Performance of a Number of Global Stock Exchanges Year-To-Date

Except for a few Asian countries, and special situations not pictured perhaps, it looks like a global slump from here.

There are still a select few unbroken housing bubbles out there that may find some adjustment in a future capital crisis.  Canada and Australia come to mind, among others.

Despite the billions of taxpayer funds poured into them, some if not quite a few of the troubled multinational Banks are still in trouble, and a few may be teetering.

Does anyone who is well informed not recognize that the policy errors of the Central Banks and their political cronies have failed to foster a sustainable recovery after five long years of enormous bank subsidies and public misery?

And the fruits of this selfish foolishness may likely be another crisis that is even more decisive?

The Banks must be restrained, and the financial system reformed, with balance restored to the economy, before there can be any sustainable recovery.


Related:  The One Percent's Plots To Overthrow Democracy

The Policy Errors of Barack Hoover Obama and What Happens Next

“Much like Herbert Hoover, Barack Obama is a man attempting to realize a stirring new vision of his society without cutting himself free from the dogmas of the past, without accepting the inevitable conflict. Like Hoover, his is bound to fail.”

Kevin Baker, Barack Hoover Obama: The Best and the Brightest Blow it Again, Harper's 2009


"Hoover quickly developed a reputation as uncaring. He cut unemployment figures that reached his desk, eliminating those he thought were only temporarily jobless and not seriously looking for work. In June 1930, a delegation came to see him to request a federal public works program. Hoover responded to them by saying, 'Gentlemen, you have come sixty days too late. The Depression is over.' He insisted that 'nobody is actually starving' and that 'the hoboes...are better fed than they have ever been.' He claimed that the vendors selling apples on street corners had 'left their jobs for the more profitable one of selling apples...'

Hoover was a stubborn man who found it difficult to respond to the problems posed by the Depression. 'There are some principles that cannot be compromised,' Hoover remarked in 1936. "Either we shall have a society based upon ordered liberty and the initiative of the individual, or we shall have a planned society that means dictation no matter what you call it.... There is no half-way ground.' He was convinced that the economy would fix itself."

Digital History, President Hoover

The policy errors being committed by Barack Obama and his team are all similar to that which J. Kenneth Galbraith cited in the Hoover Administration. That is, the 'trickle down' approach, which is treating a broken system as if it were still a functioning ideal, an ideal of the efficient markets hypothesis that probably never really existed in the first place.

If there is any corrective pain to be dealt, it will be delivered from the bottom up, and attributed to the inexorable necessities of 'The System.'  The powerful and favored few, however, will be fully cradled from its effects in a generous web of officially sanctioned protection. 

I find it striking that Hoover chose to crush The Bonus Army in 1932,  which involved sanctioned government violence against WW I veterans, and that Obama took the same draconian approach with the Occupy Movement which was a largely peaceful protest against Wall Street, for example.

His is a war against whistleblowers and dissent, with a generous free pass given to some of the most egregious misdeeds of those at the top of the financial pyramid in terms of both enforcement and indictment.  If there is anything that binds the elites in America, it is their urge for getting paid, and spectacularly and shamelessly so.

The only crime in Obama's America is to be both powerless and non-compliant.   And perhaps to speak of any of its secrets and sacred cows, of which there are many. 

Why does this happen? Because most of those who are in a position to reform the system at this time are creatures of the system, who are beholden to the system, who are caught in its credibility trap, and who see that system from a particular perspective and with a very selective bias. And that is, from the top-down.

This is a government of the system, by the system, and for the system.  And it is a system that is unsustainable except by increasing amounts of fraud and force.

What comes next depends on which type of leadership comes next. The range of examples from the 1930's provide some preview, from Roosevelt to Mussolini, from left to right, with a large assortment in between.

But for now it is hard to tell if there if there are any genuine differences amongst them, all these leaders we see nowadays, all these creatures of The System.  One might suspect that this is all a stage show, with the various factions and fights well scripted like the faux spectacles of World Wrestling Entertainment.  And once elected, they just take their orders from management, and collect their generous paychecks, often after their terms of 'public service.'  But at all costs, the show must go on.

This discussion below is from 2009. It is interesting to see this early days discussion from our own perspective, five years later. But I think the die was cast when Obama disclosed his appointments, especially to his economic team.

