Different Stories

punditman says...As promised, Punditman is trying to fill Peacenik's shoes while Peacenik is off in the wilderness at Peacenik's compound learning how to make dandelion tea or wine or whatever he feels will help him in the near-to-medium-to-long-term-to-weird future.

Since Peacenik usually covers the Ilargi front, Punditman offers up this rather bleak picture of the so-called economic recovery. Punditman is not sure what to think, but Punditman tends to think things are going to get weird in America and most places in the not-to-distant future. It is hard to dispute the following figures: 25% of US homeowners will be underwater by 2010, and 30% by 2011 (or, according to the Deutsche Bank, 50% by 2011). Punditman was just reading another article that says tent cities are appearing all over America, full of homeless unemployed. Please let me know if you are reading this on your laptop in your tent, because, while Punditman surely knows about the tent cities, Punditman would not get a reminder of this by turning on Punditman's television, would Punditman? Punditman tries not to turn on his television lately.

Meanwhile the Obama administration is spending $1 billion to build a mega-embassy in Pakistan (not to be out-done by Dubya who did the same in Iraq). At the same time, by Christmas, 1.5 million Americans will have run out of unemployment benefits while unemployment continues to rise. When in doubt, time for some more Pentagon socialism to the tune of a $636 billion defense bill. It is hard to understand how any recovery based on reality can happen amidst all this. Here's Ilargi.


Ilargi: Right. So government spending, as we've of course mentioned before, is going through roofs never dreamt of until recently. The request for a higher government debt ceiling is but one of the many signs of this. One that may be far more important is the roles played by Ginnie Mae and the FHA, roles that both have been stealthily increased by stunning percentages since the present administration took office.

The idea, undoubtedly, is to take all that's bad and suspect on Fannie Mae and Freddie Mac's elusive books, wrap it up in glitzy fancy gift paper, and throw it in a vault somewhere that still has space left on top of or beneath the toxic paper it already holds. And sure, it will look good at the surface. Just propose an opaque bad bank construction for Fannie and Freddie, so you can keep hiding the losses from view, and continue the policies that led to their inevitable demise through other (semi-private) enterprises.

There's something terribly wrong here. And since it threatens to transfer additional trillions of dollars in losses to the taxpayer, that taxpayer had better beware.

Somewhere behind these ideas is the faith that the economy, and hence home prices, will rise again. It's slightly reminiscent of Hank Paulson claiming 11 months ago that the taxpayer would actually make a healthy profit off the TARP rescues. That went well, didn’t it? We’re all much better off.

Keep Reading...

Statistical Deceptions

punditman says...While Peacenik grows increasingly uneasy about the safety of a swine flu vaccine, punditman turns his gaze to the supposed "economic recovery" with equal skepticism. As always, Paul Craig Roberts sorts through the haze.

How Fake is the "Recovery"?

By PAUL CRAIG ROBERTS

Last week on NPR a professor in the Sloan School of Management at MIT explained that what is really at stake in the health care bill is the US government’s ability to borrow. In other words, the bill is about cutting health care costs, not about providing hard-pressed Americans with health care.

The professor said that if we didn’t get health care costs under control, in 30 years the US government would not be able to sell Treasury bonds.

It is not at all clear that the Treasury will be able to sell its debt instruments in 30 months, and it has nothing to do with health care costs. The Treasury debt marketing problem has to do with two back-to-back US fiscal year budgets, each with a $2 trillion deficit. The size of the US deficit exceeds in these troubled times the supply of world savings available to fund the US government’s wars, bailouts and stimulus plans. If the Federal Reserve has to monetize the Treasury’s new borrowings by creating demand deposits for the Treasury (printing money), America’s foreign creditors might flee the dollar.

The professor didn’t seem to know anything about this and gave Washington 30 more years before the proverbial hits the fan.

One looks in vain to the US financial media for accurate economic information. Currently, Wall Street, the White House, and the media are hyping a new sign of economic recovery--”surging” June home sales. John Williams at shadowstats.com predicted this latest reporting deception.

Keep Reading...

Drifting Downward

punditman says...Cogent writer Mike Whitney pulls no punches in this detailed account of what is happening with the US economy. He talks about how the Republicans are trying to sabotage the Obama stimulus plan. He talks about how Liberal economists have done a lousy job of explaining the need for more stimulus (just as the first stimulus is starting to have some positive effects). He talks about how stimulus is not a panacea but a bridge to take up the slack in demand, but it does not work without the political will to re-regulate. He talks about how inflation is the bogeyman that doesn't exist (for the time being). He talks about how the future is deflationary.

Punditman further says that deflation is bad unless you have a stable job, (especially if you have wage increases), no debt, a cash reserve and you don't want (or need) to sell your house anytime soon. As prices drop, such people will laugh all the way to the one pub left in their town, where they will sit around and drink with themselves as they ponder where all the people have gone. But how many people fit that profile? To avoid the worst case scenario, Punditman says certain things need to change starting with wages and a move away from the financialization of the economy, which has caused so much mayhem. Maybe things have to get a lot worse in the US than 18% real unemployment before people's consciousness turns? Punditman hopes for a change in consciousness.

The Deflating Economy
By MIKE WHITNEY

There should be a modest uptick in GDP in either in the 4th quarter 2009 or the 1st quarter 2010. This will mark the end of the current 20 month-long recession, but not the end of the crisis. The blip in growth doesn't mean that the troubles are over or that the economy is on the way to recovery. It simply means that Obama's $787 billion fiscal stimulus is beginning to kick in, giving a boost to consumer spending and generating short-term economic activity. Regrettably, when the stimulus runs out, the economy will slide back into negative territory. That's because the US consumer has crossed an important threshold and no longer has the ability to drive the economy through debt-fueled consumption. The data indicates a critical change in consumer behavior which portends a shift away from the current model for economic growth. It's a whole new ballgame.

