08/10/11 Poitou, France – Welcome to 21st Century Hell…
Stocks caught a break yesterday. The Dow rose 429 points. Gold rose $29.
Interestingly…or even suspiciously…the stock market still seemed to be in sell mode after the Fed announced it would keep rates low into 2013. Then, it rose.
It reminded us of the “plunge protection team,” a group supposedly set up by the Clinton Administration to counter big drops in the stop market. Whether there ever was such a group or not, we don’t know. But there is no doubt the feds were greatly relieved to see stocks going back up yesterday.
There was also no doubt that stocks were ready for a bounce. ‘Even a dead cat bounces,’ as they say on the street. And we noticed many financial services urging readers to buy. They said it was a great opportunity to get shares at “bargain” prices. “Just like 2008!”
But it doesn’t look like 2008 to us. And stocks don’t look like bargains.
With the Dow over 11,000 we need about 2 more weeks of 500-point daily drops – about 5,000 points further down — to get prices down to real bargain levels. And if we had a free market, we might have had them already. Instead, the feds are always stepping in…meddling…intervening…promising bailouts, lower rates, QEs, and other stimulus measures. As a result, investors have been programmed by half a century of experience that it doesn’t pay to “fight the Fed” or to “bet against America.”
But history has not come to a stop. And central planning doesn’t work any better for the US than it did for the Soviet Union. All the feds have really done, over the last half a century, was to aggravate the problem. Every time the growth of credit slowed…the feds made it easier to borrow. Now we have so much debt that households can’t spend…corporations are hoarding cash…and the governments’ own credit rating has been marked down.
Where does this lead? We’ve already told you. It leads to 21st century Hell…
Now, debt levels are so high in the US – gross, official government debt passed 100% of GDP last week – that it now weighs heavily on growth. Instead of growing at 3% annually, the US is barely growing at all.
So, the feds can’t get out the easy way. That is, they can’t cool spending for a while and let the economy ‘grow its way out of debt.’ Too much debt already.
And the economy can’t stomach the kind of austerity that would be required to get debt down to acceptable levels. We see what is happening in England. Riots in the streets. It would probably be worse in America. First, because the private sector is already in a deep correction; additional austerity from the government would push it into a depression. Second, because the US is running an empire…and empires are expensive. A week or so ago, we underestimated the cost of the imperial agenda. We said it was $1.2 trillion per year. It’s actually more like $1.8 trillion. It’s more than half total US spending, says our new Daily Reckoning correspondent in China, Dee Woo. The defense budget may be only $700 billion or so. But add in the military parts of other budgets – including homeland security, veterans’ benefits, foreign aid, active overseas wars, and the interest on the portion of the debt attributable to the military – and you get 54% of spending.
It may be significant that Dee Woo, or “Woody” as we call him, would point this out to us. He is writing not for US readers…but for Chinese readers. He is showing the Middle Kingdom both how much the US spends on it empire…and how fat and dysfunctional it has become.
Each empire is replaced by its major creditor. We don’t know if that’s true. But we like the sound of it. The US was Great Britain’s major creditor. Now, China holds more US paper dollars and debt than anyone.
Russia is in the news, calling the US a “parasite” for hogging the world’s credit and resources. China calls on the US to act responsibly, in order to protect China’s cache of dollars.
The Soviets had to give up their challenge to the US because they couldn’t match America’s military spending. China won’t even try. Instead, China will challenge the US empire in another way. It will use America’s spending against it… by introducing low-cost, high tech alternatives, and letting the US choke on its own excess debt. More on that…below…
Meanwhile, back in the USA itself… the gap between rich and everybody else grows wider. Shopping data from July showed a healthy 5% increase. But looked at more carefully, the numbers reveal “two Americas.” Sales at Saks, for example, shot up more than 15%. Bloomingdales’ and other upper-end marketers seem to be doing fine. But the bottom 75% of shoppers are living their own version of 21st Century Hell. They cannot spend more money. Prices are rising while incomes are not. This leaves most shoppers spending about the same amount, but getting less for it.
Gasoline, for example, costs the nation about $10.9 billion more this year than it did the last. That money has to come from somewhere. And since a rich person drives about the same number of miles as a poor person, it costs the many a lot more than it does the few.
And more thoughts…
All that talk about the debt ceiling may have left you with the impression that the feds are finally getting serious about cutting spending. They’ve set up a Super Congress, that will come to terms with the budget – or else!
Or else – supposedly – automatic axes will fall on the military. Yes, dear reader, the system is set up so that if the pols can’t get their act together America’s national defense will be put in jeopardy.
And if you believe that…we have a gold mine we’d like to offer you!
The first thing to understand about the debt deal is that it didn’t cut any debt. It’s supposed to hack off nearly a trillion in debt over the next decade. But that is unlikely.
