Change can be a bitch!

SUBHEAD: 2017 will be the year where most people's favorite worldview flies off the rails.

By Raul Ilargi Meijer on 13 January 2107 for The Automatic Earth -
(https://www.theautomaticearth.com/2017/01/2017-change-can-be-a-bitch/)


Image above: From Revelers bundle up while gathered at Times Square during a New Year's Eve celebration Saturday, Dec. 31, 2016, in New York. Photo by Julio Cortez. (https://www.abqjournal.com/918871/ringing-in-change.html).

2016 brought a lot of changes, or rather, brought them to light. In reality, the world has been changing for many years, but many prominent actors benefitted from the changes remaining hidden. Simply because their wealth and power and worldviews are better served that way.

It’s entirely unclear whether we will ever get a chance to see to what extent the efforts to hide developments have been successful, or even been perpetrated at all, because we don’t know to what extent truth and reality will be accessible in the future.

What we can say at this point in time is that the changes 2016 delivered were urgently needed. There are many people out there who just want to turn back the clock, and change everything back to how it was, but they can’t, and that’s a good thing, because the way things were was hurting too many people.

2016 will go down in history as the year when a big divide between groups of people in the western world became visible, a divide that had until then been papered over by real or imaginary wealth, as well as by ignorance and denial.

When politics and media conspire to paint for the public a picture of their choosing, they can be very successful, especially if that picture is what people very much wish to see, true or not.

But as we’ve seen recently, our traditional media have become completely useless when it comes to reporting news; the vast majority have switched to reporting their own opinions and pretending that is news.

On the one hand, there is a segment of society that either has noticed no changes, or is so desperate to hold on to what they have left, that they resist seeing them. On the other hand, there are those who feel left behind by that first group, and by the idea that the world that is still functioning and even doing well.

The first group has been captivated by, and believed in, the incessantly promoted message of recovery from an economic, financial and gradually also political crisis. The second see in their lives and that of their friends and neighbors that this recovery is an illusion.

It’s like the old saying goes: you can’t fool all of the people all of the time. And that’s why you have Brexit and Trump and why you’re going to have much more of that, certainly across Europe. Things are not going well, and there is no recovery, for a large enough percentage of people that their votes and voices now swing the debates and elections.

It’s not even complicated. This week there was a report from Elevate’s Center for the New Middle Class that concluded that half of Americans, 160 million people, can’t afford to have a broken arm treated (at $1,400).

And sure, you can say that perhaps that number is a bit too high, but there have been many such reports, that for instance say the majority of Americans have less than $1000 in savings, and can’t even afford a car repair.

In Britain numbers are not much different. Over the past decade, the country has been very busy creating an entire new underclass. If your economy is not doing well, and your answer to that is budget cuts and austerity, it’s inevitable that this happens, that you create some kind of two-tier or three-tier society. And then come election time, you run the risk of losing.

Both Britain and the US boast low unemployment numbers, but as soon as you lift the veil, what you see is low participation rates, low wages and huge numbers of part-time jobs stripped of all the benefits a job used to guarantee. It allows those who still sit pretty to continue doing that, but it’ll come right back to haunt you if you don’t turn it around, and fast enough.

For many people, Obama, Merkel, Cameron and the EU cabal have been disasters. For too many, as we now know. That doesn’t mean that Trump will fix the economic problems, but that’s not the issue.

People have voted for anything but more of the same. Which in Britain they’re not even getting either, so expect more mayhem there.

In most places, some variety of right wing alternative is the only option available that is far enough removed from ‘more of the same’. Moreover, many if not most incumbent parties are in a deep identity crisis. Trump did away with the Republicans AND the Democrats, and they had better understand why that is, or they’ll be wholly irrelevant soon.

In Britain, the most important votes in many decades was lost by the Tories, who subsequently performed a musical chairs act and stayed in power. You lost! Losers are not supposed to stay in power! But the other guys are all too busy infighting to notice.

That identity crisis, by the way, is not a new thing. If you look across the western political spectrum, there are all these left wing and right wing parties happily working together, either in coalition governments or through other ‘productive’ forms of cooperation.

So who are people going to vote for when they’re unhappy with what they’ve got? Where is that ‘change’ that they want? Not on the traditional left or right.

So you get Podemos and M5S and Trump and UKIP and Le Pen. It’s not their fault, or the voters’ fault, it’s the political establishment that has tricked itself into believing in the same illusion it’s been promoting to voters.

And yes, they have now proven that it’s possible to stave off, for a number of years, a deeper crisis, depression, by borrowing and printing ‘money’. Especially if you can at the same time hit the poorest in your society with impunity.

But in the end no amount of fake or false news on the economic front will allow you to continue the facade for too long, because people know when they can’t afford things anymore. The evidence here is somewhat more direct than with regards to political fake news, though they may well both follow the same pattern of ‘discovery’.

Our societies are still run as if there is no real crisis, as if it’s all just a temporary glitch, as if the incumbent models function just fine, and as if recovery is just around the corner. And we can make it look as if that is true, but only for an ever smaller amount of time, and for an ever smaller amount of people.

The basic issue here is not a political one. It’s economic. Our economic systems have failed, and they can’t be repaired. We should always have realized that no growth is forever, but at least we now know. Or could know, it’ll take a while to sink in.

Next up is a redo and revamp of those economic systems, but that is not going to be easy, and may not get done at all. The resistance may be too strong, warfare -economic or physical- may seem like a way out, there are many unknowns.

We could, ironically, get quite far in that redo if we simply cut all the waste for our economic processes, but then again, that would have us find out that much of the system runs entirely on wasting stuff, and wasting less kills the system.

However that may be, and however it may turn out, this is where we find ourselves. Protesting Trump and Brexit is inevitable, but it doesn’t address any core issues. From a purely economic point of view, Obama failed spectacularly, as did David Cameron, as does Angela Merkel. And as do, we will find out in 2017, many other incumbent ‘leaders’.

Their successors, whatever political colors they may come from, will all come to power promising, and subsequently attempting, to restart growth. Which is no longer feasible across an entire country, or even if it were, it would mean squeezing other countries. With corresponding risks.

Trump and Brexit are necessary, perhaps even long overdue, in order to break the illusion that things could go on as they were. But they are not solutions. America needs a big wake-up. Trump looks likely to deliver one. That is needed for the rest of the country to wake from its slumber.

Ask yourself: are you going to get weaker from dealing with a Trump presidency? Maybe not the best question, or at least not before having asked: do you know how weak you are right now?

For Britain to leave the EU is a great first step. As I’ve said many times, centralization is not an option without growth. And Brussels has shown us quite a few of the worst consequences of centralization. Nobody should want to be a part of that.

Summarized: for most people, 2017 will be the year of the inability to understand where their favorite worldview flew off the rails. Change can be a bitch. But change is needed to keep life alive.

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Dream of the planet in recovery

SUBHEAD: We can live and die such that we make possible a time after where life on Earth flourishes.

By Derrick Jensen 6 April 2016 for Yes Magazine  -
(http://www.yesmagazine.org/issues/life-after-oil/when-i-dream-of-the-planet-in-recovery-20160406)


Image above: Buffalo on the plains. Photo from U.S. Department of the Interior. From original article.

For decades, poet-philosopher and radical environmentalist Derrick Jensen has warned us about the problems of civilization. Yet he’s a tireless activist with hope for the planet’s future.

In the time after, the buffalo come home. At first only a few, shaking snow off their shoulders as they pass from mountain to plain. Big bulls sweep away snowpack to the soft grass beneath; big cows attend to and protect their young. The young themselves delight, like the young everywhere, in the newness of everything they see, smell, taste, touch, and feel.

Wolves follow the buffalo, as do mallards, gadwalls, blue-winged teal, northern shovelers, northern pintails, redheads, canvasbacks, and tundra swans. Prairie dogs come home, bringing with them the rain, and bringing with them ferrets, foxes, hawks, eagles, snakes, and badgers. With all of these come meadowlarks and red-winged blackbirds. With all of these come the tall and short grasses. With these come the prairies.

In the time after, the salmon come home, swimming over broken dams to forests that have never forgotten the feeling of millions of fish turning their rivers black and roiling, filling the rivers so full that sunlight does not reach the bottom of even shallow streams.

In the time after, the forests remember a feeling they’ve never forgotten, of embracing these fish that are as much a part of these forests as are cedars and spruce and bobcats and bears.

In the time after, the beavers come home, bringing with them caddisflies and dragonflies, bringing with them ponds and pools and wetlands, bringing home frogs, newts, and fish. Beavers build and build, and restore and restore, working hard to unmake the damage that was done, and to remake forests and rivers and streams and marshes into what they once were, into what they need to be, into what they will be again.

In the time after, plants save the world.

In the time after, the oceans are filled with fish, with forests of kelp and communities of coral. In the time after, the air is full with the steamy breath of whales, and the shores are laden with the hard shells and patient, ageless eyes of sea turtles. Seals haul out on sea ice, and polar bears hunt them.

In the time after, buffalo bring back prairies by being buffalo, and prairies bring back buffalo by being prairies. Salmon bring back forests by being salmon, and forests bring back salmon by being forests.

Cell by cell, leaf by leaf, limb by limb, prairie and forest and marsh and ocean by prairie and forest and marsh and ocean; they bring the carbon home, burying it in the ground, holding it in their bodies. They do what they have done before and what they will do again.