From the mid-1980s to 2007, the ratio of debt-to-GDP rocketed from 165% to to over 350%; more than doubling in that same period. The build-up of personal debt follows the exact same trend-line as the aggregate profits of the financial sector; they're opposite sides of the same coin. Financial institutions increase profitability by expanding credit and inflating asset bubbles, not by allocating capital to productive enterprises. Their business model is inherently flawed. Speculative bubblemaking is Wall Street's method of shifting wealth from workers to the investor class. It never fails. It's the reason why 42 states are now facing budget shortfalls, unemployment has risen to 9.5 percent, and $45 trillion has vanished from global equity markets. Financialization has created a global crisis, crushed consumer demand, increased systemic instability, and put the economy into a nosedive.

In the last decade, the shifting of wealth from one class to another has greatly accelerated due to deregulation and the Fed's low interest rates. Stagnant wages have forced reluctant participants into the market seeking a better return on their savings, while lax lending standards and easy credit have seduced workers into increasing their personal debt-load. All of this has been done by design to ensure the profits for the few over the well-being of the many.

Keep Reading...

The Economic Free Fall Is Over

Peacenik has followed Bonddad's coverage of the financial crisis for years. Peacenik has quoted Bonddad as the economy sank into depression. So, in the interest of fairness, Peacenik will post this article by Bonddad saying basically that the economy has bottomed out. But Peacenik doesn't really believe Bondad. And if you read the comments to his piece a lot of others don't believe him either. And what if this isn't the bottom? What if there is no uptick? What if Bonddad is wrong? What metrics do you measure a turn around by?

The Economic Free Fall Is Over

Gloom and doom is the way of blogs lately. Nothing is good; everything is bad. Unfortunately, lost in this translation is a set of monthly trends that shows the worse is over. Now -- this does not mean everything is roses. Far from it. As I have mentioned in the past the recovery will be weak with slow growth and high (7%-8% minimum) unemployment for the better part of a year. But the data indicates the worse is behind us.

Before I begin, let me make a few observations.

1.) There are two predominant ways to present economic data: year over year and month over month. Year over year removes seasonality. Here's an illustration. Suppose you are looking at the retail sector's employment trends starting in September and you see in increase in hiring. A logical conclusion is things are looking up because companies are hiring more. However, this excludes the possibility of a seasonal effect; namely that retail typically hires more people as the holiday season approaches. As a result, it's better to compare this September to last September -- this removes "seasonality" from the equation.

Read on...

Punditman goes shopping

Punditman just bought Miller beer. Punditman would not normally buy corporate swill, but his favourite local lager was out of stock and Punditman was in a rush. It was also cheap and Punditman is in search of inexpensive suds for skimpy times. Truth be told, Punditman has some fond memories of when Miller beer was first introduced into Canada all those years ago; back then, he did not eject part or all of the contents of his stomach in a series of involuntary spasmic movements, so how bad could it be now? In fact, one such encounter with Miller was quite enjoyable.

Granted, Punditman's taste buds have no doubt changed. He will keep you posted.

Earlier, Punditman went to another store in search of yellow Penn tennis balls (his favourite), but only found orange ones. Punditman does not like orange tennis balls or gimmicky things in general, so he had to settle for Wilson, his second choice. The shelves were sparse in this section of the hardware store, just like the shelves in the section of the beer store where Punditman's local craft beer normally sits.

Punditman thought: are these portents of economic collapse? On the other hand, the roads are clogged with vehicles in the middle of this mid-week day. All these people doing errands, putting around in their cars, trucks and mini vans. Where do they work? What do they do? It's no secret that Punditman works for himself, currently doing two jobs. Are all these others self-employed? Are they shift workers? Are they on pogy? Are they all living on credit? Without raw data, such mysteries in Punditman's mind concerning the population in Punditman's home town remain unanswered.

Gas prices are fairly stable lately, so that may account for the clogged traffic. But Punditman just read in the Report on Business section of yesterday's Globe and Mail that very soon, we will be experiencing a huge increase and that "...ever-higher energy costs will fundamentally change the way each and every one of us live our day-to-day lives." This gem of wisdom comes not from one of Peacenik's favourite "Peaknik" blogs but from none other than Jeff Rubin, who was recently the chief economist and chief strategist at CIBC World Markets. He has quit that position and has written a new book, entitled, "Why Your World is About to Get a Whole Lot Smaller." This sounds like good reading. Jeff Rubin is a believer in peak oil and he says declining production and rising demand mean that oil prices will be over $200 (U.S.) a barrel by 2012 or earlier. But Mr. Rubin is an optimist. As the ROB article states,

His world of the oil-starved future, at least for Western societies, looks a lot like the bygone years of our fond memory, where people work and vacation nearer to home, eat locally grown foods and buy locally produced goods, and suburban sprawl is replaced by revitalized cities.

Punditman just bought Miller beer. Will you still respect him in the morning?

Global Crisis: Is Economics Rational?

Do Economists Understand the Causes and Consequences of the Crisis?

by Prof. John Kozy

Classical/neoclassical economics has consistently protected the wealth of the privileged; it has preserved the status quo. This is capitalism's intent, and the evidence for it is overwhelming. It has impeded the improvement of the human condition for two hundred years, and unless it is scrapped, it will continue to do so. No mere change in government can stop it.

