Friday, September 14, 2012

THe Failure of Everything (Financial)

What we witnessed yesterday was the capitulation of the establishment and the admission to the failure of Keynesianism in general and the Federal Reserve System/Fractional Reserve Banking in particular.

"Nothing" is working because "nothing" cannot work without increases in Oil supplies.

The Fed's governors are in full and public panic - and panicking won't do a bit of good. The last thing we need right now is further debasement of the currency and furthering coddling of the elite.

Which raises a good question: What should the Fed/Government do?

To which I would respond: What has the Fed/Government done in response to any issue in the past that did any good? There is this sense that "we" need to do "something". Anything. Perhaps, but I don't think so.

Just for the record, I am not completely on board with Ron Paul et al's cry for a return to the gold standard. HOWEVER -

In 1971 the U.S. came off the gold standard and ended the Bretton Woods Agreement - and the road to hell is paved with good intentions. Since the end of that system the American banking system has endeavored to expand the money supply and the use of credit to ensnare every American in a web/cell of debt and wage slavery to their debts. It got off to a slow start... but that was because of the Oil shocks of 1973 and 1979. Once the North Slope and North Sea got to meaningful production it was off to the races. Wall Street and the Banksters "securitized" everything. Do you know what "securitized" means? It means to lend money to someone against some asset the loss of which would motivate the borrower to work and pay back the loan. The "securitize" boyz were in the business of constantly loading the citizen(ry) (a moniker that would be replaced with "consumer") with debt - for larger houses, vacation homes, expensive cars, boats, yachts, private jets (notice: not for piano lessons for the kids)... and with the help of their brethren in the advertising industry there was no limit to what they could conjure into a "need" - well, with the exception of peace of mind.

Now the boyz working at getting people into debt were making an awful lot of money installing that debt and then trading the debt about - moving bites around a screen in a rigged market (not talking about the stock market which is fairly transparent - I am talking about the CDO/MBS/JUNK markets which were about as clear as pea soup and as foul as raw sewage) in the air-conditioned comfort of a palace fit for a Master of the Universe who, in reality, wasn't competent enough to sell copiers door to door and if called onto the carpet couldn't find his @$$ with both hands (equity geeks like me don't think much of bond guys... and why would we? Since 1981 or so, when 30 Year Treasury yields were 15% and mortgages were 21% these guys operated in a shooting-fish-in-a-barrel market. These arrogant  c@#& s%$ers pompously confused brains with the biggest bull market in bonds of all time and forever. Of course, we did, too, until 2000 rolled around).

But that was the system! The U.S. had decided through policy and through circumstance and phenomenon to move away from industry and towards financialization of the economy. And why not? We had the world's largest military to protect the supply lines of imported oil and to enforce U.S. $$ hegemony the world over. So we went into the business of selling our sovereign debt as well as the business of bringing every man, woman, child, and family dog into the orbit of debt slavery.

Look at these plush leather seats! For $1,500 a month lease you too can sit your fat assed/limp schmekel here. BTW!!! Your wife's boobs aren't big enough! And we will be happy to make her feel like sh#! about it. We will lend you the $10k for the breast augmentation and up your health premiums (for Prozak) to help her feel better about herself! But wait! There's more! If you act now we will cut her beak of a nose down to size for only $5k more! And soon as she is shaped perfectly we will help her find a divorce lawyer! Look, I worked in markets for over 20 years and I never saw anything but expensive cars and boob & nose jobs. Wall Street covers a lot of geography now - from Greenwich/Stamford down to Palm Beach/Boca Raton but the manifestations of that "place" were universal. Entitled, dismissive, and uncaring - but at least it was arrogant, self-absorbed, and mean spirited.

And it is this that the Federal Reserve wishes to preserve at ALL COSTS. Why? Forget the absurdity of it all. It is simply impossible to cure too much debt with more debt. America's federal, state, and local governments are simply going to have to get by with a lot less and The People need to live within their means and find joy in their lives outside of the plastic surgeon's office and the Bentley dealership - and not because I want this or I want that. Its just math.

