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Sunday, May 01, 2011

And You Thought Your Life Was Hard

Spain. Unemployment (official) marched past 21% as of March, and CPI in April increased again to 3.8% (I think 3.5% EU-harmonized?). 1.38 million households in which every member is unemployed. Retail sales dropped YoY by over 8%. That was significantly worse than February's. Spanish officials are saying this is probably the trough, but it is very hard to be sure of that.

High inflation dropped German retail sales also - price-adjusted German retail sales were down 3.5% YoY, also significantly worse than February. Life in Germany is pretty good - their unemployment rate is way way down from normal post-unification AVERAGE rates, much less recession rates. But clearly they are feeling the price crunch. I list the two together because the German reaction places an upward bound on the Spain's growth from its summer season later this year; if Germans are cutting back on retail sales then they'll be less likely to go on vacation in Spain.

When I read Fed statements about too much slack in the economy for high inflation, I just mutter "Spain" under my breath and move on.

ECB raised in April to forestall inflation; it probably will have to raise again later this year. That seems unlikely to help Spain much.

Eurostat gov deficits. More to follow.

Also decent reading for what it doesn't say - Shiller on Making Financial Crises Predictable. (The most unfortunate title of all time.)

I still have to ask, why did we bail out the
Banking system instead of shoring up our
safety net ? bonuses for bankers and
austerity for the bottom 80 percent . With
Boomers putting off retirement, we have
just derailed a generation.
"why did we bail out the Banking system"

It wasn't "we" that made that decision, it was our bankster masters. Our congress is nearly full of ignorant and/or immoral tools, useful to the banksters, easily scared (and/or bribed) into doing whatever the banksters want. And that's exactly how it played out. (And this situation is because the american people consistently fail to vote for people of character who say they will do the right thing and then actually vote that way.)

One reason the banksters would want to be bailed out is obvious -- they needed to be bailed out.

"bonuses for bankers"

There's another reason. Banks going tits up don't continue paying their higher-ups millions in bonuses.

"instead of shoring up our safety net ... and austerity for the bottom 80 percent ... Boomers putting off retirement"

I am morally opposed to our slave^H^H^H^H^H safety net. However, the banksters are not, so that isn't why it didn't happen. Besides the obvious of giving the banksters the money instead, forcing people to work more than they otherwise would is seen as a benefit to the banksters. That is because only people doing real work (and/or taking real risk) produce wealth, and the more people there are producing wealth the more the banksters can syphon off. There are only a few ways the current situation can play out, and if you put aside the ones that result in the total collapse of the US dollar, you are left with the Fed being forced at some point to raise interest rates on long term debt to double digits, further enaslaving future generations. That will be when the banksters start to profit from austerity -- using their fractional reserve leverage to buy up all of that debt and collecting massive undeserved profits on the backs of the american middle class. Rather than any shoring up of social programs, this is likely to be accompanied by major forced cuts to social programs, for all the wrong reasons. (My opinion is that social programs should be phased out over time so eventually people can keep more of the wealth they produce. Instead, they will be slashed so the banksters can steal more of their wealth.)
BTW, here's how all of the congress critters voted on TARP (HR 1424):

senate: http://www.senate.gov/legislative/LIS/roll_call_lists/roll_call_vote_cfm.cfm?congress=110&session=2&vote=00213

house: http://clerk.house.gov/evs/2008/roll681.xml

If you're pissed about TARP, vote them out. (And inform others in your area about who exactly has betrayed them.)

My guess is that most of these traitors will be reelected. The american people don't pay attention to who is selling them and their very own children and grand-kids into slavery. They're too easily distracted with things like birther theories and gay marriage, and too easily fooled into believing empty promises about (non-)fixes to current economic problems.
Spork - the reason was that we had massive systemic financial risk in the system, and we didn't know how to deal with it any other way.

If we had just let the dominoes fall, we would have gotten a second Great Depression. I'm talking Dow maybe 2,000 - 2,500, about 18% unemployment, GDP contraction about 13-14%.

This is what happens when you let banks get too big to fail. We shouldn't have ever let it reach that point, but in the 90s we decided to abandon our own history, and here we are again.

So basically we spent our retirement on this.