The time after is a time of magic. Not the magic of parlor tricks, not the magic of smoke and mirrors, distractions that point one’s attention away from the real action. No, this magic is the real action. This magic is the embodied intelligence of the world and its members.

This magic is the rough skin of sharks without which they would not swim so fast, so powerfully. This magic is the long tongues of butterflies and the flowers that welcome them. This magic is the brilliance of fruits and berries that grow to be eaten by those that then distribute their seeds along with the nutrients necessary for new growth.

This magic is the work of fungi that join trees and mammals and bacteria to create a forest. This magic is the billions of beings in a handful of soil. This magic is the billions of beings that live inside you, that make it possible for you to live.

In the time before, the world was resilient, beautiful, and strong. It happened through the magic of blood flowing through capillaries, and the magic of tiny seeds turning into giant redwoods, and the magic of long relationships between rivers and mountains, and the magic of complex dances between all members of natural communities. It took life and death, and the gifts of the dead, forfeited to the living, to make the world strong.

In the time after, this is understood.

In the time after, there is sorrow for those who did not make it: passenger pigeons, great auks, dodos, striped rocksnails, Charles Island tortoises, Steller’s sea cows, Darling Downs hopping mice, Guam flying foxes, Saudi gazelle, sea mink, Caspian tigers, quaggas, laughing owls, St. Helena olives, Cape Verde giant skinks, silver trout, Galapagos amaranths.

But in those humans and nonhumans who survive, there is another feeling, emerging from below and beyond and around and through this sorrow. In the time after, those still alive begin to feel something almost none have felt before, something that everything felt long, long ago.

What those who come in the time after feel is a sense of realistic optimism, a sense that things will turn out all right, a sense that life, which so desperately wants to continue, will endure, will thrive.

We, living now, in the time before, have choices. We can remember what it is to be animals on this planet and remember and understand what it is to live and die such that our lives and deaths help make the world stronger.

We can live and die such that we make possible a time after where life flourishes, where buffalo can come home, and the same for salmon and prairie dogs and prairies and forests and carbon and rivers and mountains.


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Beavers in England

SUBHEAD: Wild beavers have been seen in England countryside for first time in centuries spotted in the Devon River.

By Jessica Aldred on 27 February 2014 for The Guardian-
(http://www.theguardian.com/environment/2014/feb/27/wild-beavers-england-devon-river)


Image above: Adult beaver with juvenile in the wild. From (http://jeremykun.com/tag/busy-beaver/).

A family of wild beavers has been seen in the England countryside in what is believed to be the first sighting of its kind in up to 500 years.

Three European beavers (Castor fiber), believed to be adults, have been filmed together on the River Otter in east Devon and can be seen gnawing at the base of trees, grooming themselves and playing together.

Experts said the sighting was "highly significant" as it strongly suggested a small breeding population of beavers now existed outside captivity.

European beavers were once widespread in the UK but were hunted to extinction by the 16th century in England and Wales for their fur, medicinal value and meat.

There have been successful reintroduction schemes in other parts of the UK. In 2009, three beaver families were released into forest lochs near the Sound of Jura in Argyll, while plans to release the species into the wild in Wales have also moved a step closer. The sighting in Devon would be the first time in centuries that European beavers have bred in the wild in England.

The footage was captured by local retired environmental scientist Tom Buckley, who noticed some trees had been felled in the area in late last year. Together with landowner David Lawrence, he installed three motion sensor cameras along a 400-500m stretch of the river. A lone beaver was spotted on the farm in January and last July a woman claimed she saw a beaver on the river.

"We'd seen bits of trees chewed and cut down and I was starting to think that it was a sign of beavers even though I couldn't believe it," Buckley said.

Beaver expert Derek Gow confirmed that one of the animals filmed by Buckley was a juvenile and the family may have been in the wild for years. Buckley does not know where they have come from or exactly where their home is.

"When I first saw that first beaver it was such a shock. When I saw three it was slightly different – we knew there was one around and we were tracking its activities. When we watched film and all of a sudden another appeared, and then another – I would not just say that was amazing – one was speechless realising what was happening. We had no idea there was more than one, and they are all quite large and active as well."

Devon Wildlife Trust has been running its own Beaver Project since 2011, when an adult male and female were introduced to a securely fenced compound in the north-west of the county.

But the beavers remain in their compound and are not the source of the population now seen on the River Otter.

Steve Hussey from the Devon Wildlife Trust said he supported the reintroduction of beavers to England but that it had to be "properly planned".

"In principle, we would like to see the European beaver reintroduced to England but recognise that a great deal of work needs to be done before this can happen."

He said the beavers should be left alone and observed using a rigorous monitoring programme.

"This group of beavers provides us with a unique opportunity to learn lessons about their behaviour and their impact on the local landscape … [the group] could contribute to this process if they are subjected to thorough scientific study.

Beavers are a "keystone species", meaning they provide more important ecosystem services than their numbers alone would suggest.

Known as "ecological engineers", their dams, burrows and ditches and the branches they drag into the water create habitats for a host of other species. Their dams slow rivers down, reducing scouring and erosion, and improving water quality by holding back silt.

During the recent wet weather and flooding crisis, naturalists called for the reintroduction of beavers to control floods.

Otter tracks and spraint was found alongside the beaver prints, indicating they may have been interacting with wild otters too.

Hussey added: "There's evidence that otters, beavers are coming together here face to face perhaps for the first time in two or 300 years."

The Department for Environment, Food and Rural Affairs (Defra) is investigating the sighting as it is against the law to release beavers in England. A spokeswoman said the department would "look into this case and will consider what action to take".

She said she could not comment on whether the beavers could be removed from the site or destroyed.

Buckley said: "This beaver family has been around for at least a couple of years and no one seems to have noticed them. They haven't caused any trouble for anybody and it's only because they've been caught on camera that people know they are here.

To think about destroying them is totally out of order. This is an insight into what the potential impact is if they are already in a place and at the moment that impact would seem to be zero."

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This is an Extraordinary Time

SUBHEAD: We have two economies - the simulacrum one of stocks soaring, and the real one of earnings and hours-worked plummeting.

By Charles Hugh Smith on 22 June 2013 for Of Two Minds -
(http://charleshughsmith.blogspot.co.uk/2013/06/this-is-extraordinary-time.html)


Image above: Illustration of for article on Casino Banking in The Freeman. From (http://www.lovingtruthbooks.com/Res.aspx?xr=t&Sku=2859).

It's as if we have two economies - the simulacrum one of stocks soaring and the real one of earnings and hours worked plummeting.

It is difficult to justify the feeling that we are living in an extraordinary moment in time, for the fundamental reason that it's impossible to accurately assess the present in a historical context.

Extraordinary moments are most easily marked by dramatic events such as declarations of war or election results; lacking such a visible demarcation, what sets this month of 2013 apart from any other month since the Lehman Brothers' collapse in 2008?

It seems to me that the ordinariness of June 2013 is masking its true nature as a turning point. Humans soon habituate to whatever conditions they inhabit, and this adaptive trait robs us of the ability to discern just how extraordinary the situation has become.

In my 59-year lifetime, the dramatic, this-is-history-happening moments are obvious: the Kennedy assassination, 9/11, and so on. Other tidal changes developed over a period of months or years: Watergate, which ballooned from a minor break-in to a constitutional crisis, is a good example. So is the financial meltdown of 2008, which actually began back in 2001 when the Federal Reserve chose a policy of super-low interest rates and super-abundant liquidity to lessen the post-dot-com recession.

I have an unavoidable sense that May-June 2013 is the high water mark of the political/financial response to the global financial meltdown of 2008. Nothing systemic has changed in the five years; the status quo financial and political systems have made cosmetic reforms, but the power structures have not changed at all.

The status quo has simply ramped up its traditional policies: since lowering interest rates didn't spark a strong recovery, then lower rates to zero, and so on: more money creation, more credit creation, more bond purchases, more subsidies for housing, more transfers of private debt to the public ledger--more of what has failed spectacularly.

That's what marks June 2013 as extraordinary: the Powers That Be have gone all-in. If their policies fail to ignite a self-sustaining recovery in the real economy, there are no policy options left.

Those who don't follow finance might not have noticed the extraordinary nature of recent financial events: Japan's stock market rose by 75% since December before reversing sharply, the U.S. S&P 500 climbed 24% in 2013, gold crashed by over $200 in a matter of hours, and the Japanese yen has lost a quarter of its value (in U.S. dollars) in a matter of months.

None of this makes sense in terms of the real economy: U.S. corporations didn't suddenly become 25% more profitable; Japan's economy did not expand by 75% in five months, and none of the fundamentals in the value of gold suddenly changed overnight.

These rapid, gargantuan fluctuations are disconnected from the real economy. This in itself is extraordinary. The financial press explains these bubble-like advances and collapses in terms that only make sense to financiers: the yen-dollar pair, the yen carry trade, etc.

That complex, abstract financier policies and trading strategies now dominate stocks, bonds and precious metals is also extraordinary.

