There is a hole in the economy

It gets me as to how folks can propound on the esoteric meaning of nothing in the world of economics. Especially here in America, were we hear how to solve problems with solutions that do neither have method nor definition. All reminds me of an Island song I would hear harry Belafonte sing when I was a child growing up, “There's a hole in the bucket dear Liza, dear Liza.” If ever was there a need of a song to be remixed, it should be this one and the word bucket should be replaced with economy.

What is their not to see? It seems that politicians, albeit not very good in math as most Americans, want to make this a complex issue and act as if the solutions are massive and difficult – for lack of a better phrase, as if we are talking about Calculus or differential equations. Unfortunately it is not that complex and really a function of basic, simple, remedial math – adding, subtracting, multiplying and dividing.

The simple truth is that the way we are going economically is unsustainable. We are borrowing as a nation more than one-third of what we spend. I mean, let me put it another way. We as a nation, the United States, are spending $3 for every $2 we are bringing in the form of GDP.

It is also infelicitous that our political leaders know this and don’t or won’t tell us or worse, they do not know or understand the rusticism of the situation at hand themselves. For if they did they would do something and stop pointing fingers at each other. If they do not, you can best believe that the global capital markets will do it for us and like at the G20, we will not be in a position to do anything about it. We see what has happened in London, with students marching against the conservative political leadership, or last year in Greece with protesters in the streets or even this year in France. Don’t sleep it can happen here also.

But what is more troubling and scary to me is that if the Government, regardless of political affiliation does not see on the horizon what I fear, and that is a collapse in the bond market. I mean if the US is a company, with a massive debt problem plus $12 trillion and counting, with all these nations like China holdings of dollar-denominated short-term U.S. securities, including Treasury bills, and other custody liabilities, and the feds drop $600 billion into circulation, the value of the dollar may drop.

If this happens then it would not surprise me if foreign governments no longer want long-term US debt and will dump all the bonds on the markets if interest rates rise from current lows. This is not as farfetched as one may think given what has just occurred in Ireland and soon maybe in Portugal.

Politicians, there is a hole in the bucket. We have a sovereign debt crisis and all yawl do is point fingers at each other. We see that neither the Bush Tax Cuts, nor Obama’s massive spending have not worked. Regardless, something needs to be done now before it is too late, and it must entail at looking at entire projects and not bits and pieces. For inaction, may take our jobless rate up like Greece while they are trying to tackle their deficit. Maybe we could learn something from the difficulty they face now trying to restore fiscal soundness to their economic policy – naw, that would be too simple, instead we pass the buck, a borrowed buck at that,.

Constipated Now Nows

While many of us continue our habitual over zealous consumption of stuff and things of no real economic value, two events have occurred since the November mid-term election that may be of critical economic importance regarding the future of America, three if one includes the proposal presented this week by President Obama’s National Commission on Fiscal Responsibility and Reform.

The first was the announcement by the U.S. Federal Reserve this week of $600 billion of extra money being put in the economy. Specifically they will use the loot created out of thin air and computer virtual reality to buy $600 billion of long-term Treasury bonds (about $75 billion a month) through March 2011. They call this “quantitative easing.” In theory, this can be defined as a willy nilly, hocus pocus way to promote a stronger pace of economic growth and recovery. By my math, in addition to the pronouncement made by the New York Federal Reserve Bank to reinvest maturing mortgage securities owned by the Fed in Treasury bonds, that projects to approximately $900 billion of Federal bond purchases in the next six months or almost half the loot issued to finance this year's federal deficit.

The second is the meeting of the G-20 in South Korea. We know that most of the attention during this meeting will be directed towards the global economy. Particularly, monetary and currency policy and international trade. This will be an up hill battle for the US, since most of what we see that is jacked-up economically is our fault. I mean since the time of Nixon, we as a nation encouraged all of this, when we decided to get cheap stuff abroad via Chinese, Vietnamese and Latin American labor and taking the dollar off the gold standard.

Yes, once upon a time there was a gold standard in which the monetary unit is a fixed weight of gold. This came about via the Bretton Woods agreement put in place after World War II, allowing several countries to base their exchange rates to the U.S. dollar. But like I said previously, this ended in 1971 when President Richard Nixon ended the dollar-gold peg, leading to what we have now - floating exchange rates. Even stranger is that at this time, Alan Greenspan, who arrived in Washington in 1967, as a campaign advisor to Richard Nixon, wanted to reshape the economic landscape of America via deregulate, But I digress.