As Congressman Ron Paul points out, the “Super Congress” is just a way for the real congress to shirk its responsibility. It is also a convenient way for lobbyists to focus their efforts…and for members of the super-committee to bring in more campaign contributions.
What is it unlikely to do is either cut real debt itself…or allow any sort of automatic system to cut it. Instead, it will move the “baseline” around, so that it can appear to cut debt without actually cutting anything.
*** And don’t worry about the Pentagon. It has more lobbyists than anyone. There is no way they are going to roll over. Already, their team is at work…making the public think its safety is risk.
…the Dreaded “Doomsday Mechanism”
Defense Budget Hysteria and Business as Usual – or Reform?By Winslow T. Wheeler
The rhetoric of people rushing to rescue Pentagon spending from “completely unacceptable” cuts is quite hysterical. Leading the chorus has been Secretary of Defense Leon Panetta. He termed the possible defense budget cuts (about $850 billion over 10 years according to most) a “doomsday mechanism,” if the automatic sequestration trigger of Obama’s debt deal with the Republicans in Congress is pulled. Some think tank types, opining in the Washington Post and the New York Times, have deemed these reductions “indiscriminately hacking away” at the Pentagon’s budget and something that could “imperil America’s national security.” Their defense spending allies, including multiple generals and admirals sitting atop various Pentagon bureaucracies, confirm it all with descriptions like “very high risk” and “draconian.”
Some factual perspective puts the brown paper bag around this hot air. As analyst Harrison also informs us, the “doomsday mechanism” would reduce the Pentagon’s “base” (non-war) budget to about $472 billion, the approximate level of the base DOD budget in 2007. I do not recall anyone declaring our national security being “imperiled” at that spending level in 2007. In fact, that level of spending for the “base” (non-war) Pentagon budget was a sixteen year high – calculated using “constant” Defense Department dollars intended to compensate for inflation. Not exactly the result of “hacking away.”
If returned to the $472 billion 2007 level, the base DOD budget would be $73 billion higher than it was in 2000, the year before our various interventions started to occur. If spending were to be continued at the $472 billion level for the next 10 years, base Defense Department spending would be three quarters of a trillion dollars above the levels extant in 2000. And, not a penny of the additional monies to be spent on the wars would be eliminated.
Regards,
Bill Bonner,
for The Daily Reckoning
Bill Bonner
Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning. Dice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill’s daily reckonings from more than a decade: 1999-2010.
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Oh Harry…
Harry…
Did you sell the stocks you bought Tuesday after you sold the stocks you owned on Friday?
Keep your chin up Bill. Thanks to the Internet, the Liberty movement is growing every day. Things look bleak, but the number of people who understand the problem is growing.
A bit of “Shock and Awe” for the US Congress is long overdue.
Actually Reagan launched the Plunge Portion Team, not Clinton:
The Working Group on Financial Markets (aka, President’s Working Group on Financial Markets, the Working Group, and aka: the Plunge Protection Team) was created by Executive Order 12631, signed on March 18, 1988 by United States President Reagan.
http://www.archives.gov/federal-register/codification/executive-order/12631.html
http://www.sprott.com/Docs/SpecialReports/08_2005_TheVisibleHand.pdf
http://en.wikipedia.org/wiki/Working_Group_on_Financial_Markets
When the Soviets finally gave up, the Pacific fleet was left to rust in the harbor at Vladivostock. In less than a year, most of the ships were taking on water and listing. Then they began to sink in the harbor, or became compltely hung-up on adjacent ships. The rusting hulks were not a shadow of their once great strength.
If the US decides to pursure the same course, I would hope the state of Florida and all the militairy installations there are the first to be abandoned. Let the election officals in Palm Beach county figure out what to do with all the rusting ships, radioactivity leaking from many of them.
History always has enormous doses of irony, for Florida it would be most apropo.
Where, oh where are the DR readers who berate Bill for criticising our overspending on the military with the silly defence that “we need to win this war on terror”?
All those pansy DR readers who puffed out their chests and talked tough about defeating terror have gone awfully silent now that we’ve spent trillions fighting “terror” and have nothing to show for it except a broke country.
Thanks a lot, white male paranoia. You done served us well.
Well my friend Stanford, you’ve hit it right on the head. The US spends more than the rest of world combined on the militairy, and it didn’t get that way by chance. In the end, it will have all been an adventure into financial oblivion with very little to show for it. What has always been the most amusing thing about the average Republican; –they haven’t nearly the money for the Republicans to actually represent their interests. But to have voted any other way than Republican would be to shatter their own delusions of prosperity and self-suffeciency of which they really possessed neither. Not that the Democrats have done us any favors either. As best I can tell, Obama is doing business as George Bush III. For the life of me, I can’t tell much difference between him and his predecessor.