I have endeavored to understand the fundamentals behind these wild fluctuations proposed by the media, and have concluded none of it makes any sense in conventional economic terms. To mention just one example: gold has traditionally been viewed as a hedge against inflation. Gold's collapse is being attributed to lower expectations of inflation. OK, so there's no inflation, ergo, the global economy is in slow-growth/no-growth mode, hence no inflation. Then what is powering global stocks higher? We're told "an improving global economy" is the driving force, but the data on this supposed recovery is mixed at best.

Some observers claim gold dropped because the yen dropped and the U.S. dollar strengthened, but a glance at the 10-year chart of gold and the dollar quickly disproves any correlation: gold rose when the dollar dropped and when it rose.

This is another extraordinary thing about the present: none of these moves make any sense. Pundits and analysts are seeking explanations after the fact, postulating correlations as causes with little historical backing. It's as if the financial media is incapable of confessing none of this makes sense, and instead the media piles one complex explanation on top of another to justify what is clearly an extraordinary disconnect between the real economy and asset valuations.

Bottom line: even if the global economy is improving (and there is ample evidence that data is being juiced or manipulated), it isn't improving enough to justify stocks rising by 25% to 75% in a matter of months.

Real estate is also back in bubble territory, in those markets with plentiful capital and limited inventory: we're back to bidding wars and dozens of people competing for the right to buy an ordinary home.

The bond prices of fatally insolvent European governments have fallen, as if these economies have suddenly been restored to health and fast growth by European Central Bank (ECB) intervention. European stock markets are roaring higher as well. Neither makes any sense in terms of traditional risk-pricing, price-earnings ratios and so on.

We are living in an extraordinary global financial experiment, in which financier tricks (zero interest rates and massive injections of credit and liquidity) have been pushed to their red-line limit in the hopes that these extraordinary measures will finally, after five long years, trigger a self-sustaining expansion of the real economy.

Those in charge of the experiment are constantly reassuring us it has already succeeded. I think the data shows the experiment is in the final blow-off stage in which the beaker full of toxic ingredients is bubbling with dangerous vigor.

There is one last extraordinary feature of this time: the data "proving" the experiment is successful is self-referential: drop interest rates to zero and subsidize housing, and voila, you get a surge in building permits. Take one full-time job and turn it into 1.5 part-time jobs, and voila, the unemployment rate declines and the number of jobs increases.

Then take these metrics (higher permits and jobs), weigh them heavily in your measure of leading indicators, and then declare the leading indicators "prove" the recovery is self-sustaining.

All this leads to a question: what would happen to the economy if all the financier tricks were stopped, and the price of risk, credit, assets, etc. were discovered by the marketplace?

It's as if we have two economies: the simulacrum one of stocks rising 75% in a few months, and the real one of household earnings (down) and hours worked (down). Eventually these two economies will have to merge into one. I sense 2013 will be the critical year when the schizophrenia is resolved one way or the other.

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Financialization, Debtocracy, Diminishing ReturnsSUBHEAD: Every asset (housing, bonds and stocks) that depends on cheap  abundant credit is doomed.

By Charles Hugh Smith on 20 June 2013 for Of Two Minds - 
(http://charleshughsmith.blogspot.co.uk/2013/06/every-asset-that-depends-on-cheap.html)

About a month ago I asked What If Stocks, Bonds and Housing All Go Down Together? (May 24, 2013). Why would such an outrageous thought even occur to me?

Four words: financialization, debtocracy, diminishing returns. The entire global economy, developed and developing nations alike, is now dependent on cheap, abundant credit for everything: for "growth," for asset inflation, and ultimately for central state deficit spending, which props up all the cartels, rentier arrangements, fiefdoms and armies of toadies, lackeys, apparatchiks and embezzlers that suck off the Status Quo.

I have long endeavored to explain the harsh reality of neofeudal, neocolonial financialization: Neofeudalism and the Neocolonial-Financialization Model (May 24, 2012) and the neofeudal debtocracy that depends on low yields (interest rates) to enable enormous deficit spending: Why Krugman and the Keynesians Are Lackeys for the Neofeudal Debtocracy (April 24, 2013).

The wheels fall off the entire financialized debtocracy wagon once yields rise.There's nothing mysterious about this:

1. As interest rates/yields rise, all the existing bonds paying next to nothing plummet in market value

2. As mortgage rates rise, there's nobody left who can afford Housing Bubble 2.0 prices, so home prices fall off a cliff

3. Once you can get 5+% yield on cash again, few people are willing to risk capital in the equities markets in the hopes that they can earn more than 5% yield before the next crash wipes out 40% of their equity

4. As asset classes decline, lenders are wary of loaning money against these assets; if the collateral for the loan (real estate, bonds, stocks, etc.) are in a waterfall decline, no sane lender will risk capital on a bet that the collateral will be sufficient to cover losses should the borrower default.

Let's take a look at four charts about housing and household net worth. For the middle class, the home remains the key asset, so housing and household net worth are correlated.

Since 1970 mortgage rates  rates were pushed to 17+% to snuff inflation in the early 1980s, and they've dropped over the past 30 years to historic lows: the rate for a fixed-rate 30-year conventional mortgage was about 3.5% a few weeks ago. It has now risen above 4%.

In the golden age of growth from 1991 to 2002, mortgages rates bounced between about 7% and 9%. The band from 1970 to 1979 was about 7.5% to 10%.

In other words, in eras of strong growth and low inflation, mortgage rates have been around 7% to 9%. So what happens to the monthly payments when the mortgage rate doubles from 4% to 8%? The monthly payments rise by about 54%. And what happens to the price of houses when rates double? They fall to the point that households borrowing money at 7.5% - 8% can afford to buy a house, i.e. a price much lower than today's Housing Bubble 2.0 prices.

If mortgage debt had expanded at the previous rate, total debt would be closer to $5 trillion instead of $10 trillion.

When debt becomes cheap and abundant: debt rises faster than wages or assets.

But hasn't household wealth increased mightily in the past decades? Here is a chart that plots the relationship of household net worth and total credit owed, i.e. debt:

Household wealth may be rising, but what this chart reveals is debt is rising even faster--that's why the line is declining. Put another way, every dollar of new debt is generating less and less wealth.

You might think that The Federal Reserve's policy of making credit cheap and abundant would goose people to consume and invest more money. Alas, the velocity of money is hitting historic lows: the Fed may be creating credit but people and enterprises aren't putting that money into circulation.

It's called diminishing returns: every dollar of debt creates interest payments, but it's no longer doing households or enterprises any good. The Fatal Disease of the Status Quo: Diminishing Returns (May 1, 2013).

That's why all asset classes that depend on cheap, abundant credit are doomed: once yields/rates rise, the valuations of those assets implode. And once valuations implode, there's not enough collateral left to support the loans used buy all those cheap-credit-inflated assets. So the financial system also implodes.

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Real Estate Reality

SUBHEAD: Is the Bottom In, or is the current "recovery" just a Head-Fake?

By Charles Hugh Smith on 10 December 2012 for Of Two Minds -
(http://www.oftwominds.com/blogdec12/RE-headfake12-12.html)


Image above: Reality? No... A view of part of  Paramount Studios huge backlot New York stage set. "Seinfeld" was filmed here. From (http://texifornianperspective.tumblr.com/post/25281263782/new-york-in-la-paramount-studios).

Everyone interested in real estate is asking the same question:

Is the bottom in, or is this just another “green shoots” recovery that will soon wilt?

Let’s start by reviewing the fundamental forces currently affecting real estate valuations.

Expanding the pool of potential buyers has reached the upper limit.

There are two ways to expand the pool of qualified home buyers, and they both rely on expanding leverage:  A) lower the down payment from 20% cash to 3%, and B) lower the mortgage rate to 3.5%.

Lowering the down payment increases the leverage from 4-to-1 to 33-to-1, a massive leap.

Increasing leverage increases risk. Over 90% of all mortgages are guaranteed or backed by Federal agencies such as FHA. This “socialization” of the mortgage industry means that losses ultimately flow through to the taxpayers, who are subsidizing the housing industry via these agencies.

Lowering the mortgage rate increases the leverage of income.  It now takes much less income to qualify for greatly reduced monthly payments.

With mortgage rates barely above the prime rate and Treasury bond yields negative in terms of inflation, there is simply no room left for lower rates or down payments.  The “increase home sales by expanding the pool of buyers” game plan has been run to the absolute limit.

The pool of buyers cannot be expanded any further; that boost to sales is done.

The unintended consequence of enticing marginal buyers to buy homes is that defaults are rising: 1 out of 6 FHA-insured loans are delinquent. This is the “blowback” of qualifying everyone with an income above the poverty line as a homebuyer.

The mortgage industry has escaped any consequences of “robo-signing” mortgage fraud.

Everyone interested in real estate is asking the same question: Is the bottom in, or is this just another “green shoots” recovery that will soon wilt?

Let’s start by reviewing the fundamental forces currently affecting real estate valuations.
Expanding the pool of potential buyers has reached the upper limit

There are two ways to expand the pool of qualified home buyers, and they both rely on expanding leverage: A) lower the down payment from 20% cash to 3%, and B) lower the mortgage rate to 3.5%.

Lowering the down payment increases the leverage from 4-to-1 to 33-to-1, a massive leap.

Increasing leverage increases risk. Over 90% of all mortgages are guaranteed or backed by Federal agencies such as FHA. This “socialization” of the mortgage industry means that losses ultimately flow through to the taxpayers, who are subsidizing the housing industry via these agencies.