Aristotle defined human beings as rational animals, and even today, few people would openly describe themselves as irrational; yet many are. Even so, people don't generally go around calling their decisions, choices, and expectations rational or calling what they do rational activity. Except, that is, economists! They modify sundry and diverse nouns with "rational." In a short search of a few documents, the nouns actors, calculations, choices, decisions, expectations, firms, foundations, investors, outcomes, prices, responses, self-interest, societies, systems, and workers are all modified by "rational," and some seem oxymoronic when so modified. For instance, how is it possible to have an irrational self-interest? And if that isn't possible, what sense does modifying "self-interest" with "rational" make? Why economists feel the need to continually cite the rationality of classical economics is curious. Astronomers, physicists, chemists, biologists, mathematicians, engineers, and others have never felt a similar need. Physicists never speak of rational forces, rational particles, or rational mass. Chemists don't speak of rational reactions. Mathematicians never speak of rational calculations. One begins to wonder whether economists can be likened to the proverbial errant child who almost automatically utters, "I didn't do it!" when everyone knows that s/he did. One wonders whether they continually call themselves and economics rational because that's the only exculpatory response they can think of when what they proclaim turns out, as it so often does, to be wrong.

But if rationality is a human attribute, it is at best a latent one. Activating it requires care and nurture. And some studies have suggested that the ability to activate it declines as people age. Anyone who has tried to teach even basic logic to college students knows that most never acquire enough facility to become even moderately proficient. Many professors who are tasked with teaching it lack the ability to construct even moderately advanced chains of valid reasoning, and for decades, the most used textbook for such courses presented a set of logical rules so deficient that even if a student mastered them all, s/he would have been unable to apply them efficiently. Furthermore the findings of psychologists who have devised experiments to measure rationality claim to have shown that few people consistently behave in rational ways. But this finding is not interesting. Who, other than economists, hasn't known it? Even Aristotle must have known it more than two millennia ago; after all, he was familiar with the irrational claims Plato clearly exposed in his Socratic Dialogues. So the acute question is why economists don't know it, why they persist in accepting classical economic theory?

Those psychological experiments, however, when examined carefully are difficult to interpret. Although the psychologists claim to be measuring rationality, what, if anything, is really being measured is not easily seen. For instance, Prof. Daniel Kahneman is reported to have devised this experiment:

"let's take two groups of people and ask the first if the tallest tree in the world is taller than 300 meters. Then let's ask them how tall the tallest tree in the world is. Then we repeat the exercise with the second group, asking them whether the tallest tree in the world is taller than 200 meters, and then how tall it is. At the end of the experiment, we find that the first group's average answer to the second question is, around 300 meters, and the second's is around 200 meters. Why? [Because] People tend to latch on to a certain 'anchor"—usually one they come across by chance—instead of trying to use a more rational way to gather and process data and make economic decisions." [http://www.haaretz.com/hasen/spages/1077151.html]

But it is difficult to see how this experiment proves anything about rationality. The experiment requires the participants to merely guess, and guessing is not a rational activity. No rational participant would have even answered the initial question. S/he would have responded by asking something like, How would I know?, and the experiment would have collapsed.

But other experiments are more revealing. For instance,

"One of the more compelling studies described . . . involved trick-or-treaters. A few Halloweens ago, Ariely laid in a supply of Hershey’s Kisses and two kinds of Snickers—regular two-ounce bars and one-ounce miniatures. When the first children came to his door, he handed each of them three Kisses, then offered to make a deal. If they wanted to, the kids could trade one Kiss for a mini-Snickers or two Kisses for a full-sized bar. Almost all of them . . . opted for the two-Kiss trade. At some point, Ariely shifted the terms: kids could now trade one of their three Kisses for the larger bar or get a mini-Snickers without giving up anything. In terms of sheer chocolatiness, the trade for the larger bar was still by far the better deal. But, faced with the prospect of getting a mini-Snickers for nothing, the trick-or-treaters could no longer reckon properly. Most of them refused the trade, even though it cost them candy. Ariely speculates that behind the kids’ miscalculation was anxiety. As he puts it, “There’s no visible possibility of loss when we choose a FREE! item (it’s free).” Tellingly, when Ariely performed a similar experiment on adults, they made the same mistake. “If I were to distill one main lesson from the research described..., it is that we are all pawns in a game whose forces we largely fail to comprehend.”

[http://www.newyorker.com/arts/critics/books/2008/02/25/080225crbo_books_kolbert]

What are the problems with this experiment? There is absolutely no evidence that any child or adult involved did any "reckoning," and if no reckoning took place, no "miscalculation" could possibly have occurred. After all, people do make choices on impulse. So how does this experiment prove anything about rationality?

Just ask how a calculation, choice, decision, expectation, outcome, responses, or anything else can be determined to be rational. The only answer is by examining the reasoning process that led to it. But the experiment was built in a way that made any examination of any reasoning involved impossible. The description above says that when the experiment was performed on adults, "they made the same mistake," that is, they selected the free bite-sized Snickers bar. The "mistake" was that they didn't select the larger bar and maximize the amount of chocolate they were receiving. But what if they didn't want to maximize the amount of chocolate? Suppose, for instance, that an adult desired more chocolate than was in the three Hershey Kisses but was also trying to lose weight and didn't want to over indulge. Or suppose that an adult wanted more chocolate, didn't want to eat it immediately, but instead, wanted to put it in a pocket but had no available pocket large enough in which to comfortably place the larger bar. Or again, suppose that an adult wanted more chocolate but wanted to eat it in one bite so that his hands were free for other tasks. In all three of these cases, selecting the mini-Snickers was the rational choice. The mistake made in this experiment was made by the designer, not the participants. He assumed that the only rational choice was the one that maximized the amount of chocolate obtained. But rationality cannot be determined by arbitrary definition. Rationality is an attribute of deliberative processes and nothing that does not involve a deliberative process can be called rational. Human beings do engage in thoughtless activities. When doing so, they are not engaged in rational behavior. But they also sometimes think about what they are doing. When their thinking conforms to well-known norms of logic and is based on true premises, it is rational, when it doesn't, it is not. The thinking, not the result, is the deciding factor.