It is even more inspiring to contemplate the fact that we ended up with even more agglomerated banks, so now the big banks really own our butts.

This ought to be an issue in the next presidential campaign (one of the reasons I'm glad Ron Paul is in), but TPTB don't want to discuss this. I think we can depend upon it that the GOP and the Dems with keep Ron Paul out of the presidential debates. Fortunately, they can't do it in the primaries.

I was thinking of sending Paul's campaign some money. I think some of his beliefs are not only wrong but ludicrously wrong, but I think he will at least bring up some topics that no one else will.

I do not look forward to my future as a banking serf.
We are now trying to rebuild an economy on
a rotting foundation. We threw good money affter
John Hussman has argued repeatedly and pretty convincingly (here, for example) that is was not necessary to bail out bank bondholders and shareholders, but only to protect customers/counterparties.

If it *was* necessary to bail these institutions out, then a negotiating team that was truly working in the interests of the American people would surely have been able to load the deal with provisions (a whole set of long-term options with varying strike prices, for example) which would have limited the downside for the country as a whole, at the expense of limiting the upside for the institutions that were bailed out.
David - from high speed rail to bank bailouts, it is clear that DC functions with a very elitist mindset.
PS: In the future, I believe we will have to let them fail. But I am not sure the system is capable of standing if a couple big ones go down, so....
"and we didn't know how to deal with it any other way"

There were no shortage of ideas on how to deal with it. The idea that got used, though, was the one that recapitalized banks with zero strings attached. Now, I wonder, who might have decided that was the best idea...?

"If we had just let the dominoes fall, we would have gotten a second Great Depression."

Yes, that is the scare tactic that was used on congress. No, I'm not buying it.

Please explain to me how *not* (at the very least) wiping out the share holders and bond holders of every bankrupt company helps prevent the second Great Depression. (And yes, there would have been some contagion effect, but that is only a good thing because it exposes all of those whose position was faulty.) And explain to me how not doing so doesn't increase moral hazard, thereby making our situation going forward even worse. Even if you go for the idea of the government lending funds to financial institutions in order to support continued lending to end users (which I don't, and doing so really hasn't worked out so well), that does not in any way require that all of the investors that screwed up should be made whole.

I believe you are also operating under a mistaken assumption -- that we *haven't* entered a second Great Depression. The first one did not take the form of a straight line to the bottom, and neither will this one. (Economically speaking anyways. Morally speaking I'm hoping we've already bottomed, because I don't know how much more I can take. OT: My money used to kill three of Gaddafi's grand-children yesterday -- really not good for morale. One more item in a very long list of US war crimes.)

If you want to know why I think we're going down, look at what the Federal Reserve has been doing, and then read this paragraph: http://en.wikipedia.org/wiki/Great_Depression#Austrian_School

And other than a world war, when has the news been worse? (E.g., Japan KO'd, Middle-East/Africa destabilized, European countries headed to default, US not looking too good either, concerns that China/Canada/Australia/etc are bubbles waiting to pop.) This is going to *really* hurt.

"It is even more inspiring to contemplate the fact that we ended up with even more agglomerated banks, so now the big banks really own our butts."

Hey, give a drunk money (with no strings attached), and he's going to buy booze. This was very predictable.

"We are now trying to rebuild an economy on a rotting foundation. We threw good money affter bad."


A lot of these institutions are *still* bankrupt, which is just being hidden by "mark-to-fantasy" accounting. And they continue to engage, unabated (even assisted) by government, in fraud.
I still have to ask, why did we bail out the
Banking system instead of shoring up our
safety net ?

The US federal government operates as a fractional reserve business. (In essence, most "safety net" business operate that way.) So the only question really is why you even have to ask?

The safety net has always been a mathematical illusion: it only works when a minimum number of people rely on it - if that number grows the safety net cannot be sustained. It is no coincidence that as the safety net increases in size, the domestic economy suffers. This is not an indictment of the existence of a safety net, it is an indictment on the GROWTH of such safety nets.

When you want more teachers per capita, more police per capita, more subsidized borrowing per capita, more subsidized medical care per capita, more wars (foreign and domestic), and so on and so on.... well, the economic bust we are living through is the result.
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