Economic Disaster

As yet another bank goes belly up and wall street crumbles in the aftermath, as the cost of gasoline skyrockets, as prices overall rise and wages remain stagnant, the GOP candidate for President delusional claims that the American economy is fundamentally strong.

This is a fine example of a candidate being out of touch with reality due to ignorance, dementia or both. One need only take a brief pulse of the people that are hardest hit by this floundering economy – the middle class – to see the harsh reality of a dire situation. The economic woes of America remind me of another Republican mess, the occupation of Iraq, in regards that there is no end in sight.

With the rapid pace of the rising cost of living, coupled with wages that have remained flat, how long will it be before the backs of the American worker are broke? One can look at facts and figures, statistics and graphs and the voices of the pundits and so called economic experts then point the finger of blame in every possible direction but that will do little to help a bad situation. In fact, it could make it worse. Even though we must realize where things started going awry and remember the mistakes made, we must focus on solutions. What can Joe Average American do to help turn things around?

Of course one thing you can do is exercise your power as a citizen and vote. Find a candidate that closely meets your ideals and go from there. Get involved in your community and become an activist. There’s an old adage that claims the squeaky wheel gets the grease, so make some noise and see what you can accomplish and change.

But at the same time, you need to get your financial house in order. To do this you need to objectively look at where you are, right now, financially. Think of it as if you are being asked for directions to your home. The first thing you would need to know is your guests starting point or where they are now. What are your cost of living expenses? What are your unsecured, credit card debts? Are you saving any money for the future or those rainy days?

Once you have all this information in front of you, and it may be painful to look at, you now have a starting point. Next, think of your destination. Set goals of where you want your finances to be in a week, month, year and beyond.

Set up a budget for yourself and your family and stick to it. What areas of spending can you cut back on? Can you pay off some of your higher interest credit cards?

Perhaps you need to increase your income. When people are in this position, they think of finding a part time job, which is not a bad idea, but maybe you should instead think of developing a part time business instead.

What is it that you love to do? What are you passionate about? What will you need to do to make some extra money sharing that passion with others?

We are living in turbulent economic times and if you are to make it through, you have to start thinking outside the box.

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Got Gas?

What's Iraq got to do with the price of gas?

Would some reporter with access to the Republican presidential candidate please ask John McCain why he wants to continue President Bush's Mideast policy when it has proved so ruinous for American taxpayers?

Because McCain is determined to ignore our economic meltdown and shift the debate to foreign policy, shouldn't he have to explain why an open-ended military presence in the Mideast will make us economically and militarily more secure when the opposite is clearly the case?

Let's not waste too much time on the military side of the equation. The argument that troops on the ground have made us militarily more secure is absurd on its face. American resources and lives have been squandered in an inane effort that McCain aptly criticized before becoming a presidential candidate. As a Senate watchdog, he distinguished himself by sharply denouncing one defense contractor boondoggle after another in cases involving hundreds of billions for modern weapons that had nothing to do with fighting cave-based terrorists. But as a presidential candidate, McCain now unabashedly apologizes for every twist of the downwind spiral of the Bush administration foreign policy, from wasteful weapons to inhuman torture.

McCain's strategy is clearly that of distracting attention from the calamitous economy by sounding the demagogue's alarm about enemies at the gate. This week, McCain again blasted Democratic presidential candidate Barack Obama on the grounds that he underestimated the threat from Iran while ignoring the vast increase in Iran's power -- an increase actually resulting from Bush eliminating Iran's only effective enemy, Saddam Hussein. The other winners in this folly have been the oil kingdoms that Hussein periodically threatened, led by the Saudi royal family. Seizing upon the opportunity presented by the 9/11 attacks, Bush knocked off not the Saudis, who had produced Osama bin Laden and 15 of his hijacker minions, but rather the royal family's sworn enemy in Iraq, who had absolutely nothing do with 9/11.

And how did the Saudis thank us?

Just check the price of oil, which has increased more than sixfold since 9/11. On Friday, Bush went to dine at Saudi King Abdullah's bizarrely opulent horse farm and pleaded for an increase in oil production, but to no avail. Bush received the same rebuff in April 2005, when oil was selling for $54 a barrel. On Tuesday, it sold for $129, and the price rise is a good measure of Saudi gratitude for the Bush family's unwavering support over past decades. Saudi Arabia's oil minister, Ali al-Naimi, couldn't have been more condescending when he turned down Bush's request with the observation that "presidents and kings have every right, every privilege, to comment or ask or say whatever they want." He added at a press conference, "How much does Saudi Arabia need to do to satisfy people who are questioning our oil practices and policies?"