Keep Reading (you read this far!)...

punditman says...

Punditman likes reading Prof. Kozy's articles. It is like reading what you already new intuitively, but did not have the words or enough information to express it . The above piece is heavy reading for this early in Punditman's day, but if you stick with it, you will find an interesting critique of the financial system and the geeky economists who prop it up up with their silly theories about "rationality." Punditman didn't care much for studying classical economics because he always suspected that someone was trying to pull the wool over Punditman's eyes. Punditman now feels he was right.

The Quiet Coup

by Simon Johnson

One thing you learn rather quickly when working at the International Monetary Fund is that no one is ever very happy to see you. Typically, your “clients” come in only after private capital has abandoned them, after regional trading-bloc partners have been unable to throw a strong enough lifeline, after last-ditch attempts to borrow from powerful friends like China or the European Union have fallen through. You’re never at the top of anyone’s dance card.

The reason, of course, is that the IMF specializes in telling its clients what they don’t want to hear. I should know; I pressed painful changes on many foreign officials during my time there as chief economist in 2007 and 2008. And I felt the effects of IMF pressure, at least indirectly, when I worked with governments in Eastern Europe as they struggled after 1989, and with the private sector in Asia and Latin America during the crises of the late 1990s and early 2000s. Over that time, from every vantage point, I saw firsthand the steady flow of officials—from Ukraine, Russia, Thailand, Indonesia, South Korea, and elsewhere—trudging to the fund when circumstances were dire and all else had failed.

Every crisis is different, of course. Ukraine faced hyperinflation in 1994; Russia desperately needed help when its short-term-debt rollover scheme exploded in the summer of 1998; the Indonesian rupiah plunged in 1997, nearly leveling the corporate economy; that same year, South Korea’s 30-year economic miracle ground to a halt when foreign banks suddenly refused to extend new credit.

Read on...

A week or so ago Peacenik gave a link to Matt Taibbi's article, The Big Takeover, in the Rolling Stone. That article is the best explanation that Peacenik has read about what happened at AIG. Today, Peacenik links to The Quiet Coup by Simon Johnson. Simon Johnson was a chief economist at the IMF.

Peacenik thinks anything longer than 200 words is long. Both of these are long pieces. This one describes how the U.S has become a banana republic. And unhappily it forecasts a depression worse than the Great Depression--unless. Unless what? There is no unless. We are in the march towards an even greater depression, and there is nothing anyone in this world, including Peacenik can do about it except stock up on lima beans, post on Punditman until the electricity runs out and then head for the compound. So when will it hit? How will it hit? Peacenik thinks it has hit. But if you watch American Idol, and enter hockey playoff pools, and kibbitz at the pub, and spend your last bit of credit, you might be able to ignore it. For a bit longer. In the meantime, Peacenik is getting prepared. Are you?

Economic Quagmire: What does Punditman think?

punditman says...

For months now, there has been much chatter around here about complete economic collapse, especially since the misnamed Peacenik arrived and started gathering up prognostications from the best of the online doomers and peak oilers. Though he started his Punditman career by posting about a possible US attack on Iran along with the ongoing quagmires in Afghanistan, Iraq etc., Punditman wonders if this was simply a means of infiltrating the content side of this blog, because it is clear where Peacenik's priorities lie: He is a "Peacenik" in a class warfare/survivalist sort of way (whatever does that mean?).

Still, Punditman does not blame Peacenik for closely monitoring the largest economic downturn in 80 years, in fact he is thankful to have such a razor sharp doomer analyst on board. He just wishes he would change his moniker.

That aside, what exactly does Punditman think about all this talk of economic collapse?

Punditman believes that "doomsday" is a relative concept. It depends on the country, the region, the sector, the business and ultimately the individual.

For instance, in the underdeveloped world, doomsday has been the norm for decades. Ditto for war zones. Suddenly a little karmic discomfort in the First World and everyone is screaming that the sky is falling.

Okay, so things are bad enough. But how bad can/will this crisis get? Well, I just got an email from a friend out West who said his wine class sales are booming. "Things are crazy busy," says he. Seems one person's doom is another person's dollar.

On the other hand, if you lose your job, your house, your business, your
wine collection, well then it's certainly doomsday for you. Punditman wishes he had a fine Merlot collection to lose.

Anyway, doomsday estimations are dependent on how stupid the estimator thinks politicians who are beholding to entrenched interests have become. Granted, they appear pretty clueless lately. Peacenik apparently thinks they are really stupid and will let the whole house of cards collapse all around them and do nothing to save their political hides or the actual hides of their rich business friends (especially if they live in France), as hordes of pitchfork wielding peasants and workers storm the corridors of power. Thus Peacenik is forming his own militia, just in case.

On the other hand, Punditman thinks that the powers that be fear the above scenario more than anything and that even their greed and ignorance is not as great as their fear of revolt.

Maybe.

With the past as our guide, we know that elites do not give away power willingly, nor, in a touch of great historic irony, do they change direction even when the train is seemingly headed off the tracks---unless there is concerted pressure from below that addresses the needs and demands of the common folk.

If you want, you can call that hope. Hopefully a guy named "Peacenik" has similar hopes.

Interpreting Last Week's Poll Results

punditman says...

Last week's Punditman poll posed the question:
How has the Global Financial Crisis Affected you Personally?

Twenty-seven votes were cast.

Two of you have actually lost your jobs as a result of the economic meltdown (7%), which is around the "official" unemployment rate. We wish you luck. Peacenik will buy you both a pint if he meets you, because he is part of the 38% of working Canadians who are covered by workplace pensions. He's also a nice guy––for a doomer.

Five of you know someone who has lost his/her job recently (18%). These laid off workers are obviously too busy pounding the pavement to participate in a Punditman poll, thus skewing Punditman's unemployment stats downward to government levels. In any case, you five should buy these unlucky folks a pint and wish them luck. Unless you are also one of the two who lost their jobs, in which case, as stated earlier, Peacenik will buy you a pint.