Related: Obama and Woodrow Wilson

SP 500 and NDX Futures Daily Charts - FOMC Day - Fed's Policy Error In One Chart

The Fed continued its taper on the bond purchasing at a pace designed to end the program sometime this year.

But it is important to remember that they continue to roll everything over, so their Balance Sheet will continue to expand.

I fully expect them to do another quantitative easing program after this one.

The first chart below shows the nature of their policy error in one slide. A special thanks to those free thinkers at GMU for the chart.

Their economic projections for 2015 recovery should have little credibility, considering they could not see a second massive bubble which they created, and then one of the worst financial crashes since the Great Depression.   These were not acts of God, but events which they themselves helped to create and abetted,  as both policy maker and regulator. 

The Emperor is not naked. The Emperor is barking mad. 

Have a pleasant evening.

The Recovery™ - Bubble Back To the Bar For the Hair of the Dog That Bit You

"Double, double toil and trouble,
Fire burn and cauldron bubble.

Cool it with a baboon’s blood,
Then the charm is firm and good...

By the pricking of my thumbs,
Something wicked this way comes."

William Shakespeare, Macbeth, Act 4 Sc. 1

And why would we expect anything different, given the lack of serious reform and the careful targeting of the monetary expansion into the hands of the same old TBTF financial firms that have been distorting markets and misallocating capital for their own advantage since the repeal of Glass-Steagall?

The best way to cure the damage from a widespread, real economic collapse in the aftermath of a financial asset bubble is surely a continuation of the failed policies of the past, and yet another asset bubble targeting the most wealthy in the hope that something will trickle down to the rest.

Adjusted Monetary Base Is On a Tear Again - Efficient Markets Policy Error

I thought we would drop in at policy central and see what the Fed has been doing with the US money supply using its policy and regulatory powers.

The first chart shows that the Adjusted Monetary Base is growing by leaps and bounds. This is Billions of Dollars in Fed Balance Sheet expansion.

This chart shows the leaps and bounds of monetary base growth a little more clearly, since it is the growth of the base, in Billions of Dollars, but in year over year terms. Those are essentially trillion dollar growth swings.

 

This next chart indexes a number of measures to the economic trough in 2009, for sake of comparison.

It shows the growth in the Fed's monetary base, as well as the excess reserves being held by the Banks.

Below those it shows Wages, Consumer Credit, M2 Money Supply and the Velocity of M2, that is, the rate at which money is being used by the real economy.

We should bear in mind that despite all the hoopla, sturm und drang, and whining by the Wall Street banking elite, the US financial system is still largely unreformed.

This situation brings to mind a quote about economic policy from John Kenneth Galbraith:

“Trickle-down theory represents the less than elegant metaphor that if one feeds the horse enough oats, some will pass through to the road for the sparrows.”

― John Kenneth Galbraith

There wasn't a Fed database entry for the income of the one percent, but if there had been it would be doing very well indeed.

I did not include this in the already busy chart above, but here is Total Assets of All Commercial Banks, using the same indexing method that was used above.  Looking past the rhetoric, the priorities seem fairly clear if you look at the growth trend in assets starting in 2011, and then look at the same time period in the chart above.

This is when the Fed implemented QE2, from Nov 2010 through June 2011, and then began 'Operation Twist' in September 2011.

QE3 started in September 2012 and continues today.

I think that history may view the co-opting of the urge to reform the banking system, and the outrage at the Wall Street bailouts, into the Tea Party's strong popular backing for financial repression of the victims, and the centering of the political debate on throttling government spending for the public good while propagating a financial system that heavily favors and subsidizes the wealthy financiers, to be one of the great propaganda coups of the 21st century.

Almost as good is running a populist presidential candidate, packaged as a progressive reformer and widely denounced by the opposition as a socialist, who in policy practice is the virtual reincarnation of Herbert Hoover, but without his many prior logistical accomplishments.

An Empire of Money and Privilege in Decline: Portrait of a Tragic Policy Error

"Everybody, sooner or later, sits down to a banquet of consequences."

Robert Louis Stevenson


"They don't have intelligence. They have what I call thintelligence. They see the immediate situation. They think narrowly and they call it 'being focused.' They don't see the surroundings. They don't see the consequences."

Michael Crichton

The Fed is faced with a problem that is best represented by the first two charts below.