Enough to get the price back down to where it was when we saved your sorry oil-well excuse for a country, you ingrate, Bush might have retorted. But our bold leader was too polite for anything like that. "He didn't punch any tables or shout at anybody," said Saudi Foreign Minister Saud al-Faisal. "I think he was satisfied." Why? Instead of pointing out that the Saudis could easily open their spigots in gratitude for our keeping them in power, the president threatened the Saudi king not with an invasion but with a US recession. "My point to His Majesty," Bush warned in an interview with The New York Times before encountering the great man himself, "is going to be, when consumers have less purchasing power because of high prices of gasoline--in other words, when it affects their families, it could cause this economy to slow down. If the economy slows down, there will be less barrels of oil purchased."

He'll show them -- we'll have a recession, our families will suffer and, boy, will the Saudis be sorry. A regular Teddy Roosevelt. There is no better measure of the failure of Bush's foreign policy than that, five years after we conquered the second-most important pool of oil in the world, the American taxpayers who paid for this grand imperial adventure are rewarded with skyrocketing prices at the pump.

You Say Recession, I Say Depression

Negatively loaded economic terms such as "recession" and "depression" rarely make a lot of news, simply because neither is used that frequently in polite company.

A Gallup poll released today, however, may actually allow these words to creep into a national discussion:

More than three in four Americans think the United States is in a recession according to a USA Today/Gallup Poll released on Tuesday...

...Seventy-six percent of to those polled said the economy is in recession, compared to 22 percent who said it is not, USA Today said.

Asked if the United States could slip into a depression lasting several years, 59 percent said it was likely and 79 percent said they were worried about it, the newspaper reported...

The poll was taken even before the Bear Stearns bailout had been thoroughly digested by a disgusted American public. One wonders, as the media has bandied about another pejorative phrase - "bank run", to describe the initiating event of the Bear Stearns collapse last week - how much worse the same poll would look if taken today.

There's not a lot that one can add to this gloomy poll, other than it's rather surprising that it's taken so long for the depth of U.S. economic woes to fully sink into the American psyche.

Remember - and don't let any of your acquaintances forget - what we're experiencing is a direct result of GOP fiscal policies that were elevated to the high art of social theft during the bush years.

The GOP pyramid scheme is collapsing.

America's Economic Disaster

Who is a REAL domestic terrorist?

It seems that bush, that piece of shit American traitor, has succeeded in accomplishing on of Osama bin Laden's goals.

Bankrupting the United States

Despite what our asshole president claims, the economy is floating in a toilet awaiting the inevitable flush as the bowl keeps filling up with the turds of a failed presidency.

"It's . . . poetic justice, in that the people that brewed this toxic Kool-Aid found themselves drinking a lot of it in the end."

--Warren Buffett, American investor

“By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens.”

--John Maynard Keynes (1883-1946)

"New money that enters the economy does not affect all economic actors equally nor does new money influence all economic actors at the same time. Newly created money must enter into the economy at a specific point. Generally this monetary injection comes via credit expansion through the banking sector. Those who receive this new money first benefit at the expense of those who receive the money only after it has snaked through the economy and prices have had a chance to adjust."

--Friedrich A. Hayek (1899-1992), Austrian economist

When Fed Chairman Ben Bernanke says the economic situation is worsening, you'd better believe him. In fact, the U.S. credit markets are collapsing under our very eyes, and there is no end in sight as to when this will stop, let alone reverse itself.

1. Leading economic indicators for the U.S. economy are falling.

2. Consumer confidence sentiment is falling as mortgage equity withdrawals are drying up.

3. Employment numbers are falling.

4. The January 2008 report on the U.S. service economy indicates that it contracted early in the year for the first time in 58 months.

5. The number of new jobless claims is still dangerously high.

6. The housing crisis is getting up steam; banks have to place larger and larger subprime losses on their balance sheets, thus undermining their capital bases and bringing many of them to the brink of insolvency.

7. The credit-ratings agencies are under siege.

8. Bond guarantee insurance companies are in the process of loosing their triple-A ratings and some are on the brink of bankruptcy.

9. The $2.6 trillion municipal bond market is about to take a nosedive, if and when the bond insurers do not pull it through.

10. The leveraged corporate loan market is in disarray.

11. The more than a trillion dollar market for mortgage- and debt-backed securities could collapse completely if the largest American mortgage insurers continue to suffer crippling losses.

12. Large hedge funds are losing money on a high scale and they are suffering from a run on their assets.

13. In the U.S., total debt as a percentage of GDP is at more than 300 percent, a record level (N.B.: in 1980, it was 125 percent!).

14. And, finally, the worldwide hundreds-of- trillion dollar derivatives market could implode anytime, if too many financial institutions go under during the coming months, as most of these transactions are inter-institution trades.

