Wednesday, December 9, 2009

More lies about the economy

The inimitable Karl Denninger is making valuable points yet again.

First, he points out that the stock market 'recovery' is illusory. He notes that while the commentators are making upbeat comments, insiders (business executives, CEO's, traders, etc.) are selling shares, rather than buying them, at a ratio of 82 to 1! If insiders are selling at those sorts of volumes, what sort of 'recovery' are they seeing?

Second, he points out the unbelievable stupidity of President Obama's call to 'spend our way out of this recession', and notes that both the Republican and Democratic Parties are responsible for the mess we're in.

There is dumb and then there is dumber. Our President has crossed from one to the other, no doubt egged on by the failure of his policies thus far to take root:

WASHINGTON - President Barack Obama outlined new multibillion-dollar stimulus and jobs proposals Tuesday, saying the nation must continue to "spend our way out of this recession" until more Americans are back at work.

You can't spend your way out of a debt problem any more than you can drink yourself sober.

. . .

All we are doing at present is guaranteeing that the final toll of the pain that must be absorbed in our economy will be worse, in total, than is necessary now.

"We avoided the depression many feared," Obama said in a speech at the Brookings Institution, a Washington think tank. But, he added, "Our work is far from done."

No we did not. I will note that this sort of "pump by claim" is common, to wit:

May 1, 1930
“While the crash only took place six months ago, I am convinced we have now passed the worst and with continued unity of effort we shall rapidly recover. There is one certainty of the future of a people of the resources, intelligence and character of the people of the United States – that is, prosperity.” – President Hoover

June 29, 1930
“The worst is over without a doubt.” – James J. Davis, Secretary of Labor.

How did that work out, exactly?

. . .

BOTH Republican and Democrat administrations are directly responsible for profligate spending, insane leverage increases, predatory lending being considered "ok" and mandates that were utterly unsustainable - and outrageous.

NEITHER party had the gonads to stop Credit Default Swaps and other OTC derivatives, neither party put a stop to AIG's writing of contracts with zero capital, neither party wanted to pull the punchbowl and neither party has spent the people's money in a sustainable (that is, no more than you take in via taxes!) fashion.

Both parties have practiced federal accounting that would land any private business executive in prison, including refusing to recognize more than $60 trillion of future liabilities for Social Security and Medicare.

And both parties voted for a fraudulent "asset purchase" program that, it was later admitted to Congress, had its purpose changed before Congress passed it, yet Treasury never informed the Congress of this fact nor was anyone held to account for lying to Congress as to the true purpose and intended use of those funds.

There's more at the link. Bold print is Mr. Denninger's emphasis.

Don't think that the problems are restricted to the US alone. Europe - the entire industrialized world, in fact - is staring down the barrel of the same gun. As one British commentator said today about his own government's financial mismanagement:

The result of Alistair Darling's refusal to tackle the public spending behemoth is that there is a severe risk the credit ratings agencies, which determine how much the Government must pay for its borrowings, could strip Britain of its coveted 'triple A' rating.

If that happens, there could be a serious loss of confidence in Britain on the global financial markets.

This, in turn, would lead to the pound being pummelled, foreign banks becoming reluctant to lend to the Government and an already horrendous interest rate bill climbing even more sharply.

. . .

The chasm in the national finances is terrifying. Between now and the financial year 2013-14, the Government must raise £706 billion [about US $1.15 trillion] of new borrowing. This will mean the national debt (our accumulated net borrowing) rising to a terrifying 77.1 per cent of the economy's total wealth.

Because of Darling's gross dereliction of duty yesterday, the burden for sorting out Britain's fiscal mess has been craftily shifted onto the next government, whatever its political stripe.

Even worse, budget shortfalls on this scale - as we know from the legacy of World War II - require a generation of austerity before they can be sorted out.

Not only must this huge debt be paid back, but also the huge levels of interest payments it will accrue. This means Britain's actual cost of borrowing will rise from £30.7 billion [about US $50 billion] this year to £44.4 billion [about US $72.3 billion] in 2010-11 (election year).

To put these sums in context, such interest bills will be almost the same amount as the £49 billion [about US $79.8 billion] projected to be spent on schools in the same period.

Again, there's more at the link.

With blind, deaf and dumb (very dumb!) helmsmen guiding our financial course, who knows whether our economies will end up on the proverbial rocks? I think it's more likely than not - and I strongly advise my friends and readers to plan their financial affairs accordingly.


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