Velocity of money is a simple ratio measure of money supply and GNP. It intends to represent the number of times a unit of money is exchanged in a transaction over a period of time.

As you can see, the velocity of the two broad money supply measures is dropping to historic lows.

Is this because the great mass of  people are 'hoarding money,' which implies that one should lower real interest on savings, even taking them more deeply into the negative through monetary inflation in order to encourage spending through fear of de facto confiscation?

The third chart gives some insight into the true nature of the economic problem. Most of the income gains this century and for the past two or three decades of the past have been flowing to the top few percent of US households. The median household, the middle if you will, has been steadily losing ground in large part to Fed and political policy decisions driven by a mistaken ideology and a top down or trickle down approach to prosperity.

If the Fed pursues monetary inflation, without taking strong steps, even through the use of its bully pulpit and actions as regulator, to correct the severe policy imbalances that lopsidedly favor the wealthy financiers, it will drive the US middle class over an economic cliff and destroy the very system which it is attempting to save.

That is the basis of the tragic policy error of the Fed and the ruling class.  Jeffrey Sachs has noted it in a recent talk to the Philly Fed shown below, and Bill Black has some particularly scathing words today for the 'Hyper-meritocracy Led by Criminal Morons.' I might have said  self-delusional narcissists or even sociopaths rather than morons.  The majority of those who enable the abuse of power are merely careerists.

One can make the strong case that the primary responsibility for this is in the political leadership. But one cannot also deny that as policy influencer and regulator the Fed has favored, quite actively, the growth of imbalances and social and economic injustice by pursuing a blind allegiance to a mistaken theory of deregulation and oligopoly of banking capital. 

An audacious oligarchy needs someone to rescue them from themselves.  And this will not be an easy task because the system is corrupted and the powerful have been  blinded by greed.  The current political deadlock in Washington is a symptom of the problem.  There is always an element that believes in a long range plan consisting of repression as required, disinformation, and plundering the weak.

The monied class do not 'create jobs.'   Genuine organic and systemic demand for good and services creates jobs, and those who have the means respond to that demand.  It is a virtuous cycle that begins with consumer demand, and the willingness and the ability to pay for it.  Yes there may be a role for inorganic demand such as stimulus to 'kick start' an economy caught in a policy error trap, but it is the reforms that allow for organic growth that make it sustainable.

Moving offshore to find new demand for markets while abandoning one's domestic base to decline and failure, in the true colonial fashion of past economic empires, is a form of neurotic failure. It often lights a fire in men's minds, and becomes a sort of self-fulfilling cultural suicide.  And perhaps this is embodied in the latest corporatist deal which is the infamously secretive Trans-Pacific Partnership.

How fitting that, having overturned most of the financial reforms of the past century, we stand here now on the brink, on the 75th anniversary of the New Deal, with essentially the same set of problems facing us that brought the world down so low in The Great Depression, and opened the door to the madness that followed.

"I believe we have a crisis of values that is extremely deep, because the regulations and the legal structures need reform. But I meet a lot of these people on Wall Street on a regular basis right now. I’m going to put it very bluntly. I regard the moral environment as pathological...

If you look at the campaign contributions, which I happened to do yesterday for another purpose, the financial markets are the number one campaign contributors in the U.S. system now. We have a corrupt politics to the core, I’m afraid to say, and no party is – I mean there's – if not both parties are up to their necks in this. This has nothing to do with Democrats or Republicans. It really doesn’t have anything to do with right wing or left wing, by the way. The corruption is, as far as I can see, everywhere.

But what it's led to is this sense of impunity that is really stunning and you feel it on the individual level right now. And it's very very unhealthy, I have waited for four years, five years now to see one figure on Wall Street speak in a moral language.

And I've have not seen it once. And that is shocking to me. And if they won't, I've waited for a judge, for our president, for somebody, and it hasn't happened. And by the way it's not going to happen any time soon, it seems...

The final point, of course, is separating the politicians from the crooks, but maybe that’s so close together that they can’t actually be separated. Maybe it’s just the same community."