The overall economic picture remains bleak.

This mess all began in the early 2000s when the Fed and the SEC adopted a hands-off approach to financial markets, guided by the new economic religion that "markets can do no wrong." What we are witnessing is the failure of nearly 30 years of so-called conservative debt-ridden and deregulation-ridden economic policies.

It must be understood that the most recent subprime problem really began in 2000, when the credit-rating agency of Standard & Poors issued a pronouncement saying that "piggyback" mortgage financing of houses, when a second mortgage is taken to pay the down-payment on a first mortgage, was no more likely to lead to default than more standard mortgages. This encouraged mortgage lending institutions to relax their lending practices, going as far as lending on mortgages with no down-payment whatsoever, and even postponing capital and interest payments for some time. And, with the Fed and the SEC looking the other way, a fatal next step was taken. Banks and their subsidiaries decided to follow new toxic and risky rules of banking.

Indeed, while traditionally banks would borrow short and lend long, they went one giant step further: they began transforming long-term loans, such as mortgages, car loans, student loans, etc., into short-term loans. Indeed, they got into the alchemist business of bundling together relatively long-term loans into packages that they sliced into smaller credit instruments that had all the characteristics of short-term commercial paper, but were carrying higher yields.

They then sold these new "structured investment vehicles" (SIVs), for a fee, to all kinds of investors who were looking for higher yields than the meager rates that alternatives were paying. And, since banks were behind these new artificial financial assets, the credit agencies gave them an AAA rating, which allowed regulated pension funds and insurance companies to invest in them, believing they were both safe and liquid. They were in for a shock. When the housing bubble burst, the value of real assets behind the new financial instruments began declining, pulling the rug out from beneath the asset-backed paper market (ABCP), which became illiquid and toxic.

With hardly any trading on the new instruments, nobody knew the true value of the paper, and thus nobody was willing to buy it. This crisis of confidence has now permeated to other credit markets and is threatening the entire financial system as the contagion spreads.

As late as 2003-04, then Fed Chairman Alan Greenspan was not the least worried by the subprime-financed-housing-mortgage bubble but was instead encouraging people to take out adjustable rate mortgages, even though interest rates were at a 30-year low and were bound to increase. Even in late 2006, newly appointed Fed Chairman Ben Bernanke professed not to be preoccupied by the housing bubble, saying that high prices were only a reflection of a strong economy. Mind you, this was more than one year after the housing market peaked in the spring of 2005. History will record that the Fed and the SEC did nothing to prevent the debt pyramid from reaching the dangerous levels it attained and which is now crushing the economy.

On a longer span of time, when one looks at a graph provided by the U.S. Bureau of Economic Analysis (BEA) which shows the relative importance of total outstanding debt (corporate, financial, government, plus personal) in relation to the economy, one is struck by the fact that this ratio stayed around 1.2 times GDP for decades. Then, something big happened in the early 1980s, and the ratio started to rise, with only a slight pause in the mid-1990s, to reach the rarefied level of 3.1 times GDP presently, nearly 200 percent more than it used to be.

The adoption of massive tax cuts coupled with government deficit spending policies, and deregulation policies, by the Reagan and subsequent administrations, all culminating in a grotesque way under the current administration, contributed massively to this unprecedented debt bubble. It took many years to build up the debt pyramid, and it will take many years to unwind it and to reduce this cumulative mountain of debt to a more manageable size.

That is the big picture behind this crisis. It is much bigger than the S&L crisis of the 1980s, which looks puny in comparison with the current one. That is why I think this crisis will linger on for at least a few more years, possibly until 2010-11.

From Creditor To Debtor: The Legacy Of The bush Regime

The military mis-adventurers of the Bush administration have much in common with the corporate leaders of the defunct energy company Enron. Both groups of men thought that they were the "smartest guys in the room," the title of Alex Gibney's film on what went wrong at Enron.

The republicunts in the White House and the Pentagon outsmarted themselves. They failed even to address the problem of how to finance their schemes of imperialist wars and global domination.

As a result, going into 2008, the United States finds itself in the position of being unable to pay for its own elevated living standards or its wasteful, overly large military establishment. Its government no longer even attempts to reduce the ruinous expenses of maintaining huge standing armies, replacing the equipment that seven years of wars have destroyed or worn out.

Instead, the bush administration puts off these costs for future generations to pay.

This utter fiscal irresponsibility has been disguised through many manipulative financial schemes, such as other countries lending us unprecedented sums of money, but the time of reckoning is fast approaching. America under bush is NOT the promised ownership society but we are now the OWNED society.

There are three broad aspects to our debt crisis.

First, in the current fiscal year, 2008, we are spending insane amounts of money on "defense" projects that bear no relationship to the national security of the United States. Simultaneously, we are keeping the income tax burdens on the richest segments of the American population at strikingly low levels.