Lowering the mortgage rate increases the leverage of income. It now takes much less income to qualify for greatly reduced monthly payments.

With mortgage rates barely above the prime rate and Treasury bond yields negative in terms of inflation, there is simply no room left for lower rates or down payments. The “increase home sales by expanding the pool of buyers” game plan has been run to the absolute limit.

The pool of buyers cannot be expanded any further; that boost to sales is done.

The unintended consequence of enticing marginal buyers to buy homes is that defaults are rising: 1 out of 6 FHA-insured loans are delinquent. This is the “blowback” of qualifying everyone with an income above the poverty line as a homebuyer.
The mortgage industry has escaped any consequences of “robo-signing” mortgage fraud

If the rule of law existed in more than name, this is what should have happened:

1. MERS, the mortgage industry's placeholder of fictitious mortgage notes, would have been summarily shut down.
   
2. All mortgages and derivatives based on mortgages would have been marked-to-market.
   
3. All losses would be booked immediately, and any institution that was deemed insolvent would have been shuttered and its assets auctioned off in an orderly fashion.
   
4. Regardless of the cost to owners of mortgages, every deed, lien, and note would be painstakingly reconstructed on every mortgage in the U.S., and the deed and note properly filed in each county as per U.S. law.

That none of this has happened is proof that the rule of law is “optional” for financial institutions in America.

The $25 billion mortgage fraud settlement turned a blind eye to the fraud, and now the banks are applying losses they have already booked to the $25 billion, mooting the supposed “benefit” of the settlement to consumers.

The Federal Reserve’s purchase of mortgages – over $1.1 trillion in 2009-10 and now another $40 billion a month – is essentially a money-laundering operation in which the Fed exchanges cash for dodgy mortgages.

Analyst Catherine Austin Fitts (QE3 – Pay Attention If You Are in the Real Estate Market) summarized what this means:

“The Fed is now where mortgages go to die.”

"Thousands of mortgages on homes that do not exist or on homes that have more than one ‘first’ mortgage are now going to the Fed to disappear. Thousands of multifamily and commercial mortgages will be bought up as well. With documents shredded, criminal liabilities extinguished and financial institutions made whole, funds can return without fear of seizure.

QE3 proves beyond any shadow of a doubt that the extent of the fraud was as bad as I said it was. You can count up the bailouts and QE1, QE2, QE3 the numbers speak for themselves. The fraud was indeed in the many trillions of dollars.”

In other words, the financial sector has gotten away with murder, and the “overhang” of systemic fraud has been erased with Fed connivance.

Banks are restricting inventory.

The banks are withholding distressed properties to restrict the inventory of homes for sale.

If supply overwhelms demand, prices decline. That would be a bad thing for banks sitting on millions of defaulted mortgages and distressed properties. Millions of impaired properties are being held off the market so supply is lower than demand.

The strategy has costs; thousands of defaulted homeowners have been living mortgage-free for years. But the gains have been impressive: with supply dwindling, beaten-down markets have seen gains of 20+% this year as strong investor demand has pushed prices higher.

Since the strategy has paid such handsome returns, why change it?

ZIRP has attracted investment.

The Fed’s ZIRP (zero interest rate policy) has pushed investors into a “search for safe yield” that has led many to buy corporate bonds, dividend stocks and everyone’s favorite “safe” fixed asset, real estate.

In many markets, one-third or more of all sales have been to investors.

Some are buying distressed properties to “flip” in strong-demand markets, but many are buying the homes as rentals with the plan being to hold them for a few years as prices rise and then sell to reap appreciation.

Anecdotally, every investor class is getting into the act, from Mom and Pop to big players such as insurance companies and Wall Street funds. One of my contacts in the insurance industry told me that his firm was buying large multi-unit apartment complexes, as these rentals generated a yield of 6% to 7%, far above the 1.7% yield of ten-year Treasury bonds.

In a non-ZIRP world, Treasuries and other asset classes would offer similar yields but without the risks and costs of managing rentals. But in a ZIRP world of near-zero yields for low-risk financial assets, rental real estate is a compelling investment: decent yields, relatively low risk, and strong appreciation potential if housing has indeed bottomed.

“The bottom is in” – isn't it?

Once potential buyers see prices rise and they conclude that “the bottom is in,” they jump in and buy, pushing prices higher in a positive feedback loop. The higher prices rise, the more evidence there is that the bottom is in, and the greater the incentives to jump in before prices once again rise out of reach.

Favorable rent/buy ratio

With mortgage rates well below 4%, the rent-buy ratio is favorable in many areas. It may indeed be cheaper to buy than to rent in some locales.

“Hot money” flowing into real-estate.

As economies in Europe and Asia falter, “hot money” is flowing into perceived “safe havens” such as the U.S. and Canada. Some of this “hot money” ($225-$300 billion a year is leaving China alone) is flowing into real estate, a well-known phenomenon in markets such as Vancouver, B.C., Miami, and Los Angeles.

Conclusion

What can we conclude from this overview of fundamentals?

• The mortgage industry escaped any real consequence from its systemic fraud,
  
• The Status Quo plan to reflate the housing market with super-low mortgage rates and down payments has worked to some degree.
  
• The financial sector’s plan to boost home prices by limiting supply has also worked.
  
• ZIRP has created a “crowded trade” in low-risk investments with attractive yields such as corporate bonds, dividend stocks, and real estate, which is being fueled by a self-reinforcing perception that “the bottom is in”.

The question now is will these forces continue pushing prices higher? If so, the bottom may well be in. If these forces deteriorate or lose their effectiveness, then the “green shoots” of investor interest may wither as the U.S. economy joins Europe and Japan by re-entering recession.

.

Road to Recovery

SUBHEAD: It passes through a million Americans added to the poverty level in last two months.

By Mac Slavo on 11 December 2012 for SHTF Plan -
(http://www.shtfplan.com/headline-news/the-road-to-recovery-over-one-million-americans-added-to-poverty-in-last-two-months_12102012)


Image above: George Bush limo passes through angry crowd on 1/20/01. From (http://readjack.wordpress.com/2010/03/12/our-president-now-available/).

They’ll tout the latest unemployment numbers as evidence for the strength of America’s recovery, but despite their best efforts to fudge the numbers, the unreported reality is that we are so far gone it’s scary.

The decent into economic oblivion continues at a seeming unstoppable pace. Rather than bloviating about the supposed jobs created in the last month being a clear sign of economic recovery, perhaps a more informed look at how bad things are in modern-day America is to consider the amount of people requiring the aid of federal and state governments to put food on the table and help make ends meet:

The just reported foodstamp number for September was a doozy, with 607,544 new Americans becoming eligible for foodstamps, as a record 47.7 million Americans are now living in poverty at least according to the USDA.

The monthly increase was the highest since May 2011, and with August’s 421K new impoverished America, over 1 million Americans made the EBT card their new best friend.

It is unclear just which atmospheric phenomenon will get the blame for this unprecedented surge in poverty, which comes at a time when the pre-election economic data euphoria was adamant that the US economy was on an escape velocity to utopia.
Instead what we do know is that in August and September, over three times as many foodstamp recipients were added to the economy as jobs (324,000).

We also know that with the imminent impact of Sandy, which will send foodstamp recipients soaring, it is now looking quite possible that the US may end 2012 with just over a mindboggling 50 million Americans living in absolute poverty and collecting the $134.29 average monthly benefit per person, instead of working. Welcome to the recovery indeed.
Source: Zero Hedge via Steve Quayle

Since the collapse of 2008 Americans have lost 40% of their wealth, millions of homes, their savings have nearly vanished, and recipients of government assistance for services such as food stamps and disability have nearly doubled.

One thing is clear: The trend, although every effort has been made to convince us otherwise, is a progressively worsening economic and social impact on Main Street – and it is showing no signs of returning to pre-crash normalcy.

How long this “recovery” can continue before the weight of the 100 million poverty stricken and poor Americans brings the whole thing crashing down is anybody’s guess. But considering that fully one-third of Americans are struggling daily just to feed themselves and their kids, and the government is borrowing unprecedented levels of cash just to maintain “stability,” we probably don’t have a whole heck of a lot of time.

The quality of life in America is collapsing unabated. A paradigm shift is happening before our eyes. The blowback is going to be so severe that there is a strong possibility our civilization won’t be able to survive it intact.

.

The Upside of Default

SUBHEAD: Is the financial industry providing anything to the rest of us commensurate with its immense income and profits?  

By John Michael Greer on 25 July 2012 for the Archdruid Report - (http://thearchdruidreport.blogspot.com/2012/07/the-upside-of-default.html)

 
Image above: A crying American eagle going out of business. Boo hoo! From (http://www.graffitiresearchlab.com/blog/the-us-dept-of-homeland-graffiti-liquidation-sale/).
 
Writing The Archdruid Report has its pleasures, and one of them is the wry amusement to be had when some caustic jab of mine turns into an accurate prediction of the future. Longtime readers may recall a comment of mine late last year to the effect that ordinary investors would surely find some way to pile into the shale gas bubble before the next year was out. Thanks to an anonymous reader and the August 2012 edition of SmartMoney Magazine, which arrived from said reader in yesterday’s mail, that comment can now be moved over into the "confirmed" category.

