Wednesday, January 04, 2006

Pundits Think 2006 Will Be OK Economic Year But This Is Insane


By Elaine Meinel Supkis

Wall Street thinks that the endless "cheap" (only because it is below the rate of inflation) loans will go on forever so we will keep this false boom going for some more time. I explain why this is very dangerous, indeed, fatal for America.

From the Washington Post
The consensus view, in case you've been on a beach reading Dan Silva spy novels these past two weeks and missed it, is that everything is going to be peachy-keen in 2006. Economic growth will slow only modestly from last year's unsustainable spurt; inflation will remain in check; the air will be let out gradually from the real-estate bubble; energy prices won't get any higher and probably will retreat a bit; the transition at the Fed will be seamless; the trade and budget deficits will shrink; the dollar may drift down, but only a bit; and stocks will post respectable gains.
He is correct, I see insanely rosy predictions abounding. But when he explains what is going on, he falls flat on his face because he cannot see the obvious dangers of having Japan be our banker giving us endless "loans".
But reduce it to its bare essentials, and the story of 2005 was that oil producers proved just as willing to lend us the money to buy oil that we otherwise could not afford as the Japanese and Chinese have been to lend us the money to buy cars, jeans and flat-screen TVs. The arrival of this newest credit card from the Middle East may have allowed us to live above our means for yet another year. But let's not fall into the trap of confusing that with long-term economic health.

While the signals coming from the economic pundocracy may be solid green, the ones coming recently from the marketplace are flashing yellow. A middling Christmas season for retailers. A bicoastal housing boom that has already begun to abate, with an initial 10 to 15 percent drop in prices from speculative highs. A stock market that couldn't sustain a year-end rally despite record profits. A bond-market yield curve that makes it no more expensive to borrow money at a fixed rate for 30 years as for one year.
Despite all the loans and they are historic and despite the entire planet, in order to keep the American Golden Goose fat and happy,lending us money and funding our buying binges, we are seeing warning signs. Of course, Mother Nature's warning signs are not flashing yellow, they are definitely flashing red now.

But not only that, all the signs concerning our economic health are flashing red except for property/stocks which always flash red only after total economic chaos settles in. Namely, they are always the last to show the danger which is why tracking them as guides for forecasting is stupid.

Our budget deficit is deep in the red zone. It doesn't have much further to go to read disaster zone levels, it is already there, I think. One person I know who has seen the Great Depression was telling me to not worry, the Congress will raise the debt limits so it doesn't matter.

Are we all insane now?

The yawning trade deficit is getting worse and worse. I see in this article, predictions of a weak dollar. Well, we can't "weaken" the dollar vis a vis the yen because our banker/owners, the Japanese, won't let us! Period! Note how this year, they engineered through their tools in America (say mushi mushi to our political leaders!) a headlong fight with rivals in China to get China to do what they won't do: let the dollar drop in value. Even when I begged the other left side economic bloggers to heed the yen and look at the politics of currency games, they gave me the collective cold shoulder.

And note now how all talk of the yuan has utterly disappeared now that even idiots have noticed the yen DROPPED in value this year, dropped to a historic post-Bretton Woods II low! While the trade deficit with America mushroomed.
The one likely bright spot in this scenario is the export sector, both manufacturing and service, which will benefit from a weaker dollar, continued robust growth in China, India, Eastern Europe and Latin America, and a revived Japanese economy.
This is just too insane. Why on earth would China and Japan allow the captive American dollar to grow weak? And you can bet, the day China decides to weaken the dollar, the Japanese won't be able to keep it afloat like they do now! Of course, this would start WWIII.

Here is Koizumi today: From the New York Times:
A tearful Japanese Prime Minister Junichiro Koizumi on Wednesday rejected criticism by China and South Korea of his visits to a Tokyo war shrine, but added he was committed to developing friendly ties with Beijing and Seoul.
Boo hoo hoo. Koizumi's crocodile tears are for his own right wing buddies. He is pretending to be hurt, hurt! That China and Korea are upset with him woshipping war criminals executed by the Americans! And he tells them his tears of pain and sorrow are their fault for demanding he stop!