I share the same view of one of the earlier commentary. The customary pattern or behaviour ups downs of the comodities is simply irrelevant. The heat seeking target is obviously the vast paper supply all over the world. So, precious metal homes in without hesitation nor distraction. It simply doesn’t bother what other indices pops up.
Another thing worth mentioning, zombies or morons are built with thick tissue especially around the head. Layers after layers of tissue which are resistance to any armour-piercing fire arm. Not even an onion which can be repeatedly peeled off is comparable.
I think, there is beginning so there is end. The end is in sight.
Stanford,
The “white male paranoia” thing is way off the mark, as usual. Greed is at the heart of all military spending. You can’t cure the disease without first locating its source.
Greed is the source. You can never eliminate greed, but you can limit defense to our shores negating the need for all those defense $. Limited $ = limited greed.
Phelps Who Can’t Swim,
White male paranoia was used to whip our population up into a frenzy in 2003. Saddam Hussein, a swarthy man with a black moustache, was, we were repeatedly told, “the next Hitler” and we had to get him before he got us.
Never mind that he was an ageing dictator of a country totally destroyed by sanctions. His military, according to Colin Powell, was “totally decimated” and rendered useless. We starved over one million people in his country to death (5% of the population, equivalent to 15 million Americans). He posed no threat to us, but his A-rabness and Mozzlimness were turned into some kind of bizarre existential threat to civilisation.
Were you not there, mate? Do you not recall 2003 and the (US and UK) media’s hysterical promotion of the war? I bet you were one of those baying for blood, but now, like pretty much everyone else, you conveniently claim you were against invading all along.
Enjoy bankruptcy, my fellow Americans. Some of us (like BB) were smart enough to bolt for greener pastures before the whole anthill falls down. Here in Singapore people don’t create mythological monsters and then spend trillions of dollars to fight them.
Perhaps Stanford can elaborate how the present military action against Col. Qaddafi squares with his “white male paranoia” worldview, contrasted against Saddam’s history of invading two neighbouring countries and firing missiles against two others?
Oil, my friend. Invading Libya is about oil, and the same was true of Eye-rack. Our gubment just used hysterical white hatred of brown people to get the public behind committing trillions of dollars to the effort.
Notice how we do nothing to help the pro-democracy protesters in Bahrain? Why? Because the anti-democracy folks are continuing to give us cheap oil – and the neighbouring Saudis, also ruled by anti-democracy folks who also give us oil on the cheap, want us to keep mum.
In other words, it’s all about oil in the end. Not democracy, not exterminating the bad guy Arabs or anything else.
Come now, surely this is common knowledge.
Whew – thank goodness, Stanford. I thought you were going to say something along the lines of it’s all due to Zionist manipulation.
(If anti-democratic Qaddafi had been cheerfully supplying oil without interruption for decades, why bother with him now?) Perhaps Phelps is more spot on than you.
Assad has no oil, yet we do nothing to help pro-democracy protesters in anti-democratic Syria even though he has no oil with which to keep us mum. Why does Assad mass his troops on the border with neighbouring Turkey? Maybe he is just, as you say, exhibiting hatred of brown people.
Well if a free market is anything like free trade watch out.
what a couple of freaking sick-0′s!
bruce, always a big arse, today thinks radioactive leaks from ships that will just get left in florida if the “empire collapses” would be, as an historical dose of irony, apropos!!! what a moron!
then we have miss stanford jennings, a racist, who is apparently quite attracted to white males, b/c they are so powerful. the fact that the neo-cons are a bunch of rich corpo-fascist murdering swine, like brucie, escapes him, for some reason, as brucie and he have a nice little dance, here, in their pathologically sick little love-nest @ the DR!
Stanford,
I recall Weapons of Mass Distraction (propaganda), but never anything about white male paranoia, but I don’t read the DailyKos.
The playbook for war is always the same. Tell the population their way of life is under attack by some foreign culture and you can lead them to war.
Now, motives for war can be different. White Male Paranoia may be the reason for some. But most love $ and they make mucho $ off the war machine. We can never know what is in a man’s mind, but I would still bet that greed is at the heart of much of government spending.
Exactly, Scott. We don’t help pro-democracy protesters in Syria because we don’t want democracy in the Middle East. We just want oil. And since Syria has none, we don’t bother meddling there.
It’s not about you or me or Assad or Rumsfeld being r*cist. (It’s shocking to me how stupid my fellow Americans are.) It’s about the corporatocracy ruling our nation according to their whims. One way they get us to do their bidding (whether in Iraq or elsewhere) is to rely on the inveterate, long-standing, r*cism of most Americans.