The prediction, to be sure, didn’t require any particular clairvoyance on my part. Its sources are, first, a decent grasp of the history of economic stupidity, and second, a keen sense of the levels of desperation in what we might as well call the investmentariat, the people who have a little money and are looking for a safe place to put it. The investmentariat has been told for decades that their money ought to make them money, but nobody told them that this only works in an economy that experiences sustained real growth over the long term, and nobody would dream of mentioning in their hearing that we don’t have an economy like that any more.

All the investmentariat knows for sure is that the kind of safe investment that used to bring in five per cent a year is now yielding a small fraction of one per cent, and the risks you need to take to get five per cent a year are those once associated with the the kind of "securities" that make a mockery of that title. The resulting panic is SmartMoney’s bread and butter. Smart money in the old sense—that is to say, the people who know what’s going on in the sordid and scam-ridden world of investment—wouldn’t waste five seconds on such a magazine; they know you can’t get any kind of advantage from something that a couple of million people are also reading.

No, this is strictly for the investmentariat: as glossy, glib, and superficial as a teen fashion magazine, and just as unerringly aimed at the lowest common denominator of contemporary thought. It will thus come as no surprise that the cover story on the August 2012 issue of SmartMoney is "The Return of Fossil Fuels," and that it rehashes the latest clichés about vast new gas and oil reserves without asking any of the the inconvenient questions that a competent practitioner of the lost art of journalism, should one be wakened from enchanted sleep by the touch of a 1940s radio microphone, would ask as a matter of course.

The article trumpets the fact that America is importing less oil than last year, for example, without mentioning that this is because Americans are using less oil—unemployed people who’ve exhausted their 99 weeks of benefits don’t take many Sunday drives—and it babbles about natural gas for two largely fact-free pages without mentioning that claims about vast supplies far into the future rely on assumptions about the production decline rate from fracked shale gas wells that make professionals in the gas drilling industry snort beer out their noses.

All this, inevitably, is window dressing for suggestions about which stocks you should buy so you can cash in on the fracking boom. Last I heard, it was still illegal for journalists to take payola for pimping individual companies, or to speculate in the stocks they promote.

Still, I trust my readers will already have realized that one set of professional market players will get copies of the magazine the moment it hits the newsstand, snap up shares in the companies promoted in each issue, and dole them out at inflated prices to SmartMoney readers who get their magazines later, while another set of professional market players will take out short contracts on those same stocks as they peak, wait for the rush of buyers to crest and recede, and cash in on the inevitable losses.

Those are among the ways the game is played—and if this suggests to you, dear reader, that the readers of SmartMoney are not going to get rich from shale gas by following this month’s tips, well, yes, that’s what it means. This is business as usual in the financial industry, which has made a lucrative business out of extracting wealth from the investmentariat in various ways.

This is part and parcel of the broader and even more lucrative business of extracting wealth from everywhere by every available means. The question that might be worth asking here, and is rarely asked anywhere, is whether the financial industry provides anything to the rest of the economy commensurate with its immense income and profits. Any economics textbook will tell you that companies raise capital by issuing stock, selling bonds, and engaging in a few other kinds of transactions in the financial markets, and that this plays a crucial role in enabling economic growth.

Well and good; there are many other ways to do the same thing, but we’ll accept that this is the way modern industrial societies allot capital to new and expanding businesses. How much of the financial industry’s total paper value has anything to do with this service?

Let’s do some back of the envelope calculations. In 2010, the latest year for which I could find figures, the total value of bonds issued by nonfinancial businesses was $1.3 trillion, and the total net issuance of stock by all companies was $387 billion—that includes stock issued by financial businesses, but since this is a rough estimate we’ll let that pass. Total stock and bond issuance in 2010 to support the production of real goods and services was thus something less than $1.7 trillion; let’s double that figure, just to leave adequate room for other ways of raising capital that might otherwise slip through the cracks, for a very rough order-of-magnitude figure around $3.4 trillion.

In 2010, the total stock of debt and equity potentially available for trading in financial markets was $212 trillion, and the total notional value of derivatives that same year was estimated at $707 trillion. Exactly how much of this was traded in the course of the year on all markets is anybody’s guess—some stocks heavily traded by computer programs may change hands dozens of times in a day, while other assets spent the whole year sitting in a safe deposit box; still, this is back-of-the-envelope stuff, so we’ll use the total value just listed as a very rough measure of the size of the financial economy.

We can round up a little here, too, to make room for forms of wealth not included in the two categories just named, and estimate the total paper value of the world’s financial wealth at $1 quadrillion, of which the fraction directed into the productive economy in one year amounts to around a third of one per cent.

Now of course providing capital to the productive economy is only one of the things the financial industry does that’s arguably useful to someone other than financiers. Local and national governments use the financial industry to raise funds for public works, individuals borrow money for the occasional useful purpose, and so on.

Let’s be generous, and assume that the amount of money that flows from the world of finance for these purposes is double the total input of capital into nonfinancial businesses via stocks and bonds. That means that in any given year, maybe one per cent of the financial economy has anything to do with the production of real, nonfinancial goods and services.

The rest? It consists of ways to make money from money. That seems innocuous enough, until you remember what money actually is. Money is not wealth; it’s a system of abstract, culturally contrived tokens that we use to manage the distribution of real goods and services. A money system can simplify the process of putting energy, raw materials, labor, and other goods and services to work in productive ways; that’s the reason we have money, or rather the reason most of us are prepared to discuss in public.

That’s not what the other 99% of the world’s financial assets are doing, though. They are there to ensure that the people who own them have disproportionate, unearned access to real, nonfinancial goods and services. That’s the other reason, the one nobody wants to mention.

Not that many centuries ago, across much of the world, usury—lending money at interest—was considered a serious crime, more serious than robbery, and was also classed as a mortal sin by Christian and Muslim religious authorities; it’s no accident that Dante consigned usurers to the lowest pit of the seventh circle of Hell.

That’s been dismissed as a bit of primitive moralizing by modern writers, but that dismissal is yet another example of the way that contemporary industrial culture has ignored the painfully learned lessons of the past. In a steady-state or contracting economy, usury is a parasite that kills its host; since the total stock of real wealth does not expand from one year to the next, each interest payment enriches the lender but leaves the borrower permanently poorer.

Only in an expanding economy can usury be tolerated, since interest can be paid out of the proceeds of economic growth. Periods of sustained economic expansion are rare in human history, since most societies live close to the edge of the limits to growth in their bioregions; the exceptions, such as the late Roman Republic and early Empire, usually involve the expansion of one society at the expense of others.

The late Roman Republic and early Empire, it may be worth noting, had a large and very successful moneylending industry, which fed on the expanding Roman state in much the same way that the Roman state fed on the accumulated wealth of the Mediterranean world. Only after Roman expansion stopped did attitudes shift, in favor of a religion that was violently opposed to usury.

During the three centuries of their power, the world’s industrial nations looted their nonindustrial neighbors with as much enthusiasm as the ancient Romans looted theirs, but they had another source of plunder—half a billion years of fossil sunlight, stored up in the form of coal, oil, and natural gas. In effect, we stripped prehistory to the bare walls so that we could enjoy an age of gargantuan excess unlike any other.

One consequence was that our moneylending industry was able to metastasize to a scale no previous gang of usurers has ever been able to attain. The basic arithmetic remains unchanged, though: usury is only viable in an expanding economy, and as the global economy enters its post-peak oil decline, the entire structure of money that makes money, is going to come apart at the seams. I’d like to suggest, in fact, that the unspoken subtext behind the financial crises of recent years is precisely that the real economy of goods and services is no longer growing enough to support the immense financial economy that parasitizes it.

The current crisis in Europe is a case in point. Since the crisis dawned in 2008, EU policy has demanded that every other sector of the economy be thrown under the bus in order to prop up the tottering mass of unpayable debt that Europe’s financial economy has become.

As banks fail, governments have been strongarmed into guaranteeing the value of the banks’ worthless financial paper; as governments fail in their turn, other governments that are still solvent are being pressured to fill the gap with bailouts that, again, amount to little more than a guarantee that even the most harebrained investment will not be allowed to lose money.

The problem, as the back of the envelope calculations above might suggest, is that you can cash in the whole planet’s gross domestic product—that was a little under $62 trillion in 2010—and not come anywhere close to the value of the mountain of increasingly fictive paper wealth that’s been piled up by the financial industry in the last few decades.

Thus the EU’s strategy is guaranteed to fail. EU officials are already talking about "haircuts" for bondholders—that’s financial jargon for investors not getting paid as much as their holdings are theoretically worth. Not so long ago, that possibility was unmentionable; now it’s being embraced frantically as the only alternative to what’s actually going to happen, which is default.

There’s been a lot of talk about that in the blogosphere of late, and for good reason. No matter how you twist and turn the matter, Greece is never going to be able to pay its national debt. Neither are Spain, Italy, or half a dozen other nations that ran up big debts when it was cheap and convenient to do so, and are now being strangled by a panicking bond market and a collapsing economy. This isn’t new; most of the countries on Earth have either defaulted outright on their debts or forced renegotiations on their creditors that left the latter with some equivalent of pennies on the dollar.

The US last did that in a big way in 1934, when the Roosevelt administration unilaterally changed the terms on billions of dollars in Liberty Bonds from "payable in gold" to "payable in devalued dollars," and proceeded to print the latter as needed. That or considerably worse will be happening in Europe in the near future, too.

