Tuesday, November 13, 2007


On victory born of deceit

I, Virtue, soak the tomb of Ajax with my tears, alas, wretched, having rent my whitening hair. Certainly this matter still remained, that by a Greek judge I should be vanquished: and that deceit should have the stronger defence. link

This is just food for thought. I can't write the situation any better.

It is Amero-centric, and is a departure from Vancouver RE (I seem to be doing that lately), but I think that it is pertinent and applicable to what we are/will be seeing here. (emboldening mine)

How does the government deceive us? Let's count the ways.

Employment/Unemployment: Job hunters vanish without a trace after six months, and ghost jobs are created in the hundreds of thousands by a bogus "birth/death" model.

Inflation: As even the mainstream media is now admitting, official inflation is grossly manipulated to appear half of the true rate (3% vs. 6%). This lowers payments to those costly entitlement retirees and maintains the illusion that interest rates can be kept low because inflation is so low.

GDP: The GDP number always comes in "hot" and is usually revised downward later, when nobody's looking.

Federal Deficit: The Federal deficit contains a huge deception: the Social Security surplus is spent to offset current spending, reducing the "official deficit" by hundreds of billions each and every year. In exchange for these trillions, the Government issues the Social Security fund an IOU. The IOU is now about $4 trillion.

If this fiscal legerdemain were outlawed, then the true Federal deficit would be double or triple the "official" deficit.

"A strong dollar is in the interests of the nation." Hahaha... is that why you've engineered a 33% decline in our buying power since 2002 (the dollar index dropped from 120 to 80 in that time and is currently 78.) I'd hate to see what would happen if a weak dollar were in our interests.

All these accounting tricks serve one purpose: to deceive the citizenry and the world into believing the U.S. economy is stronger than it actually is.

2. The government has opened the floodgates of money and loosened banking regulations to help all those poor investment bankers. Regulators who should have provided oversight of the lending, mortgage and derivative markets have been idling away their time, doing anything but their job. Who's benefitted? Their pals churning all the origination fees, that's who.

3. The banks sold hundreds of billions in "safe investments" to institutions, domestic and foreign alike. Only now are the true risks and illiquidity of these SIVs, MBS, CDOs, etc. being revealed in the grim light of day.

4. Our trading partners who export vast quantities of goods to the U.S. (and who run stupendous trade deficits with the U.S.) have bought trillions in U.S. debt to keep us afloat. Since Americans don't save anything, somebody has to give them a credit card to fund all that spending.

So what's hidden? How utterly dependent the U.S. is on foreign buyers of Treasuries and debt to keep U.S. interest rates low. That's another little wink-wink, of course; when the Fed slashed the Fed Funds rate a half-a percentage point, headlines blared "Fed Cuts Interest Rate." Meanwhile, back at the Long-Term Interest Rate Ranch, 30-year mortgage rates actually went higher after the Fed's cut. Huh? Yes, that's right--because the market sets the long-term interest rates, not the Fed. Not that you'll ever read much about that, though.

So the "debt junkies" in the U.S. get their "fix" of abundant, low-interest debt from the "pushers" who need the junkie to keep buying exports and oil. link


Sam said...

People talk about business cycles, but there could be a longer one at work. In some ways the current time is reminiscent of the 1920s and subsequent crash, when an elite class of partying bankers and their pals thought the good times would never end. Presumably the man in the street didn't mind either, since he could pretend to this lavish lifestyle with abundant debt, and anyhow if he was lucky he might end up one of these fat cats himself.

But surely at some point the obscene wealth of this banker class gets so absurd, that the man in the street suddenly turns, and as credit crunches he not only cannot afford the lifestyle, but must pay back the loans. Everything goes to hell, but in the aftermath people learn(?) a valuable lesson about looking after each other, and the true value of food (you cannot eat money, etc). Has it been so long that we are overdue another 1920s peak of credit-driven "wealth" and a 1930s reality check?

solipsist said...

Has it been so long that we are overdue another 1920s peak of credit-driven "wealth" and a 1930s reality check?

My Grandma (1901-2003) raised a family during he Depression. She saw the whole lead-up, and started saying, well over a decade ago, that we were heading for another. She was very intelligent, and everything that she ever said came true.

I perceive a long-term construct that creates wealth, which is then reaped by a few - the architects. Remember, the wealth does not just disappear, though it does for the unwitting, somebody gains it.

Three Card Monty anyone?

Anonymous said...

Ohmygod!!! We indeed heading for a recesssion. I can smell it.
Maybe someone should set up a Stackbucks Index.

SAN FRANCISCO (Reuters) - Starbucks Corp on Thursday said that for the first quarter in its history, the number of visits to its established U.S. stores fell as economic worries and two recent price hikes spooked customers, sending shares nearly 9 percent lower.

Anonymous said...

Well that's an indicator of a recession.

When people aren't buying their Starbucks things are going to get/are getting bad.

What's next iPods?


dmarks said...

I'm still not buying an iPod. Staying away from devices made by people whose sense of "easy to use" is so deficient that their products lack a power button.

And yes, the MP3 players I use do have power switches/buttons.