Nine of you said you have lost a lot of savings/investments, (33%) while six of you, including, Punditman said, "What savings/investments?"(22%). This is where it gets interesting. Economic crisis is the great equalizer, bringing about instant fraternity, equality and brother/sister hood. Mr. Lost Nest Egg meets Ms. Lower Middle Class. Mrs. Lost Investor meets Mr. Insolvency. Punditman says you nine should seek out us six and together we can all discuss our commonalities as we paint the town overdraft red. Separate bills for all.

Eleven of you are employed worker bee/worry wart types who said, "I am employed but I worry a lot" (40%). You should maybe seek counseling or drugs, while both still exist. Or ask Peacenik to buy you a pint.

One of you is unemployed but doesn't worry a lot (3%). That was meant as a joke, but more power to you. Peacenik will buy you a pint in exchange for tips on living off the grid, gardening and archery.

Speaking of drugs, we have four Pink Floyd listeners who got the "Money" song reference. The rest of you either have no sense of humour, are under the age of twelve or over the age of 112.

Finally, four of you scoundrels don't see a crisis at all (14%). First of all, put away the old Supertramp album.

Secondly, we think maybe you should stop snorting blow with those rolled up thousand dollar bills you found within the folds of your golden parachute.

Jokers. Peacenik will not buy you a pint.

In Search of Lost:

Looking for one Year's Worth of World Gross Domestic Product

by Library Karen

The news headline read “Global Financial Assets Lost $50 Trillion Last Year.”

Lost? Lost?

My mind keeps running over the word, trying to conceptualize “losing” $50 trillion dollars. I try to relate this “loss” to losses that I have experienced personally. I find no point of reference.

Once I lost a pair of hiking boots. They were beautiful; wine and burgundy leather. An old boyfriend gave them to me. I loved those boots. But one day I went looking for them and just couldn’t find them. Have never seen them since. Gone for all time. Perhaps left behind on a camping trip. They were lost.

Another time, while moving, I lost my bathroom scales. That one might not have been so much a “losing” as an accidental drowning. Although, they could still be under the drivers seat in the 1967 Chevy that served as my moving van that year. It is also “lost”, in the sense that I no longer own it but wish I did. Last I heard a guy who trains horses was using it on a track to pace fillies.

On a more related vein, last year my co-worker “lost” $100.00 that was intended as a shower gift. It eventually turned up, in an interdepartmental envelope at a department for which it was not intended. So, in that case it was merely misdirected. Not actually lost, but we never did get it back…

Of course there are the many, many things I've lost that can never be recovered. Youth, virginity, all the money my T-4 says I earned last year, my waistline, and at least a few of my marbles. Generally I don’t feel so bad about losing those things as I did have a bit of fun in the process.

But losing 50 trillion dollars? I’m sorry but trying to imagine that is akin to trying to visualize “losing” the entirety of the universe. Or even just a galaxy. Can you imagine a headline that reads “50 Trillion Stars in Milky Way Lost.” Seems like a tough thing to misplace.

Lost? Lost? Apparently that is equivalent to losing one year's worth of world gross domestic product.

No, I really don’t think that is possible.

So, in order to be able to sleep tonight I think I will re-frame that $50 trillion not as “lost” but merely placed into some ginormous interdepartmental envelope which has somehow been misdirected to...well, let me know if you have any bright ideas (please don't say AIG.)

Let’s hope we get this one back...

Swift, Steep Downturn Crosses Globe

Economists See Hope Dry Up

By Tomoeh Murakami TseWashington Post Staff Writer Wednesday, February 18, 2009; Page A01

NEW YORK, Feb. 17 -- Markets around the world plunged Tuesday as evidence mounted that the global economic crisis is worsening.

Japan is suffering its worst downturn in 35 years. The British economy is facing its sharpest decline in almost 30 years. Germany is slumping at its worst pace in nearly 20 years. Meanwhile, the job market in the United States, at the epicenter of the global downturn, is the worst in decades. And emerging economies are contracting at a pace few had predicted just months ago. Even China, whose economy still is growing at a 6.8 percent annual pace, is grappling with vast numbers of the unemployed, raising fears of unrest.

The sharpness of the global slowdown has alarmed economists, who see no obvious engine for recovery.

Read on...

This dear readers is not from theautomaticearth, or Mish, or Denninger. This is from the Washington Post ferchrissakes. Which is sounding postively Doomsday like. Peacenik doesn't know what to think. Oh yeah, the DOW and TSX are both red. And ugh, the November bottoms have not held. Peacenik thinks the markets will rally shortly. Peacenik thinks, if there is a rally, it will be your last chance to cash out.

Stunning job losses mean EI must be improved

2009-02-06 14:26

Georgetti says situation is urgent

OTTAWA - The Canadian Labour Congress has responded to news that Canada lost 129,000 jobs in January with a renewed call for the federal government to make urgently-needed improvements to the Employment Insurance program.

"This is stunning," says Ken Georgetti, president of the Canadian Labour Congress. "It's an economic tsunami for Canadian workers and there's more to come. We have now lost 213,000 good full-time jobs in the past three months and the unemployment rate is at 7.2 percent."

Georgetti says many laid-off workers and their families will be left out in the cold because governments have changed the rules for EI, making it harder to qualify and chopping the benefits for those who do.

"The effects of the government's economic stimulus package won't kick in for months but workers who are innocent victims of this recession need help right now," says Georgetti.

He says that workers and their unions are going to keep the pressure on the government to improve the EI program. "People have paid their premiums believing that they would receive their insurance when they find themselves unemployed. Rainy day funds are supposed to be there for rainy days."