A good deal of the discussion of these upcoming defaults in the blogosphere, though, has insisted that these defaults will lead to a complete collapse of the world’s financial economy, and from there to an equally complete collapse of the world’s productive economy, leaving all seven billion of us to starve in the gutter.

 It’s an odd belief, since sovereign debt defaults have happened many times in the recent past, currency collapses are far from rare in economic history, and nation-states can do—and have done—plenty of drastic things to keep goods and services flowing in an economic emergency. Partly, I suspect, it’s our old friend the apocalypse meme—the notion, pervasive in modern culture, that the only alternative to the indefinite continuation of business as usual is some unparallelled cataclysm or other.

Still, there’s another dimension to these fantasies, which is simply that the financial industry has done a superb job of convincing people that what they do is important to the rest of us. It’s true, to be sure, that having currency in circulation makes economic exchanges easier.

The kind of banking services that people and ordinary businesses use are also very helpful, but governments used to produce and circulate currency without benefit of banks until fairly recently, and banking services of the kind I’ve just mentioned can be provided quickly and easily by a government that means business; in 1933 it took the US government just over a week, at a time when information technology was incomparably slower than it is today, to nationalize every bank in the country and open their doors under Federal management.

The other services the financial industry provides to the real economy can equally well be replaced by hastily kluged substitutes, or simply put on hold for the duration of the crisis.

So the downside of any financial crisis, however grandiose, can be stopped promptly by proven methods. Then there’s the upside. Yes, there’s an upside. That’s the ultimate secret of the financial crisis, the thing that nobody anywhere wants to talk about: if a country gets into a credit crisis, defaulting on its debts is the one option that consistently leads to recovery.

That statement ought to be old hat by now. Russia defaulted on its debts in 1998, and that default marked the end of its post-Soviet economic crisis and the beginning of its current period of relative prosperity. Argentina defaulted on its debts in 2002, and the default put an end to its deep recession and set it on the road to recovery.

Even more to the point, Iceland was the one European country that refused the EU demand that the debts of failed banks must be passed on to governments; instead, in 2008, the Icelandic government allowed the country’s three biggest banks to fold, paid off Icelandic depositors by way of the existing deposit insurance scheme, and left foreign investors twisting in the wind. Since that time, Iceland has been the only European country to see a sustained recovery.

When Greece defaults on its debts and leaves the Euro, in turn, there will be a bit of scrambling, and then the Greek recovery will begin. That’s the reason the EU has been trying so frantically to keep Greece from defaulting, no matter how many Euros have to be shoveled down how many ratholes to prevent it.

Once the Greek default happens, and it will—the number of ratholes is multiplying much faster than Euros can be shoveled into them—the other southern European nations that are crushed by excessive debt will line up to do the same.

There will be a massive stock market crash, a great many banks will go broke, a lot of rich people and an even larger number of middle class people will lose a great deal of money, politicians will make an assortment of stern and defiant speeches, and then the great European financial crisis will be over and people can get on with their lives.

That’s what will happen, too, another five or ten or fifteen years down the road, when the United States either defaults on its national debt or hyperinflates the debt out of existence. It’s going to do one or the other, since its debts are already unpayable except by way of the printing press, and its gridlocked political system is unable either to rationalize its tax system or cut its expenditures.

The question is simply what crisis will finally break the confidence of foreign investors in the dollar as a safe haven currency, and start the panic selling of dollar-denominated assets that will tip the US into its next really spectacular financial crisis.

That’s going to be a messy one, since the financial economy is so deeply woven into the fantasy life of the average American; there will be a lot of poverty and suffering, as there always is during serious financial crises, but as John Kenneth Galbraith pointed out about an earlier crisis of the same kind, "while it is a time of great tragedy, nothing is being lost but money."

It will be after that, in turn, that the next round of temporary recovery can begin. We’ll talk more about that in the weeks to come. .

Economic recovery for whom?

SUBHEAD: The "Recovery," in this capitalist economy, refers to corporate profits, not to people's lives. By Richard Wolff on 7 March 2012 for Truthout - (http://www.truthout.org/economic-recovery-whom/1331043859) Image above: Average people standing i line for unemployment benefits. From (http://sanantoniobankruptcyattorneylawyerinformation.com/faq/2010/07/04/the-jobless-recovery-it-is-now-official-even-abc-news-acknowledges-this).

We expect ever-grosser competitive lying from the presidential primary candidates. We should expect no less from the media "analysts," politicians and academics competing for big business favors. With those expectations, we might be less disappointed by what we get.

These days, the hype about "economic recovery" is intense. Obama pitches it as a reason to reward him with campaign donations and votes. The money should flow in from the business community that wants badly to hide the fact that recovery has - from the beginning of this crisis - been only for them at the expense of recovery for everyone else. They need a president who hypes "recovery" as if it's about helping everyone in some general or "fair" way. The votes should come, Obama's team calculates, because average people are becoming increasingly desperate. They want someone in power who might help them even just a bit.

The Republicans had planned to use the economy against Obama (as he did against them in 2008). The recovery hype drove them to emphasize instead contraception, religion and the ever-popular Iran-bashing. By abandoning their attacks on "Obama's bad economy," Republicans leave the field to those hyping recovery.

The major media take their cues from politicians and their orders from the mega-corporations that own them. Mainstream academics, lowest on the public relations hype totem pole, celebrate recovery, too. Then they remember that they are supposed to be independent thinkers, so they find something about "the recovery" to "debate." That turns out to be, yet again, whether government interventions help or hinder economic recovery. In reality, big business leaders and the top politicians they control collaborate ever more closely for their mutual benefit. To mainstream academics falls the public relations task of pretending that big business and the government are adversaries.

However convenient to some, to speak of economic recovery today is false. There is no general improvement in economic conditions, let alone the sustained, self-reinforcing economic upturn that the word "recovery" is supposed to mean. Here is what we know early in March, 2012. The "good" news is about unemployment (slowly declining for a few months), retail sales (slowly rising) and especially sales of automobiles (rising quickly). It is also about corporate profits (high) and General Motors' (GM) profits (record high). Finally, the stock market had a nice upturn over recent months as well. That's pretty much it for the good news.

Here's the "bad" news. Housing prices are falling again (their much-hyped "recovery" earlier during the crisis turned out to be false). Manufacturing was down in the latest reports, while consumer spending and construction spending were flat. Consumer debt is rising again. The largest city bankruptcy in US history has been announced for Stockton, California (population: 300,000). State and city services across the country continue to be cut. Real wages and job benefits keep trending down.

A closer look at the good news raises even more doubt about "recovery" than the bad news does. Let's focus on those robust car sales and the hiring back of some laid-off auto-workers. Consider just two facts. First, the average age of cars on the roads in the US today is 10.8 years, making them the oldest fleet since the records began many years ago. People are not buying cars because they can afford them. Rather, their old cars now cost too much to repair too often. What they borrow to spend on car replacement now will require spending less on everything else in the months ahead. Second, hiring more auto-workers will have a much smaller impact on the US economy than rehiring used to. That is because the auto-industry bailout deal with the unions allows GM, for example, to hire "new" workers at $16 per hour, half of what they used to pay for the exact same jobs.

Looking closer at high corporate profits shows that they come more than ever from overseas activities of US corporations. Indeed, the country's sad condition and worse prospects are why so many US corporations place their hopes and investments outside the US.

The truth about "economic recovery" is that, for the mass of people, it is untrue. For the top 10 percent and especially the top 1 percent - those who brought global capitalism into crisis in 2007 - recovery has been real. They got the huge bailouts from Bush and Obama. They got the trillions in government loans at low interest that they then lent back to the government at higher interest rates (so much for how profits are capitalists' rewards for "taking risks"). To pay for its expensive bailouts (hyped as "stimulus plans"), the US government chose NOT to tax big businesses and their rich executives. Doing that, we were told by business and government alike, might "hamper the recovery."

So, the government borrowed trillions to "fund the recovery." And from whom? From the same banks, insurance companies, large corporations and rich executives whom the government had bailed out and NOT taxed. When those creditors began to worry that the US government's debt was becoming too high to sustain, they demanded that government cut back public services and use the money instead to pay interest and principal back to those creditors. And so it does.

"Recovery" is a recurring hype for a grotesquely unjust economic system. It is dusted off and reused whenever possible to cover the basic policy shared by both major parties in the US during major capitalist crises: help those at the top so maybe it will "trickle down" to everyone else. "Recovery" is the go-to word when business and government impose conditions to make the US more profitable especially for big business. Those conditions now include declining real wages, job benefits and public services for most Americans. They also include the huge numbers of personal and small business bankruptcies that cheapen the costs of second-hand equipment; empty office and retail space; and professionals (accountants, lawyers etc.) desperate for work.

"Recovery," in this capitalist economy, refers to profits, not to people.

.

The Jobs Picture

SUBHEAD: In the years ahead, don't rely on jobs with the government, or anyone with a work station equipped cubicle.  

By James Kunstler on 6 December 2010 in Kunstlsler.com -  
(http://kunstler.com/blog/2010/12/the-jobs-picture.html)

 
Image above: "Will work for food". From (http://lutheransurrealism.blogspot.com/2010/05/will-work-for-food.html).