Good holy grief!
`Just because there is this one problem (Yasukuni), China and South Korea should not close the door to talks or close the door to negotiations,'' Koizumi said. ``Japan is always ready to hold talks even if there are one or two differences.

``The door is open. After that, it's up to their decision.''

South Korean Foreign Minister Ban Ki-moon replied quickly.

``I believe it is unfortunate that South Korean-Japanese relations were soured last year over the issue of historic perception, Tokto, textbooks and Prime Minister Koizumi's shrine visit,'' he told a news conference in Seoul, referring to disputes about sovereignty over some tiny islets and Japanese history texts that critics say whitewash Japan's wartime past.

``This government hopes that the problems will be resolved as early as possible and we can return to normalized ties and cooperation in all areas,'' Ban added.
Note that weepy Koizumi didn't apologize nor promise to change! He wants to force Asia to bow to him and his gang. And America is the big stick he is carrying in his hand. We occupy South Korea and the Koreans are beginning to wonder if we are going to be a Japanese Co-Prosperity Sphere occupation army. They do a lot of business with us and have beaten the Japanese at their own import to America game and want it to continue. My car came from South Korea, for example. (All available American cars were gas guzzlers)

The Koreans watch Russia and China's evolving rapport with growing fear because they know the Japanese will skin them alive again if they cleave to the USA which is now a dog of the Japanese military/industrial machine. They are abused in Japan even today. There is a lot of pride in Korea and nationalism is on the rise there just as it is in China.

Back to America's addiction to unrealistic loans: From the Washington Post:
Federal Reserve policymakers differed last month on how much higher interest rates would need to rise to keep the economy and inflation on an even keel, but most believed the end of the nearly two-year rate-hike campaign probably wasn't far off.

Minutes of the Fed's closed-door meeting on Dec. 13, released yesterday, provided insight into the thinking of Fed policymakers. At that meeting, Fed officials made their most extensive recent changes in the wording of the central bank's policy statement, which economists and market analysts parse for clues about future rate moves.
These white men aren't stupid, just venal. They know Bush wants super low rates and they try to keep it going, the rate hikes weren't them controlling events to squelch inflation, it was all just to make the hemmoraging a little less. The red ink flows on all fronts but the housing market is now taking it on the chin thanks to rate hikes.

This will slay the economy which is entirely dependent upon wild house building and renovations. Just yesterday, I read that Bank of America (sic), after buying Mastercard, is now going to pay for all this by firing 8,000 well-paid white collar workers. The death of American jobs roars onwards. The American house as ATM machine is now drawing to a close and virtually none of the flood of money was used to upgrade houses to withstand storms or earthquakes or the Hubbert Oil Peak. Toys, vacations, gambling, pretty interiors, face lifts, we squandered it on the most useless ways, all to feel better, especially after 9/11.

Facti, one of our faithful readers, says this at her blog today:

Modern culture can pretty much be defined by the number and variety of diversions from reality it provides. Escapism. Denial. Are the fishermen of Akkarapettai finding a place at the flat earth table on account of their unspeakable losses? Would David Brooks or Thomas Friedman find a serendipitous angle to the story? Probably.

You note that the spokesman for the fishing village isn't talking interms of cowboy "freedom" and go-it-alone survival. He speaks of a co-operative venture. There is no other way they can hope to rise above the tragedy and try to find any peace at all within themselves. It can come only as a mutual effort and shared recovery.
She is refering to the rush to spend aid money on trivial goodies and getting drunk because the fishermen who received the money are very depressed and need to distract themselves, even if it means being destructive towards the future.

They are nihilists now.

Some try desperately to redirect energy into building for the future but end up butting their heads against the same wall that stymies me so much. I still remember the story before Christmas of the hurricane victims in one family. Their generator caught on fire and even though their house needed a lot of money to rebuild, the father had spent nearly all the FEMA money on Christmas toys for the family and they filled an entire trailer with them which they tried to tow away from the burning house they failed to rebuild and it caught on fire, too.

Insane. Humans can be really bizarre. Predictibly so.
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