Analysis of Senior Economist, Sylvain Schetagne

Unprecedented deterioration of the labour market is confirmed.

Canada lost 129,000 jobs in January 2009, a deterioration well beyond anything seen in the past three decades.

About a quarter of a million full and part-time jobs (234,000) have been lost in the past three months. Canada is now back to levels of employment experienced 15 months ago, in October 2007.

The unemployment rate increased by 0.6% in January to 7.2%, up sharply from 6.6% in December. The unemployment rate is back to where it was about five years ago. It would have been even higher if 29,000 workers had not left the labour market last month.

Most of the jobs lost were full-time (114,000), but many part-time jobs (15,100) were lost in January as well. The biggest job loss occurred in Ontario (71,000), British Columbia (35,000) and Quebec (26,000).

Jobs were lost in both the public and private sectors. The majority of sectors experienced a decline in their level of employment in January, with a significant decrease concentrated in manufacturing (100,900).

Canada now has 1,310,100 unemployed, an increase of 100,000 newly- unemployed people in January alone.

The Canadian Labour Congress, the national voice of the labour movement, represents 3.2 million Canadian workers. The CLC brings together Canada's national and international unions along with the provincial and territorial federations of labour and 130 district labour councils. Web site: www.canadianlabour.ca

Contacts:

Sylvain Schetagne, Senior Economist, 613-526-7412
Dennis Gruending, Communications, 613-526-7431, and 613-878-6040

09-02-06LbrForceSurveyEng.pdf

Whither the Future...

Mad Max?...Baez?...Orwell?

punditman says...

Peacenik's post in which he mentioned a possible Mad Max future versus a non-Mad Max future goes something like this:

Mad Max is a dystopian nightmare with roving gangs, no security and an increasingly violent society. In other words, a failed state where misery is king; one in which Coors' Light is bartered for old Hulk Hogan videos and the Philadelphia Flyers win the Stanley Cup every year. On the other hand, a non-Mad Max future entails communities working together to solve problems. In other words, a hippie paradise where harmony is king, ecologically conscious micro breweries dot a tree-scaped, hemp-infested countryside, jambands fill the air in every hamlet (clean air, that is) and the Leafs win the Stanley Cup every year.

The problem Punditman sees with this either/or future is that it implies that the State either crumbles completely from unknown forces or that it concedes defeat and starts singing "kumbaya" alongside civil society groups who are trying to solve problems. Fat chance of either!

Peacenik then goes on to say in the post below that "There is a tipping point. It is close." But a tipping point into what kind of future?

The Chris Hedges article below points to Sheldon Wolin's "inverted totalitarianism," to sum up the current American cultural and political landscape. Unlike classical totalitarianism like fascism or communism, where politics and messianic leadership dominates economics, inverted totalitarianism means economics overshadows politics. Under "normal" conditions, it more or less works. Consumerism, a decent average standard of living and a vast entertainment industry full of facile distractions tend to keep the citizenry "happy" and politically passive. But what happens if the American imperium quickly unravels, what then?

What will become of the United States if the current economic crisis results in massive, continuing job losses for a prolonged period? What if people can no longer buy the junk that they think brings them joy? What if peak oil means they're unable to fill their gas tanks without long lines and violent confrontations? What if cutbacks cause Entertainment Tonight (ET) to go off the air?

Given the elite attachment to State power and the considerable degree to which the general population is already subordinate, Punditman thinks that people could easily start to turn to demagogues to save them and return ET to its' rightful place in their hollowed out lives. Thus "inverted totalitarianism" could devolve further into the more garden-variety totalitarianism we are familiar with, albeit an American version, where ET is on every channel all day long. In recent years, we've witnessed increasing government control, surveillance and the stifling of dissent. There is little sign that this will reverse itself, notwithstanding Obama's largely symbolic actions (or inactions).

If economic decline continues unabated, if militarism and foreign intervention persists without huge reductions in force and cost; in other words, if no remedies appear that begin to dismantle the corporate/state nexus of domination and corruption, then Punditman sees the Wolinian scenario as rather likely. To coin an old lyric that inspired a certain underground movement, "You don't need a weatherman to know which the wind is blowing." So put away your Mad Max movies and dust off Orwell's 1984.

Or, Americans could always come to the senses, enact major reforms, stem the totalitarian tide and muddle on through to the best of their abilities. With a little luck...

It's Not Going to Be OK

By Chris Hedges, Truthdig. Posted February 4, 2009.

The economic crisis could plunge the U.S. into a long period of social instability. Our democracy is in peril; the threat of totalitarianism is real.

The daily bleeding of thousands of jobs will soon turn our economic crisis into a political crisis. The street protests, strikes and riots that have rattled France, Turkey, Greece, Ukraine, Russia, Latvia, Lithuania, Bulgaria and Iceland will descend on us. It is only a matter of time. And not much time. When things start to go sour, when Barack Obama is exposed as a mortal waving a sword at a tidal wave, the United States could plunge into a long period of precarious social instability.

At no period in American history has our democracy been in such peril or has the possibility of totalitarianism been as real. Our way of life is over. Our profligate consumption is finished. Our children will never have the standard of living we had. And poverty and despair will sweep across the landscape like a plague. This is the bleak future. There is nothing President Obama can do to stop it. It has been decades in the making. It cannot be undone with a trillion or two trillion dollars in bailout money. Our empire is dying. Our economy has collapsed.

Read on...

In an earlier post Peacenik wondered why there was no rioting in the U.S. as the economy swirls down the toilet. This post, by Chris Hedges, offers up some interesting theories as to why the populace is so passive. And it doesn't bode well. The corporate media and a willingness to be distracted by entertainment all contribute. But Peacenik thinks the collapse will be so profound that violence and riots will occur. The corporate media is losing its influence to the horrible bloggers. Major newspapers are going out of business. The public is finally getting angry about executive compensation. There is a tipping point. It is close.