The clarion cries of "recovery" cut painfully through the crisp pre-Christmas air while the now-perpetually unemployed huddle in their tents around the Sacramento delta, and the state AGs slug it out with the foreclosure goons, and not a few mortgage payment drop-outs enjoy luxury living in McMansions with no monthly carrying costs, and the minions of Goldman Sachs (with fellow squids) groom their beaks waiting for the massive chum slick of bonus checks to be dropped by helicopters in this the third holiday season since Wall Street committed suicide by an overdose of Ponzi.

It's pathetic to hear the wan cry of "recovery" issued by the high priests and tribunes of this land.

Do the president and his train of wizards really suppose that all the necessary pieces are in place to re-start the economic dynamics of, say, 2003?

A million busboys and lawn service lackeys lining up for half-million dollar liar loans at the Countrywide office? BCA, Citi, and all the other big banks pawning off bundles upon bundles of these worthless obligations to insurance companies, pension funds, foolish endowment fund managers and any other reckless entity desperate for yield?

A hyperbolic consumer economy pyramid resting on a base of empty promises to repay?
 

Sorry. There's no way the USA can ever "recover" to that lush breeding ground of swindling, fraud, and childish irresponsibility.

The hardships of today do not represent a dip in some regular cycle of financial push-me-pull-you. This is a systemic, structural change in the socio-economic ecology of human life.

Those who have been shuffling from one office to another with their dog-eared resumes, and clothing pressed under the mattress while sleeping, are bound to be disappointed. The very idea of a "job" may be obsolete, in the sense of bureaucratically organized endeavors complete with a "human resources" department that can just plug in human components like diodes in an engineered system.

Among the surprises I've suggested over the years is the idea that people used to spending long hours in cubicles staring at video screens may, at some point ahead, begin to spend their days in the fresh air, cultivating food crops. I'm sure this sounds outlandish.

But we begin to see the new dynamic of this world resolving in the nexus between a crisis of capital, climate change, and peak oil.

Food is getting scarce. Worldwide grain reserves stand at unprecedented lows. Droughts in Russia and Australia mean that basic foods will be in short supply on the margins - that is, the impoverished countries we used to call "third world" that depend on grain imports.

The American supermarket aisles still groan with every conceivable staple and delicacy, but note the prices of things. A buck and a half for four little onions. $1.18 for one apple. $4 for a jar of jam.

 Compare these numbers with the wages that have not gone up effectively since around 1970.

As I write this morning, oil is 11 cents short of $90 a barrel. That's well into the price range that destroys economic activity in the USA. Why is the price of oil creeping up relentlessly in a structurally impaired economy? My guess is the beginning of hoarding on the grand scale, as nations slowly wake to the reality of the world production peak, and scramble to max out their tank-farm capacity.

By the way, the price of oil could easily crash again - and, I believe the period just ahead will be marked by extreme volatility in oil prices - but if it goes back down to $20 a barrel we'll probably be in a situation where nobody has any money to buy it even at bargain basement prices.That was exactly the situation 70-odd years ago during the Great Depression: plenty of everything; but no money.

The crisis of capital still has many acts to play out. The current installment taking place in Europe is a game of musical chairs played by nations who cannot pay their debts or the regular bills.

The Euro was on its way sliding into oblivion a week or so ago when the European Central Bank and the IMF came up with a few billion to cover bond interest for deadbeat countries through the Christmas season - at the same time that Ben Bernanke's Fed offered up a $75-billion-a-month bid for US Treasury bonds (and god-knows-really what other sort of dodgy paper, based on the Fed's track record of hosing up every distressed instrument on the landscape, including the notes on cheap chain hotels).

The Euro bounced back, at least in relation to the US dollar. The same darn skit will have to be replayed in the first quarter of 2011 and my guess is that German voters will pull the IV-line of financial support out of its terminally ailing neighbors.

The net effect will be stupendous economic confusion and a lot of bad feeling. This is the year that Europe ceases to be a theme park and reverts to a continent of dangerous squabbles and beefs.

America has appeared to be a bystander to that spectacle - apart from all the European banks and insurance operations that Ben Bernanke dropped TARP money on, it was revealed last week - but the US financial situation is every bit as sketchy as Ireland, Spain, Portugal, and Italy, and we have no idea how we're going to cover our obligations after Christmas.

This idea of "recovery" promulgated by authority figures who ought to know better is the cruelest swindle of them all, and perhaps the final one.

If you want something like gainful employment in the years ahead, don't rely on the corporations, the government, or anyone with a work station equipped cubicle. Start reading up on gardening and harness repair. Learn how to fix a pair of shoes.

Volunteer for EMT duty if you're already out of a paycheck, and learn how to comfort people in medical distress. Jobs of the future will be hands-on and direct. I have no idea what medium of exchange you'll get paid with, but a chicken is a good start.

See also:
Ea O Ka Aina: Out of the Comfy Zone 12/3/10 .

Puke Time!

SUBHEAD: Tragically, the Tea Partiers want to claw back to an absurd something-for-nothing dream of entitled exceptionalism.

Image above: Fried Twinkiw with Strwberry Sauce - Yuck! From (http://suburra.com/blog/2007/10/10/healthy-drug-users-vs-obese-narcophobes).

By James Kunstler on 20 September 2010 for Kunstler.com -

(http://kunstler.com/blog/2010/09/puke-time.html)

Our county fair put me in mind of that American classic, Moby Dick, this year. So many white whales among the try-pots bubbling with rendered blubber, where crews of savages from all corners of the world toiled to bring forth batter-dipped Mars bars, Pop Tarts, corn dogs, funnel cakes, and other rarities of the deep fryer... and then the whales ventured a little further down the midway where they mounted the engines of swirling cosmic death, and were flung about in the centrifugal pods of fate on the ingenious mechanical arms of innovation, until their sickened souls gave forth with a mighty spewage of corn byproducts that rained down upon the moiling innocents below....

Like most metaphors, this one limps a bit, as did Captain Ahab himself, with his whale-bone peg-leg. But when everyday life gets detached from reality, metaphor is all you've got left. And in this ridiculous, sickening culture, with its toxic stream of electronic simulacrum politics sucking all the oxygen out of the collective brain-space, the mind is left wandering numbly across a kind of wilderness where twisted sign-posts point to mutant evangelists, freakish ideologies, false prophets, deadly miracle cures, phantoms on horseback, angels with bat-wings, and the ghost of Spotted Elk lying dead in the snow with his stiffened arm beckoning the way to extinction like Melville's Ahab corded to the hump of his sounding white whale. Oh, America, pull your head out of your electronic ass while you still can! And look out below!

No place is more lost in metaphor these days than Washington D.C., the metaphor of "recovery" being the reigning hallucination. Now it's all going up in a vapor, and the credibility of all involved is going up the spout with it. The rising Tea Party movement had some good innings off this creeping disillusionment on primary day. At least they have their inconsistencies, hypocrisies, and idiocies because their opponents, the sitting-officeholders in the chambers of power, have nothing, not a shred of a clue of an idea.

What continues to amaze me is that there is no corresponding rise of an intelligent opposition. How did it come to be in our time that Harvard-Yale-Princeton-Stanford and all the other incubators of supposed statesmanship have produced no figures of conviction and good intentions to demonstrate what it means to be resolute amid this grand failure of will? How have we managed to turn out two generations of lackeys, toadies, stooges, and flunkies from these citadels of power? If there are some competent, resolute adults waiting backstage -- undistracted by phantoms related to Darwin's theories or birth control or religious doctrine of one kind or another -- they better enter the scene soon, or the fate of this country will be left in the hands of malicious, dogmatic, nincompoops beating their drums for Jesus, war, and the death of the planet.

How, for example, can Energy Secretary Steven Chu avoid spelling out the reality of our oil predicament, which goes way beyond any statement that America depends a little too much on oil from foreign lands. We are one international incident away from being put out-of-business as an advanced civilization. We're fooling ourselves that wind power, solar electric, and other "alt.energy" schemes will allow us to keep running our stuff the way we do. Our luck is running out, and luck is all we've got left.

Mr. Chu is not alone in his thoroughgoing lack of conviction, his political and professional cowardice. His limp position is the norm. He deserves to be hounded out of office - and so does everyone else inside the Beltway in both parties, including the feckless President Obama. But does it have to be at the hands of ignorant yahoos like Sarah Palin and Rush Limbaugh? (Can you imagine what James Madison would have made of Limbaugh?). Do we have to wait for the Millennials to grow up to hear somebody with half-a-brain call "bullshit" on the way we do things in this land?

This is the moment when the illusions fall away. This is the season when the comprehensive contraction becomes unmistakable and we have to make provision for its mandates: to get smaller, leaner, more local, more earnest, more truthful, and more willing to endure the discomforts of changed circumstances. Mr. Obama didn't have to promise "change." Change was happening all around us in the disintegration of our something-for-nothing dream of entitled exceptionalism. Tragically, the Tea Partiers want to claw back that absurd dream. They're obviously too dumb to know the difference between dreams and realities.

But where are the men and women who do know the difference? And why are they too timid to step up and say something? Can it be that precious a thing to hang on to some mere appointed position just because the pay is good and you get to circulate in places where free canapés are passed around? What kind of chickenshit society have we become?

