The Bush Data Dump

My mood is very dark.

The reason is simplicity itself; when one knows what the future will hold, as I and the other Austrian economists do, it is one thing to laugh and make jokes at the impending calamity and the laughable ineptitude of governmental forces – and the university eggheads that caused it – but it is quite another thing to make jokes when you see the rising stress on those you love.

And it is all very, very depressing. And I am seeing it all around me. And I’m willing to bet that you are seeing it all around you, too, because all the people around me are seeing it all around them, and those people around them report to the people around me that the people around them are seeing it all around them, too. So you see how this thing builds.

And the bad news is that it will just keep getting worse and worse until it all collapses, as it must, as it always has. And so I assume that my mood will keep getting worse and worse until it collapses, too, or until I scarf down an entire bag of Coffee and Cream Oreos, and then, as Rosanne Barr said, “When you come down out of that sugar-coma, it will be a whole new week!”

Russ Baker: Philip Spicer

Philip Spicer, that handsome and debonair hotshot at the Central Fund of Canada, sent along an article that appeared in the National Post concerning pension accounting. “The financial economist’s key charge against the actuaries is this: their models for long-run pension performance assume, wrongly, that over the long run investments in the stock market will rise fast enough to overcome essentially underfunded pension structures. Inevitably, when the actuarial model breaks down, the pension plans engage in a variety of techniques to try to cover over the shortfalls. This is known as smoothing, allowing pension managers to conceal losses and give the impression of long-term health.”

So what bunch of scared witless weenies is NOT concealing losses and giving the impression of long-term health, huh? Welcome to the real world, dude! And I shall leave it to you, as a self-discovery exercise, to punctuate the phrase “scared witless weenies.” Personally, the one that really puts some oomph in it for me is, “Scared? Witless weenies!” by which I snottily infer that we are scared because of witless weenies who are killing us all with their weenieositude.

Nonetheless, as regards the original point, assuming that I even HAD a point to start with, bad news and economic calamity are being kept from view.

In that regard, Russ Baker wrote a very interesting little essay posted on MSN Slate entitled, “Bush’s Data Dump. The administration is hiding bad economic news. Here’s how.”

“The administration muzzles routine economic information that’s unfavorable,” writes Baker. “Last year, for example, the administration stopped issuing a monthly Bureau of Labor Statistics report, known as the Mass Layoff Statistics program, that tracked factory closings throughout the country…

“Interestingly, President George H.W. Bush [George the 1st] buried these same statistics in ’92, also a period of job losses. They were revived by President Clinton.” According to Baker, a study predicting less than stellar job growth from Bush the Younger’s $674 billion economic stimulus plan mysteriously disappeared from the Council of Economic Advisers’ website.

Russ Baker: The Future Has Been Deleted

Baker names a few more frauds and cover-ups of government globules of weenieositude, and reveals not only “how,” but “how much.” And when you get a gander at the size of the numbers that we are talking about, you realize immediately that the homework assignment, the one where you had to punctuate the phrase “scared witless weenies,” is now revealed to be more correctly written as “scared-witless weenies,” to signify that a bunch of weenies, who may or may not be congenitally witless, are now de facto witless as a function of their being so scared.

“We’ve seen the future,” Baker concludes, “and it’s been deleted.”

And for good reason, too! Because when I got a good look at the actual numbers, all in one place, then I, too, became scared witless. But since I have always been a weenie and pretty witless as befits my peculiar personality, and am now also scared, then I realize, to my profound dismay and disappointment, that the scared-witless weenies that I disrespectfully alluded to, with enormous Super-Sized portions of loathing and disrespect, is, alas – and this makes me feel really bad and I wish I did not have to say it – and you cannot fail to notice how I am dragging this out to keep from getting to the end and finding out who this mysterious scared witless weenie is – and if you could read my mind you would realize that I am desperately praying that a huge meteorite will crash through the roof and kill me before I have to finally say it, and it looks like that is not going to happen, c’mon c’mon c’mon, damn, so, okay, you probably figured it out already anyhow, me.

Yes, hear me, world!

Russ Vincent: Covering Up How, How Much, and Where

The Mogambo Guru discusses, among other things, an article by Russ Baker called “The Bush Data Dump.”

My name is Mogambo and I am a scared-witless weenie! I cry out in my pain! And I cry out for a federal subsidy to compensate me for my pain, which I will state for the record, and as many forms in duplicate as necessary, as being chronic, and acute, and sharp, and dull, and 24- hours-per-day, every day, and I suffer, suffer, suffer, and – ouch! – there it is again!

And the problem is, these frauds and cover-ups of government globules of weenieositude have not only managed to cover up “how” and “how much,” but also “where.” As it turns out, “where” is anywhere but in my pockets, or in the pockets of anyone I know, or even of anyone I know they know, and I assume that works itself out to mean that “where” is not in YOUR pockets, either.