So.... what should the Fed/government do? Beware the man with simple solutions to intractable problems - so let the Market do its thing (and I don't mean the stock market). The Market will force us all to do what is in our best interests. A government can legislate against Tsunamis: Does that stop the Tsunami? Our government encouraged a couple of generations to build their society in a Tsunami zone. Now the waves are coming in, and our government wants to build walls to fight the Tsunami. Leave the government out this, and the The People WILL figure it out.

Take Food Stamps

The government encouraged people through policy, or maybe they did it all on their own, to move from small towns and villages across the nation to the major industrial and financial centers over the coarse of the post WWII period to work in those centers. Now the "work" they moved there for is no longer there and these people are stranded. (And look, this is nobody's fault - sometimes that's just the way it is.) And stranded people need to be fed. That's where Food Stamps come in.

OK. So we are feeding these people. Now what? What kind of life is that? Stranded in some city doing nothing, accomplishing nothing, not even the pride that comes with providing for yourself and your family, while small town America languishes. In what universe does this make sense? Not a one. But that's not the point. The point is that we have built these urban infrastructures - so we gotta use them. Even if that means leaving stranded people to hang on by a thread until even that thread is cut and leaving them with nothing. These people could reoccupy small town America and re-localize the economy - they wouldn't need Food Stamps or Medicaid. They could very well provide for themselves without living under the Sword of Damocles (eventually, the government will default on its debts AND its social programs). But that's doesn't matter, or appeal, to TPTB. What matters is that these people vote.

Unfortunately, Oil votes, too.


tweell said...

The flight of people from Smalltown USA to Bigcity USA is because the jobs, amenities and resources are overwhelmingly in Bigcity. Even now, more folks percentage-wise are on federal support in the small towns versus those big cities you want folks to move away from.

There won't be any moving back to Smalltown until there's a very good reason - especially since women overwhelmingly prefer Bigcity. Oil will have to get much more expensive before labor starts replacing it in the corporate farms, and the family farms have been on the endangered list for decades now.

PioneerPreppy said...

Greg, I spewed my drink over the breast implant then divorce lawyer thing. I have never known a single woman who was married at the time she got augmented to still be married a year or so later. At least to the same man lol.

Things are going to progress the way you see em until the government dole infrastructure begins to crack.

Greg T. Jeffers said...

Small town USA was demolished by the Big Box stores and the USDA. This can be undone. Small towns died because of the migration out - and will live with migration in.

There are no "jobs" anywhere for most young people. What needs to happen, what WILL happen, is that a "job" will be redefined.

WTF is a "job", anyway? And WhoTF wants to punch a clock? People will have to hustle.

What makes people nuts for a "job" is health insurance. How did America get by before Medicare in 1964? Prior to that almost NO ONE had health insurance.

More on that in my next post.

PioneerPreppy said...

I can back you up there a bit Greg. I could seriously make more money freelancing and doing odd jobs than I make at my current clock punching job. What has kept me there was the insurance, it just costs so much to get on your own and even through my wife's employer it is expensive because they are a smaller outfit.

tweell said...

IIRC, health insurance got big in WWII, when Kaiser wanted to snag the best workers but was hampered by the wage controls imposed by the government. So they added health insurance and workers flocked to their door. Nowadays, as PioneerPreppy says, folks are working for those benefits more than for the wages. I've done that too - my wage negotiations have more often been about health insurance than the salary.

I see a lot of pain and suffering before Smalltown USA returns, if it even can. Women will NOT want to live in Mayberry, if they can possibly help it. No nail shops, hair salons, beauty parlors, shopping malls? It takes a high quality woman to live the rural life.

Financial Directory said...

Nobody ever talks about the roll of inflation in creating inequality in society. Not only is this tread bad for capitalism. But it can create a state of dependency. Whenever wages fail to keep pace with prices consumers can do one of four things. Borrow more in order to compensate for the declining value of their wages adjusted for inflation. Cut back on spending. Work more hours by getting another job. Or depend more and more on friends family private charities or government for their basic needs. Non of options are particularly attractive. May I add one other thing to the commentary. Contrary to popular belief. The so called notion make people dependant on government and you will change their behavior for the worse. How about the reverse. Increase the wages of your employees by less than the increase in prices and you are almost guaranteed to make them more and more and more dependant on friends family private charities and the government for their basic needs over time.