Well, brace yourself for a wild season. The Pequod is going down and the crazed harpooners are looking to slaughter everyone on board. Captain Ahab is down below the quarterdeck brooding on the mysteries of the cosmos and don't count on him coming up from there to set things straight. Round and round we go as Moby Dick circles the ship, making a vortex with his gigantic flukes. I'm already in the water, waiting for Queequeg's coffin to bubble up out of the cold blue sea.

.

Worst Case Scenario

SUBHEAD: We are at critical mass in spending and debt.

By Big Jake on 03 May 2009 in Seeking Alpha - 
  http://seekingalpha.com/article/134820-the-worst-case-scenario-someone-has-to-say-it


Image above: An entrance to the abandoned Washington Mall, a modern ghosttown. From http://workingstiffs.blogspot.com/2008/07/modern-day-ghost-town.html

Since the economy began sliding downhill in late 2007, mainstream economic and market experts have consistently erred on the sunny side. As late as June 2008, mainstream consensus held that the U.S. was heading for a “soft landing” and would avoid recession.

Several months later, the slump was acknowledged to have started in January 2008, but we were supposed to see renewed growth by mid-2009, with unemployment peaking in the eight-to-nine percent range.

A quick “shovel-ready” stimulus bag was supposed to set us back on the road to prosperity. In January, recovery projections were pushed forward to late 2009.

Today, the consensus is for a mid-2010 recovery, with unemployment peaking at just over 10 percent. Clearly, the mainstream has struggled to catch up to reality for well over one year.

What are the chances that they finally have it right this time?

 Moreover, the mainstream continues to see what is going on as a plain-vanilla recession that will be quelled with some on-the-fly monetary and fiscal tinkering. Washington, we are told, will pull us out of this slump—as soon as the masses can be enticed back to the shopping malls. Then things will return to how they were before.

But what if the experts and politicians are wrong not only on their ever-changing recovery timeline, but also on the nature—nay, the very existence—of a recovery?

America’s reigning political-economic ideology has demonstrably failed. Given that its government is obviously fumbling along without a clue, its foreign and domestic credit is tapped out, and its 300 million people are discovering that their hopes for continuous material improvement will never be met, could the U.S. be headed the way of the USSR? Instead of a recovery as the mainstream envisions it, what if America permanently bankrupts, impoverishes, and marginalizes itself?

What if its cherished institutions fail across the board?

For example, what happens when the police realize that their under-funded pension plans cannot support a decent retirement?

Will they stay honest, or will they opt to survive by any means necessary?

These are questions that the mainstream does not even begin to contemplate. In the interests of providing you with an alternate vision—something outside the mainstream—below are ten predictions for America through the year 2012. This is not boilerplate doom-saying.

Rather, I am laying out in highly specific terms what will happen over the next three-odd years. Others have thrown around the term “Depression”, but I am going to tell you precisely what it means for you, your investments, and your community.

When these predictions come true, I expect to be rewarded with a seven-figure consulting gig, a book contract, or a high-level position in whatever administration succeeds the doomed Obama team—that is, if anyone succeeds it at all.  

Prediction one.
The twenty-five-year equities bubble pops in 2009. U.S. and foreign equities markets will stop treading water and realign with economic reality. Stock prices will cease to reflect the “greater fool” mentality and will return to being a function of dividend yields, which have long been miserable.

The S&P 500 will sink below 500. In a bid to stem the panic, the government will enforce periodic “stock market holidays”, and will vastly expand the scope of its short-selling prohibitions—eventually banning short-selling altogether.  

Prediction two.
With public pension systems and tens of millions of 401k holders virtually wiped out—and with the Baby Boomers retiring en masse—there will be tremendous pressure on the government to get into the stock market in order to bid up prices.

Therefore, sometime in 2010, the Federal Reserve will create and loan out hundreds of billions of fresh dollars to the usual well-connected suspects, instructing them to buy up stocks on the public’s behalf. This scheme will have a fancy but meaningless name—something like the “Taxpayer Assurance Equities Facility”. It will have no effect other than to serve as buyer of last resort for capitulating smart-money types who want to get out of stocks entirely.  

Prediction three.
Millions of new retirees—including white-collar people with high expectations for a Golden Retirement—will be left virtually penniless. Thousands will starve or freeze to death in their own homes. Hundreds of thousands will find themselves evicted and homeless, or will have to move in with their less-than-enthusiastic children.

Already strained by the rising tide of the working-age unemployed, state and local welfare services will be overwhelmed, and by 2012 will have largely collapsed and ceased to function in many parts of the country.  

Prediction four.
“Quantitative easing” will fail to restart previous patterns of lending and consumption. As the government sends out additional “rebate” checks and takes ever-more drastic measures to force banks to lend, hyperinflation could take hold. However, comprehensive debt relief via a devaluation of the dollar is even more likely.

This would entail the government issuing one “new” dollar for some greater number of “old” dollars—thus reducing both debts and savings simultaneously. This would make for a clean slate a la Fight Club. As there are many more debtors than savers in the U.S., the vast majority would support devaluation.

The Chinese and other foreign holders of our bonds would be screaming mad, but unable to do anything. Every country that has not found a way out of dollar-denominated reserve assets by 2012 will see its reserves eliminated.  

Prediction five.
The government will stop pretending that it can finance continuous multi-trillion-dollar deficits on the private market. By late 2010, the sole buyers of new U.S. Treasury and agency bonds will be the Federal Reserve and a few derelict financial institutions under government control. This may or may not lead to hyperinflation. (See prediction four).  

Prediction six.
As the need for financial industry paper-pushers declines and people have less money to spend on lawyers and Starbucks (SBUX), unemployment will rise until the private sector has eliminated all of its excess capacity and superfluous or socially needless jobs. The government’s narrow unemployment figure (U3) will rise into the high teens by late 2010.

The government’s broader unemployment figure (U6) will cease to be reported when it reaches 25 percent—it will simply be too embarrassing. Ultimately, one in three work-eligible Americans will be unemployed, underemployed, or never-employed (e.g. college grads permanently unable to find suitable work).  

Prediction seven.
With their pension dreams squashed, and their salaries frozen or cut, police and other local government workers will turn to wholesale corruption in order to survive. America’s ideal of honest, courteous, and impartial cops, teachers, and small-time local functionaries will have come to an end.  

Prediction eight.
Commercial overcapacity will strike with a vengeance. By 2012, thousands of enclosed malls, strip malls, unfinished residential developments, motels, truck stops, distribution centers, middle-of-nowhere resorts and casinos, and small-city airports across America will turn into dilapidated, unwanted, and dangerous ghost towns. With no economic incentive for their maintenance or repair, they will crumble into overgrown, plywood-and-sheet-rock ruins.  

Prediction nine.
By the end of 2010, tens of millions of households will have fallen behind on their mortgages or stopped paying altogether. Many banks will be unable to process the massive volume of foreclosure paperwork, much less actually seize and resell the homes.

Devaluation (as mentioned in prediction four) could ease the situation for those mortgage holders still afloat, but it would also eliminate any incentive for most banks to stay in the mortgage business. In any case, the housing market in many parts of the country will lock up completely—nothing bought or sold. With virtually no loans being made, even the government will finally acknowledge that most banks are fundamentally insolvent.

A general bank run will only be averted through a roughly one trillion-dollar recapitalization of the FDIC, courtesy of new money from the Federal Reserve.  

Prediction ten.
As an economy is never independent of the society within which it functions, the next few paragraphs will focus on social and political factors. These factors will have as much of an impact on market and consumer confidence as any developments in the financial sector. 

 Whether rightly or not, President Obama, having come to power at the dawn of this crisis, will be blamed for it by over 50 percent of the population. He will be a one-term president. In response to his perceived socialization of America, there will be a swarm of secessionist and extremist activity, much of it violent.

Militias and armed sects will be more prominent than in the early 1990s. Stand-off dramas, violent score-settlings, and going-out-with-a-bang attacks by laid-off workers and bankrupted investors—already a national plague—will become an everyday occurrence. For both economic and social reasons, millions of immigrants and guest workers will return to their home countries, taking their assets and skills with them.

The flow of skilled immigrants will slow to a trickle. Birth rates will plummet as families struggle with uncertainty and reduced (or no) income. Property crime will explode as citizens bitter over their own shattered dreams attempt to comfort themselves by taking what is not theirs. Mutinies and desertions will proliferate in an increasingly demoralized, over-stretched military, especially when states can no longer provide the educational and other benefits promised to their National Guard troops.

There will be widespread tax collection issues, and a huge backlash against Federal and state bureaucrats who demand three-percent annual pay raises while private sector wages remain frozen or worse. In short, the “Tea Parties” of tomorrow will likely not be so restrained. Finally, between now and 2012, we are likely to see another earth-shaking national embarrassment on the scale of the 9/11 attacks or Hurricane Katrina and its aftermath.

This will demonstrate conclusively to all Americans that their government, even under a savior-figure like Obama, cannot, in fact, save them. By 2012, there will be a general feeling that the nation is in immediate danger of blowing up or coming apart at the seams. This fear will be justified, given that the U.S. has always been held together by the promise of a continuously rising material standard of living—the famous “pursuit of happiness”—rather than any ethnic or religious ties. If that goes, so could everything else.

We were lucky in the 1930s—we may not be so lucky again. Since the economy began sliding downhill in late 2007, mainstream economic and market experts have consistently erred on the sunny side.