“Depression is seen as a product of systematic tendencies for the distribution of wealth to become concentrated among a few,” wrote Ravi Batra back in the late 80s. If you have ever read Ravi Batra’s stuff, especially “The Great Depression of 1990,” you remember it. He makes a lot of interesting points and brings up a lot of interesting things, but I want to give you a quote from the foreword by Lester Thurow, then one of the brainy profs at MIT. He says that Batra believes that: “When this happens, demand eventually sags relative to supply and long cyclical downturns commence.” A little glib perhaps, but when a few people have lots of money and wealth and lots of people have neither, things tend to happen. Bad things. The kinds of bad things that happen when people do not have enough money to get along from day to day.

Batra posits that societies go through four stages. The last one, the one just before the big collapse, is “the acquisitive age,” and this is when the whole society is engaged in getting money and making money and spending money, and that single-minded acquiring of wealth is predominantly what matters to the society. Does that remind you of any society you know?

Russ Vincent: The End of the Acquisitor Stage

Anyway, without making a big to-do about the four groups and their cycles, I am going to just sum up what Batra says happens at the end of the acquisitor stage, which we are bringing to a close. “As wealth becomes concentrated, the living standard of the other three classes progressively declines, until there comes a time when society degenerates into two groups – the haves and the have-nots…The resultant crime, poverty and malaise eventually invite the revolt of the masses.”

Some other cheery things that will happen are not only increased crime, as we have already stated, but also more “drug and alcohol addiction, family breakdown, high rate of divorce, child abuse, increasing poverty for the poor and middle class, greater disparity in income and wealth, and massive economic hemorrhage brought about by enormous trade and budget deficits.” He also figures that prostitution and gambling would increase. And remember, he was writing this in 1987. It is only now that his profound prescience is, seemingly, being made monstrously manifest, which is a sentence with two, count ’em two, alliterations. Two for the price of one!

This concentration of wealth is why the tax code has been altered to give the poorer people money, via the tax return; the poor have so little spending power, and there are so many more poor people. And as the rich are the only ones with any money that the government can borrow, that is who is loaning money to the government. And then the government taxes everybody to give the wealthy lenders their money back, plus the extra money to pay the interest. This is one big way how the wealth becomes more and more concentrated in the hands of the rich.

He also remarks that “the Fed can leash the money supply in the short run, but not in the long run. In other words, man can control his destiny at a point in time, but ultimately has to operate within certain bounds set by larger forces – forces which cannot be defied forever.” Which fits precisely with the observation that Greenspan produced the boom of the 90s, but now, although he has cut interest rates to lows that haven’t been seen for fifty years, nothing happened this time.

In fact, things are getting worse. And now interest rates have started climbing, even as the Fed cut rates for the 13th time in a row! All for nothing! The Fed can’t give away money for the first time in history…and expect it to work.


The Mogambo Guru,
for The Daily Reckoning
July 21, 2003

Mogambo Sez: It just keeps getting weirder and weirder.


“You can’t muddle through the end-of-the-world.”

“That may be so,” replied our houseguest for the weekend, “but we’re not there yet.”

Sitting on the veranda with your editor was old friend John Mauldin, who had stopped by on his way to Geneva.

“We may be headed in that direction, but we have a ways to go yet,” John continued.

Your editor thought he saw the end-of-the-world-as-we-have- known-it when consumers started running out of spending power back in 2001. Deeper in debt than ever before, losing their jobs, we figured they would cut back. But like purple mountains in the distance of U.S. 66, they were farther away than we thought.

Instead of slowing down, consumers sped up.

They refinanced their houses…and went even further into debt. While a million jobs were being cut, half the value of all outstanding mortgages was refinanced in the last 18 months.

This gave the poor lumps the wherewithal to spend money on autos and dishwashers…and new houses, the type of spending that is supposed to put an economy on the road to recovery AFTER a recession. What a freak; the recession, we mean. It had three hip pockets to hold its wallets, and no legs to stand on. And now that it’s over, what can we expect?

“More muddle through…” says John.

But the refinancing boom seems to have peaked. Long rates are rising, not falling – even after Greenspan’s latest cut. (“Suddenly, Greenspan is, Well, Mortal…” admits a Bloomberg headline.)

So far, Greenspan has muddled through, just like the economy. A man can muddle through his whole life. But there comes a time when even the most gifted lie in a hushed room…and then the muddling is over. They take a trip to the graveyard and don’t come back, muddled or otherwise.

You can’t muddle through dying. It’s conclusive. Nor is the world going to muddle through the collapse of the Dollar Standard System. It will muddle through right up to the end…but then it stops muddling.

Like a parent with a station wagon full of fidgeting children, on his way to the mountains, “We’re not there yet,” repeated John.

But we’re on the road.

And now over to Eric Fry, who would probably like to be on the road, instead of stuck in Manhattan in the summertime:


Mr. Fry on the Street…

– What’s wrong with Mr. Market? He’s been catatonic for weeks. Gone is the vim and vigor he displayed in the late spring. What has become of his youthful energy and can-do attitude? Last week, Mr. Market muddled through five trading sessions that lifted the Dow a scant 68 points higher to 9,188. The Nasdaq slipped 1.5% to 1,708.