The China/US relationship is a clear example of what I am trying to say. They have pegged their currency to the dollar, which keeps the value of the Yuan artificially low, thus giving them the ability to flood the US market with cheap products. The consequence was that it gave China the ability to use the dollars they earned to buy US debt, which let us live way above our incomes. Unfortunate for us, this created a trade imbalance between the two nations, growing dollar reserves in China and creating a trade surplus (just as what we see with Germany).

Chinese dollar reserves currently are estimated at about $2 trillion. If the Feds puts too much money into circulation, these reserves may be devalued. And if China isn’t happy, and their value is decreased because the dollar is reduced in strength by the Feds actions, a trade war and a worldwide recession would not be far fetched as a probably outcome. Funny thing is we complain about china keeping the value of the Yuan fixed, but the actions the US central bank is doing by flooding billions in the world market, is the same thing, only via monetary policy.

What the federal Reserve has done is to take more risk with respect to our economy, an untested risk, which could not have come at a more dangerous time globally for the US. Banks already have about $3 trillion in cash, they just are hoarding as opposed to lending or spending. Thus such actions seems to increase the risks of higher inflation sooner than latter, especially now since the places we used to get cheap labor from is outcompeting us and holding our economic growth stagnant.

Now, other wealthy nations are super critical of the US economic policy as were of theirs 30 years ago, with the clout being on their side now. Especially the German and Chinese with respect to the Feds actions and overall macroeconomic policies. I just don’t get it, what will buying bonds do to encourage job creation? We still spend too much. On December 31, 2010, the Obama stimulus package, will end and thing will really be up in the air.

I do not know what the end game will be but I can say from our actions at home and our buddies around the world. And on the real the U.S. needs to generate at least a million plus jobs annually to keep up with new workers entering the job market alone. From the actions of the G20 summit there are several things we see. First is obvious, that no one wants to be in any paper currency. This may be why a former banker at Goldman Sachs and deputy secretary of state under George H. W. Bush, suggested a return to a modified gold standard. Second, that we are not in a position to tell other nations how large of a surplus or deficit they can run. And last, Unfortunately neither individual folk or our government have learned anything from the last 6 to 10 years of economic disarray. It is very obvious that folks still think and behave the same and still have not taken responsibility and just spend as much loot as they brought in – Governments included. Foir even with this second round of “quantitative easing," Amercia sure feels constipated to me. And may require Funkadelic - Promentalshitbackwashpsychosis Enema Squad.

shoulda, coulda, woulda

I feel like im playing the drums. I know I may harp on things a bit too much, but I write about what I think. I aint trying to get no brownie points or shit, just trying to see if folks think along the same lines as I do about an assortment of topics. Now back to loot.

Ass backwards, these folk finna buy 100 big ones of Citibank, when they say all is good, everything is fine. I just don’t see why the feds gone buy now, what they said they were gone buy at first, when they didn’t. I just want to say BO, don’t bail out folk when there is no transparency to the assets they hold.

Applied probability of default is all im asking because all these folks is doing is week by week stabilization. Somebody has to restore order – confidence. Buying bad assets aint the ticket. We got to handle this shit from the bottom. Shit, should have injected loot into the student loans or gave grants of 25K to all small businesses with caps under 250k. But what I know? I just know how to count and make money.

Aint no market for anything toxic, assets included and im talking derivatives as well. Don’t nobody want nothing they don’t know the value of, that’s why I still say Obama, like the rest of the poly-tricksters is stupid – giving loot for shit one don’t know the value off.

Barack can’t do jack (hands were tied from jum street), for we still gone loose at least a million jobs next year. That’s why I know he can’t keep his campaign promise, what he lied to folks about on raising taxes or giving tax breaks. But the supple are just that and believe what anyone will tell them. That’s why I said Bernake and Paulson was just throwing loot in the wind. And I was right, but I aint saying it just to say I was right – dumb fucks.

And I aint gone get into the g21 (albeit they say 20). I had to read the word ensure about 22 times in their statement they released November 15^th at the Summit on Financial Markets and the World Economy. Add to that I couldn’t the word should used more than 60. This says to me or really confirms that these folks really shooting from the hips and fail to realize that nobody can monetize assets if we don’t know the value, if any said assets have. Banks will continue to lead the decliners - I say invest in mines and chips (computer)

Common share holders are the critical aspects of a bank but we make these equity injections above the common share holders, and we wonder why they don’t work. Why, because we talking about trillions of dollars and they just making sure folk got enough loot to pay themselves. No wonder things are getting worse - the approaches being used seem to be azz backwards and the answers aint nothing but should a, could a, would a. So Mr. President Elect - hit us with the up and up and dont fall for the okie doke - they setting you up, thank god u a thinker.