Jeffrey Sachs, Fixing the Banking System For Good, Philadelphia Fed, April 17th, 2013

Pictures of an Exhibition in Policy Error - Without Oath or Honor

The growth in money supply is very strong, both in M2 and MZM, both broad measures of overall supply, each with a differing emphasis on duration.  Both are growing at around 7 percent year over year.   This is certainly in excess of the GDP, and the growth of consumer loans and bank credit, which is only growing at 2.5 percent year over year.

What is particularly disturbing is that the growth rate of real disposable income at this late stage of The Recovery™ is sub one percent, even as corporate profits, cash levels, and executive pay return to stratospheric levels for the large multinationals with large cadres of lobbyists and significant political influence through the revolving door.

I am not saying this is solely a Federal Reserve driven policy error.  Not at all.

Quite a bit of it is being driven by fiscal policy, and specifically by the Congress and a Wall Street friendly Administration.  This is not a New Deal, it is the Raw Deal.

But the failure of the Fed to act aggressively in conjunction with other regulatory agencies to reform the financial system, given the additional powers as regulator which they actively sought in the aftermath of the financial crisis for which they were a primary contributor, makes them equally culpable for the folly of this 'trickle down' approach.  And the 'hands off, see no evil' approach to widespread financial fraud and abuse that continues even today.

There is a credibility trap at work, that prevents those in leadership positions from addressing the real problems frankly and honestly. They will attempt to shift the blame and the pain to the people, but with the pay and privilege of leadership comes responsibilities and obligations, what at another time would have been lumped together as 'honor.'  

Oaths and the highest principles of the land are just pieces of paper, not allowed to stand in the way of the personal god of the day, gettin' paid.

And I think that the ruling elite have lost all sight and sense of the consequences of this in a frenzy of personal advancement and enrichment.

This is neither sustainable nor decent, and will not end well.

 

"I believe we have a crisis of values that is extremely deep, because the regulations and the legal structures need reform. But I meet a lot of these people on Wall Street on a regular basis right now. I'm going to put it very bluntly. I regard the moral environment as pathological. And I'm talking about the human interactions that I have. I've not seen anything like this, not felt it so palpably.

These people are out to make billions of dollars, and [think] nothing should stop them from that. They have no responsibility to pay taxes, they have no responsibility to their clients, they have no responsibility to people [or] counterparties in transactions.

They are tough, greedy, aggressive, and feel absolutely out of control, in a quite literal sense. And they have gamed the system to a remarkable extent and they have a docile president, a docile White House and a docile regulatory system that absolutely can't find its voice. It's terrified of these companies.

If you look at the campaign contributions, which I happened to do yesterday for another purpose, the financial markets are the number one campaign contributors in the U.S. system now. We have a corrupt politics to the core, I'm afraid to say... both parties are up to their necks in this.

...But what it has led to is a sense of impunity that is really stunning, and you feel it on the individual level right now. And it's very very unhealthy. I have waited for four years, five years now, to see one figure on Wall Street speak in a moral language.

And I've have not seen it once. And that is shocking to me. And if they won't, I've waited for a judge, for our president, for somebody, and it hasn't happened. And by the way it's not going to happen any time soon, it seems."

Jeffrey Sachs, Address By Video to a Conference At the Philadelphia Fed, April 2013

FOMC January 2013 Statement

"The foundations of the Maginot Line were the war cemeteries of France."

Vivian Rowe, The Great Wall Of France, 1959

Nothing really new in the FOMC statement, but we have to view this in the light of the shocking revelation from the recently released Fed Notes that they failed to see the crisis coming even in the days before the financial system teetered on collapse.

These are old and tired generals, fighting new wars with the old tools and tactics.

Until the banking system is reformed, the Fed will continue to attempt to prop it up, and stand by doing little else while the real economy stagnates. Except perhaps to foment yet another imbalanced, unstable bubble in financial instruments.

Press Release

Release Date: January 30, 2013

For immediate release

Information received since the Federal Open Market Committee met in December suggests that growth in economic activity paused in recent months, in large part because of weather-related disruptions and other transitory factors.

Employment has continued to expand at a moderate pace but the unemployment rate remains elevated. Household spending and business fixed investment advanced, and the housing sector has shown further improvement.

Inflation has been running somewhat below the Committee’s longer-run objective, apart from temporary variations that largely reflect fluctuations in energy prices. Longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic growth will proceed at a moderate pace and the unemployment rate will gradually decline toward levels the Committee judges consistent with its dual mandate.