– Meanwhile, Treasury bonds crumbled. For the week, the 10- year Treasury note’s yield jumped to 3.97%, up sharply from 3.63% the previous Friday. The 30-year T-bond closed at 4.91%, up from 4.68% the week before.

– “It’s worth noting,” says Barron’s, “that since the 10- year yield bottomed at 3.08% on June 13, the stock market has gone almost nowhere.” Gee, maybe rising interest rates aren’t a helpful economic influence.

– Where did Greenspan go wrong? Wasn’t he supposed to be LOWERING rates…? Why, then, are long-term rates souring? Is it because the Chairman has ‘successfully’ rekindled inflation.

– Quit while you’re ahead, the Taipei Times counsels Chairman Greenspan. “As it is, Greenspan’s reign as chairman of the Fed will be remembered for the asset bubbles that occurred during his watch. His departure as monetary helmsman for the world’s largest economy should be sooner rather than later so that the burden of blame for a pair of other bubbles falls on his successor.”

– Greenspan’s opus was, of course, the stock market bubble, epitomized by the sensational dot-com über-bubble. But the mindless, panic-buying of Internet stocks is now a distant memory. Just because the stock market bubble burst three years ago, however, doesn’t mean that Greenspan has retired from bubble-blowing. No way!

– “Now loose monetary policy and the artificially-low interest rates it brought have helped generate a double bubble in the housing and bond markets,” the Taipei Times continues. “If either of these doppelgangers blows up, the U.S. economy could be blown out of the water. That would certainly be a hit below the water line for the global economy…Then the true legacy of the Greenspan years will come to haunt. Better that he quits now before his legacy is completely tainted.”

– Clearly, the bond market and the housing market are joined at the hip. A bursting bond bubble would certainly send shock waves through the housing market. Even if the housing market is not exactly a bubble, it is vulnerable, nonetheless, to rising rates. Home sales have been booming for years, and 2003 is on track to be a new record. But buying a home is getting harder all the time, even when rates are falling. Imagine what would happen if rates rose.

– “As interest rates have come down,” Bridgewater Associates observes, “old and new homeowners have refinanced their mortgages, typically taking more than they owed and spending about half of it. In addition to using the mortgage borrowing to finance their current consumption, they tilted toward adjustable rate mortgages because these rates are lower [while also] raising their vulnerability to rising rates…It wouldn’t take much of a rise in interest rates or fall in real incomes to cause major mortgage default problems.”

– The ratio of the market value of real estate to disposable personal income is at an all-time high. “At 1.73, the ratio exceeds the previous high of 1.6 in 1989,” Bloomberg notes, “the end of the long housing boom in the 1980s that put a lot of savings and loans out of business…In the past two years, mortgage debt has been rising at two to three times the rate of personal income. Mortgage borrowing rose $723 billion (annualized) in the first quarter of 2003, according to the Fed’s Flow of Funds report. That compares with an increase of $667 billion in 2002 and $375 billion in the boom year of 1999. “

– Making timely repayment on a growing pile of debt has been little problem for consumers, as long as rates are low…But the math changes when the rates rise.


Bill Bonner, back in Paris…

*** “Without the normal lift from consumer durables and housing (which already float, bubble-like, above the ground), the only other possible source for a real recovery is capital spending by business,” explains Stephen Roach.

The corporate sector is poised for recovery, says Alan Greenspan. But why would businesses invest in new capacity…in America? “Domestic capital spending remains limited to replacement,” Roach continues, “and capacity expansion is increasingly focused on China.”

*** The recession is officially behind us, but the headlines still appear like road signs, warning of hairpin curves and steep slopes.

“Area jobless rate up,” comes the news from Houston.

“Denver foreclosures skyrocketing,” is the news from the Rockies.

*** Meanwhile, a glimpse into the future…or at least into Zimbabwe. Our South African reporter tells us that inflation was recently clocked at a 365% pace. It “could be 750% by Christmas,” said a local analyst.

Half the population of that sad place lacks the money to buy food. Worse, the government has been driving off white farmers in order to give the stolen land to its crony friends.

Yes, it is democracy and paper currency in the hands of impatient people. In North America, things like this take longer.

Still, we look ahead at those majestic peaks looming ahead of us – Mt. Insolvency, Old Slumpback, and Mt. Desperation, of the End-of-the-World range. As our friend Mr. Mauldin cautions, we may have a ways to go yet before we reach them…but we can hardly wait to get over and see what’s on the other side.

*** “We’re the luckiest guys in the universe,” said John with characteristic understatement, “I mean, to be alive now…watching all this…able to travel, and write…with such nice families [John has 7 children; your editor has 6…if populations are falling in the western democracies, it’s not our fault…]…and they pay us to do it.”

“Let’s go down to the wine cellar,” said your editor, “and see what we can find. The end of the world is coming. Let’s enjoy it.”

The Daily Reckoning