The Second Stage: Another Real Estate Crisis is About to Hit

By PAUL CRAIG ROBERTS

For a picture of the US real estate crisis, imagine New Orleans wrecked by Hurricane Katrina, and before the waters even begin to recede, a second Katrina hits.

The 1,120,000 lost US retail jobs in 2008 are a signal that the second stage of the real estate bust is about to hit the economy. This time it will be commercial real estate--shopping malls, strip malls, warehouses, and office buildings. As businesses close and rents decline, the ability to service the mortgages on the over-built commercial real estate disappears.

The over-building was helped along by the irresponsibly low interest rates, but the main impetus came from the slide of the US saving rate to zero and the rise in household indebtedness. The shrinkage of savings and the increase in debt raised consumer spending to 72% of GDP. The proliferation of malls and the warehouses that service them reflect the rise in consumer spending as a share of GDP.

Like the federal government, consumers spent more than they earned and borrowed to cover the difference. Obviously, this could not go on forever, and consumer debt has reached its limit.

Shopping malls are losing anchor stores, and large chains are closing stores and even going out of business altogether. Developers who borrowed to finance commercial ventures are in trouble as are the holders of the mortgages, derivatives and other financial junk associated with the loans.

Keep Reading...

punditman says...

Punditman hates to be a bearer of bad news, (lest he start to sound like the ever morose Peacenik). Punditman likes to think he is fundamentally an optimist and tries to see the good side of people and society and the innate capacity for creative action. However, he is also one who hates to have the wool pulled over his eyes, and there's a lot of wool pulling by elites in media and government at the moment. Unfortunately, there is also a glut of willful ignorance on the part of the populace, which does not bode well for anyone's short -and long-term futures.

Unlike Europe, where people are hitting the streets in a wave of discontent, North Americans remain cocooned in their insulated, shopping mall worlds, following their sports teams, driving around on cheap gas, playing video games, wasting bandwidth on chain emails and getting hammered on the weekends. I suppose it's better than staring down debt loads or shrinking retirement portfolios, or, increasingly, lost employment.

Thankfully, Paul Craig Roberts is here to sort through all the nonsense economics taking place behind the CNN curtain and to issue yet another wake up call. He also offers an alternative to the bailing out by taxpayers of financial criminals, gamblers and incompetents. This offers punditman a glimmer of hope—which makes punditman an optimist.

Unprecedented Crisis In US, UK, Australia, Europe

Today was like most any day in recent memory: Another day, Another day of grim news.

In the US, President Obama is struggling to cope with an "unprecedented crisis", regulators closed Centennial Bank in California, Freddie Mac is asking for more cash, and 30 year bonds are getting shellacked.

Overseas, French and Flemish governments are intervening in the markets, the UK is shrinking at the fastest pace since 1980, and Australia needs action to save jobs. Rounding up the grim news, 1.2 million corporate networks have become infected with worms that attack Microsoft Corp.’s Windows operating system.

Here are the grim details.

Read on...

Peacenik just received an email from one of his regular correspondents reporting anecdotally that all was well with the local economy: mall busy, store shelves full, pubs packed, people happy. Then Peacenik went to Mish's website to read his overview of the "unprecedented crisis". How does Peacenik reconcile the two different points of view? Peacenik is reminded that institutions and individuals frequently engage in profligate behaviour just before they explode. Thus, Thain, the Wall St. CEO redecorated his office the week before he was fired. Penniless hobos will find six dollars on the street and buy a pint of beer rather than a bag of rice. Peacenik thinks Mish and his correspondent are telling the same story. There will be denial and the illusion of prosperity. Then it will end.

Wages, It all gets down to wages

by Mike Whitney

A strong economy must be built on a solid foundation of steadily rising wages. If wages don't keep pace with production, the only way the economy can grow is through the expansion of debt, which leads to disaster.

Consider this: the US economy is 72 percent consumer spending. That means the Gross Domestic Product (GDP) cannot grow if salaries don't keep up with the price of living. Low Income Families (LOF)--that is, any couple making less than $80,000--represent 50 percent of all consumer spending. These LOF's spend everything they earn just to maintain their present standard of living. So, how can these families help to grow the economy if they're already spending every last farthing they earn?

They can't! Which is why wages have to go up. The cost to short-term profits is miniscule compared to the turmoil of a deep recession which is what the world is facing right now. The present crisis could have been avoided if there was a better balance between management and labor. But the unions are weak, so salaries have languished while Wall Street has grown more powerful, stretching its tentacles into the government and spreading its anti-labor dogma wherever it goes.

The investor class has rejiggered the system to meet their particular needs. Financial wizardry has replaced factories, capital formation and hard assets while real wealth has been replaced by chopped up bits of mortgage paper, stitched together by Ivy League MBAs, and sold to investors as priceless gemstones. This is the system that Bernanke is trying to resuscitate with his multi-trillion dollar injections; a system that shifts a larger and larger amount of the nation's wealth to a smaller and smaller group of elites.

When Alan Greenspan appeared before Congress a few months ago, he admitted that he had discovered a "flaw" in his theory of how markets operate. The former Fed chief was referring to his belief that investment bankers could be trusted to regulate themselves. Whether one believes Greenspan was telling the truth or not is irrelevant. What really matters is that the wily Maestro managed to skirt the larger issues and stick to his script. Congress never challenged Greenspan's discredited, trickle-down economic theories which guided his policymaking from the get-go. Nor was he asked to explain how a consumer-driven economy can thrive when salaries stay flat for 30 years. An answer to that question might have exposed Greenspan's penchant for low interest rates and deregulation, the two fuel-sources for the massive speculative bubbles which emerged on Greenspan's watch. These are the tools the Fed chief used for 18 years to enrich his buddies at the big brokerage houses while workers slipped further and further into debt.