Although strains in global financial markets have eased somewhat, the Committee continues to see downside risks to the economic outlook. The Committee also anticipates that inflation over the medium term likely will run at or below its 2 percent objective.

To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee will continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction.

Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.

The Committee will closely monitor incoming information on economic and financial developments in coming months. If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until such improvement is achieved in a context of price stability. In determining the size, pace, and composition of its asset purchases, the Committee will, as always, take appropriate account of the likely efficacy and costs of such purchases.

To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored.

In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Charles L. Evans; Jerome H. Powell; Sarah Bloom Raskin; Eric S. Rosengren; Jeremy C. Stein; Daniel K. Tarullo; and Janet L. Yellen. Voting against the action was Esther L. George, who was concerned that the continued high level of monetary accommodation increased the risks of future economic and financial imbalances and, over time, could cause an increase in long-term inflation expectations.

Imprisonments Will Continue Until Freedom Reigns

This level of incarceration per 1000 of population in the US is the highest in the world, finding no parallel in the developed nations except in Russia, and to a lesser extent South Africa, according to the last chart.  Winning.

Perhaps this is the logical outcome of a Darwinian environment, and a blindly self-rationalizing and self-reinforcing world view, that by the design of a relatively small elite creates 'winners' and 'losers,' where the winners always win, and the losers are cattle or prey.

And it may also be a consequence of a misguided social policy tool with regard to certain types of drug enforcement and criminal deterrence from the bottom up, the 'three strikes' rule, repression as a general policy bias, and the privatization of the prison system. 

The watershed year for an increase in imprisonment levels seems to be 1980.   Did anything significant happen that year?  One can only wonder.

The distribution of imprisonments by state is also interesting. It seems to be a 'warmer weather' phenomenon with Louisiana and Mississippi clearly in the lead. As noted below, Texas has recently fallen from second to fourth place because of some policy changes.

Perhaps it also involves a 'failure to communicate.' It is beyond all doubt and indication that something is wrong in the system, and festering.

As an aside, in case you had missed this, Slavery in the US Continued Until WW II.

If there is any good news in this, it is that the overall rates of incarceration have flattened and even decreased a bit since 2006.   Even Texas, which had been number two in prisoners per 1000, has been able to reduce its state prison population using several policy measures according to McClatchy.

A year ago, Texas had more than 156,000 prisoners in 111 state prisons.

Though Texas, with more than 25 million residents, has more inmates than any other state, it has fallen from second to fourth place in the number of people imprisoned per capita. Louisiana tops the per capita list.

Texas' prison population has dipped because of diversion programs lawmakers invested in five years ago, ranging from halfway houses to specialty courts that address cases involving mentally ill people and drunken drivers, said Jason Clark, a spokesman for the Texas Department of Criminal Justice...

A decrease in crime rates, changes in demographics and an aging general population also have a role in emptying Texas' prison beds, experts say.

Or perhaps this overall decline in the US is just an artifact of the migration of more criminal activity to the financial sector where indictments, much less imprisonments, are few and far between.  See, economic incentives do have their positive effects.

"Our incarceration rate is by far the highest in the world. The United States has less than 5 percent of the world’s population. But it has almost a quarter of the world’s prisoners. However you draw it, we need to change the shape of this curve.

Drug laws are probably the place to start. Three strikes rules would be next. Preventing the privatization of prisons — which creates a lobby for more incarceration — is another good move."

American Incarceration Rates Are Out of Control

Charts from Incarceration in the United States:

As of 2009, the three states with the lowest ratios of imprisoned people per 100,000 population are Maine (150 per 100,000), Minnesota (189 per 100,000), and New Hampshire (206 per 100,000).

The three states with the highest ratio are Louisiana (881 per 100,000), Mississippi (702 per 100,000) and Oklahoma (657 per 100,000).

The Garden of Beasts: Die Nacht der Langen Messer - The Night of the Long Knives

I have finished reading The Garden of Beasts by Erik Larson, and I now understand why it is such a popular book of non-fiction.

It is remarkably well-researched, with an impressive set of footnotes based on original sources from diverse places. They are worth reading in themselves as they contain little delights and vignettes. The book provides deep insight into some of the minds of eyewitnesses grappling with the events of the day.