Second, we continue to believe that we can compensate for the accelerating erosion of our manufacturing base and our loss of jobs to foreign countries through massive military expenditures. The mistaken belief that public policies focused on frequent wars, huge expenditures on weapons and munitions, and large standing armies can indefinitely sustain a wealthy capitalist economy.

The opposite is actually true.

Third, in our devotion to militarism, despite our limited and rapidly diminishing resources, we are failing to invest in our social infrastructure and other requirements for the long-term health of our country. These are what economists call "opportunity costs," things not done because we spent our money on something else. Our public education system has deteriorated alarmingly. We have failed to provide health care to all our citizens and neglected our responsibilities as the world's number one polluter.

Most important, we have lost our competitiveness as a manufacturer for civilian needs, an infinitely more efficient use of scarce resources than arms manufacturing.

Chris Matthews brings on Mad Money’s Jim Cramer to rant on about the state of the economy, the ridiculousness of Bush’s proposed stimulus plan and why the politicos in DC (both in the administration and on the campaign trail) are missing the looming crisis in a big way.

The news about our economy since the ball dropped this year in Times Square has not been all that rosy.

We've learned that in December, the unemployment rate shot up to 5 percent, and the manufacturing sector shrunk further into nothingness.

Santa Claus left retailers lumps of coal for Christmas, showing that consumers are not spending as much as other years. Reasons were runaway inflation fueled (no pun intended) by rising fuel costs that ultimately affect everything from groceries to clothes to, well just about everything.

A Brief Look A History

The Great Depression in the United States, worst and longest economic collapse in the history of the modern industrial world, lasting from the end of 1929 until the early 1940s.

Beginning in the United States, the depression spread to most of the world’s industrial countries, which in the 20th century had become economically dependent on one another. The Great Depression saw rapid declines in the production and sale of goods and a sudden, severe rise in unemployment. Businesses and banks closed their doors, people lost their jobs, homes, and savings, and many depended on charity to survive. In 1933, at the worst point in the depression, more than 15 million Americans—one-quarter of the nation’s workforce—were unemployed.

The depression was caused by a number of serious weaknesses in the economy. Although the 1920s appeared on the surface to be a prosperous time, income was unevenly distributed. The wealthy made large profits, but more and more Americans spent more than they earned, and farmers faced low prices and heavy debt. The lingering effects of WWI (1914-1918) caused economic problems in many countries, as Europe struggled to pay war debts and reparations.

The hardships suffered during the depression affected many Americans’ attitudes toward life, work, and their community. Many people who survived the depression wanted to protect themselves from ever again going hungry or lacking necessities.

There was an underlying economic problem. Income was distributed very unevenly, and the portion going to the wealthiest Americans grew larger as the decade proceeded. This was due largely to two factors: While businesses showed remarkable gains in productivity during the 1920s, workers got a relatively small share of the wealth this produced. At the same time, huge cuts were made in the top income-tax rates. Between 1923 and 1929, manufacturing output per person-hour increased by 32 percent, but workers’ wages grew by only 8 percent. Corporate profits shot up by 65 percent in the same period, and the government let the wealthy keep more of those profits. The Revenue Act of 1926 cut the taxes of those making $1 million or more by more than two-thirds.

As a result of these trends, in 1929 the top 0.1 percent of American families had a total income equal to that of the bottom 42 percent. This meant that many people who were willing to listen to the advertisers and purchase new products did not have enough money to do so. To get around this difficulty, the 1920s produced another innovation—“credit,” an attractive name for consumer debt. People were allowed to “buy now, pay later.” But this only put off the day when consumers accumulated so much debt that they could not keep buying up all the products coming off assembly lines. That day came in 1929.

American farmers—who represented one-quarter of the economy—were already in an economic depression during the 1920s, which made it difficult for them to take part in the consumer buying spree. Farmers had expanded their output during World War I, when demand for farm goods was high and production in Europe was cut sharply. But after the war, farmers found themselves competing in an over-supplied international market. Prices fell, and farmers were often unable to sell their products for a profit.

The stock market crash announced the beginning of the Great Depression, but the deep economic problems of the 1920s had already converged a few months earlier to start the downward spiral. The credit of a large portion of the nation’s consumers had been exhausted, and they were spending much of their current income to pay for past, rather than new, purchases. Unsold inventories had begun to pile up in warehouses during the summer of 1929.

The crash affected the economy the way exposure to cold affects the human body, lowering the body’s resistance to infectious agents that are already present. The crash reduced the ability of the economy to fight off the underlying sicknesses of unevenly distributed wealth, agricultural depression, and banking problems.