a paper currency. And it explains why, after they had achieved this goal in the 20th century, governments and their business allies set off on an exponential growth path. The welfare state has exploded in the 20th century, and Wall Street and the banking sector grew quicker than almost any other sector of the economy.
“The deflation-phobia of our elites is therefore the rational reaction of those who profit from the privileges that our present inflationist regime bestows on them, and who stand to lose more than any other group if this regime is ever reversed in a deflationary coup. Perennial inflation is based on monopoly. Deflation brings in the fresh winds of the free market. True elites would welcome deflation for precisely this reason, because they owe their leadership positions exclusively to the voluntary support of other members of society. They have nothing to fear from deflation – a shrinking money supply – because their leadership is grounded on the useful entrepreneurial services they provide to their fellow citizens – services that would subsist through any changes in the money supply or in the price level.
“But large parts of our present-day elites are ‘false elites’ or ‘political entrepreneurs.’ These men and women owe a more or less great amount of their income and decision-making power to legal privileges that protect them from competition and which enrich them at the expense of all other people. The fortunes of many political entrepreneurs are directly or indirectly attributable to the money monopoly of the Federal Reserve System. It is only because of this monopoly that the Fed could create a near boundless expansion of the money supply. Political entrepreneurs are thus right to fear deflation. For deflation takes away the source of their illegitimate income and puts them finally back on equal footing with all other members of society, whose incomes are based on efforts and services provided in a competitive environment.”
*** We’re down at the bottom of Africa. We’ll have a report on what’s going on here tomorrow…
Markets and Money