Keep Reading...

Punditman says..

As usual, Mike Whitney cuts through all the doublespeak about what is wrong with the economy, who caused it and what to do about it. He notes that salaries (thus wages) have basically stayed flat for 30 years. Punditman has noticed that the cost of living hasn't. I am assuming Whitney is excluding the parasitic financial sector from his generalization—the geniuses who got us into this mess—as well as professional athletes and a few other obscenely paid "employees" such as lying media anchorpersons and loud-mouthed blithering sportscasters—but I digress.

To stimulate the economy, the answer is not to keep the average worker one paycheck away from the homeless shelter by allowing them to accumulate more and more unsupportable debt. The answer is (wait for it)...more income at the bottom end of the economy! Imagine that. To get out of this mess, all households that make under 80 K need a raise. I find this oddly optimistic (now: how do you un-brainwash and politicize this huge constituency?).

Just how Rightwing is Stephen Harper?

punditman says...

Prime Minister Stephen Harper appears to have finally 'got religion' when it comes to the economy:

"The truth is, I've never seen such uncertainty in terms of looking forward to the future," the Prime Minister told CTV News in Halifax. "I'm very worried about the Canadian economy."

Perhaps he is. Of course he's finally figured out what to do, not because he wants to do it, but because his political survival is at stake. A substantive economic stimulus package goes against every bone in his rigid ideological frame, so it is no wonder he has been dragged kicking and whining in the direction of John Maynard Keynes.

What Punditman finds interesting is that even some of the Prime Minister's allies and supporters have been very critical of him and Finance Minister Jim Flaherty when it comes to the economy.

The ill-fated fiscal update of Nov. 27— which has caused so much hubbub in the country— has led many to call for Mr. Flaherty's resignation. Let us recall exactly what was in the original package: plans to cut government spending; suspension of the right to strike for civil servants until 2011 and of the right for women to seek legal recourse for pay equity issues; the selling off of some Crown assets to raise capital; elimination of the existing political party subsidies of $1.95 for each vote a party receives; and, no stimulus package (the government claimed they had already done that).

That's about as far-right as you can go without becoming Genghis Kahn.

The two political volcanoes, namely the move to discard per-vote subsidies for political parties and to ban public-sector workers from striking, struck a sour note with University of Western Ontario economics professor emeritus David Laidler, quoted thusly in today's Globe and Mail, "It was just outrageous and absolutely improper," said the member of the righwing C.D. Howe Institute's monetary policy council.

"I was frankly very surprised because I thought Flaherty was a pretty competent guy."

Sensing that Harper had gone too far in his partisanship and in his failure to act on the economy before the planned budget in January, it's no wonder the opposition perceived a chink in the Tory armour and formed a coalition. They were hoping public opinion would follow. Thus far, they have won no popularity contests, the country remains in a divisive condition and it is anyone's guess how this "prorogued parliament" will play out now that the Liberals have dumped Stephan Dion and coronated Michael Ignatieff.

But one thing is clear: it seems that even Harper's fellow travelers can only stomach so much of his nasty partisanship and far-right fetishism, which should give big pause to those who voted for him.

Hey! That is a point worth repeating when you are forced to discuss Canadian politics over turkey with some of your Harper-ite relatives.

So just how rightwing is Stephen Harper? Recent events tell the tale.

Financial Crisis Could Herald a Renaissance of Radical Thought

by David Williamson

The detonation of the banking sector brought about by the credit crunch has been tantamount to a revolution.

But the greatest transformations in society may come if voters refuse to allow politicians to repair the shattered jigsaw and instead demand a very different future.

Once any institution becomes associated with negligence and greed, the stain is almost impossible to remove.

The true legacy of the economic crisis may not be the emptying of Treasury funds and the decapitation of bank chiefs but the ideas that will circulate in the wake of this scandal.

Read on...

The renaissance of radical thought is Peacenik's fondest dream. The danger is that the radical thought may turn out to be radical right wing thought. The Ron Pauls, and Huckabees, and Palins and libertarians aren't thinking about the commmon good as they start their campaigns for 2012. The CNBC Wall St.cheerleaders on tv are cheering for the downfall of the Big Three auto companies only so that those companies can walk away from their pension and benefit obligations. The status quo is not sustainable. Out of these dangerous times something new will emerge. It will be radical. Peacenik hopes it will be progressive. Have a good weekend.

Debt Rattle, November 11 2008: The Words ain't as Good as the Music

Ilargi: With all the attention for GM and Ford, most people would be inclined to think they are the biggest story in the US economy. But I'm looking at Circuit City, and the fall-out from its Chapter 11 filing yesterday. Circuit City managed to get a $1.1 billion temp loan to carry it over till after January 1. It is then suppsed to use the proceeds from the shopping season to pay off the loan.

Bit of a gamble, I'd say. They'll run into the same problems that keeps GM away from Chapter 11 in the first place: who'll buy your products if they fear you won't live to honor service contracts? Plus, once the loan is paid back, will Circuit City be a healthier company? More likely, they’ll be lucky to be back to square one.

Read on...

Peacenik has read a lot of stuff about this ongoing crisis and the most frightening thing is that no one seems to have any idea how to stop it. No one has any answers or solutions. Certainly not the U.S. government. Obama doesn't seem to have a new idea. Commentators are at a loss. Newspapers report the bad news but offer no ideas how to stop it. The Canadian government is paralyzed. If the consumer society is truly dead, what will replace it? Bush's answer to 911 was to encourage people to go shopping, to go further into debt. Peacenik worries that Bush will try to hyperinflate this debt away. Peacenik worries that Zimbabwe is the model that Bush is following. Lunch in Zimbabwe costs $2 billion.