In part because of the source materials, the book spends what one might feel is an inordinate amount of time showing things from the perspective of Ambassador Dodd's daughter, the femme fatale Martha, and her many flirtations and affairs with the prominent of that city, including the head of the Gestapo and an NKVD agent from the Soviet embassy. She is not a particularly sympathetic character, being such an obviously shallow, albeit well-connected, narcissist.   Even these episodes are well written enough to be interesting if one enjoys that sort of background perspective and romantic intrigue.  And it is entertaining to read about the involvement of great literary names like Carl Sandburg and Thorton Wilder,  amongst others.  There is nothing in fame and recognition that deters personal folly.

Ambassador William E. Dodd himself is a frustrating figure, the southern born history professor from the University of Chicago who stumbles into the hornet's nest while looking for a sinecure. He comes across as petty and ineffective, carelessly anti-semitic in the manner of those times, and certainly no hero. And yet in the end he 'does the right thing' and looks good, and quite prescient, in comparison with his fellows. We might make some allowances to the need for a diplomat to be discreet while in office, and to manage perception for the support of official policy.

But it does bring home that point so many miss, that even while great events grind slowly along, ordinary and even extraordinary lives with all their petty preoccupations and diversions go on, the sun still shines, and people marry and are given in marriage, until the moment that, however slowly and in stages it may happen, the door finally closes.   .

I gained a new understanding of how some of the earlier events in the post-Weimar government progressed, and how the rise of the Nazi party unfolded, slowly, with more, but unfortunately ineffective, opposition than we might have believed, at least from 1932 to 1935. And so it was very worthwhile. No one should have been caught by surprise if they had their eyes open.

In particular I finally understand the 'Night of the Long Knives' as more than a passing intramural event as it is depicted so often in documentaries which compress the great sweep of history into an hour or two, and too often crush out the real significance, the many human undercurrents amidst ordinary preoccupations and foibles that comprise great events.

The 'Night of the Long Knives' was the first overtly extra-legal action in the Nazi rise to power. And this might be a lesson for us today as we interpret contemporary events and the perversion of mere legality without regard to morality, tradition, or honor. It was a clear sign of things to come, for those who had a mind to see it.

The book ends with the recall of Ambassador Dodd to Washington, replaced with one of the crony members of 'The Pretty Good Club.' Dachau is full of political prisoners, Jews are being individually terrorized and denied basic human rights, the infirm and defective are being sterilized and murdered, and all political and public information has been brought into conformity with the Nazis through their program of Gleischaltung. 

The real dark night of the soul and Kristallnacht lay in the future, having been born and emboldened by the continuing appeasement in the face of each worsening outrage against all convention and social norms. The Americans could overlook the progression of abuses against others as long as the Hitler regime 'would do business with them.'  It is the fatal weakness of realpolitik, its cumulative moral hazards, writ large. 

It is interesting to contrast the complacency of the career diplomats,  at that time most often Americans of privilege, and their preoccupation with obtaining full payment of the German bonds for their wealthy domestic constituents and the banks, with the agony of the German people as they slowly sunk into the abyss.  The lone voices that were raised in protest were suppressed, ridiculed, marginalized, and ignored even in America.  

This is a fine example of serial policy error in the service of privilege and the status quo. To many amoral minds, including especially the capitalists of the free world, Hitler's rise to power was just another business opportunity, and the plight of his victims a crisis not to be wasted, a source of great profit. And not all those who benefited were censured and punished. Some families rose to greater prominence and power, even in America, on a pile of European corpses.

In Germany the hopes of liberals and moderate conservatives alike fell before the uncompromising obsession for power and unrelenting fanaticism of a minority of some of the most banal and oddest people ever to take power in a major developed nation.   Not one of them could have risen by individual merit, but they did have a talent in exploiting other people's fears and weaknesses, and the sharp and unwavering focus of the sociopaths and psychopaths, that seems to bewilder and beguile the more diffused nature of the average person.

I was struck in fact that the great failure that was made by so many was the assumption that as the leader of a great and educated nation, Hitler was rational, and would eventually make the most rational decisions. So they believed his many assertions of his peaceful intents, and good wishes, even as he turned Europe into an abattoir. Like the efficient market hypothesis, people were blinded to reality by a theory about the natural goodness and rationality of politicians.

The dichotomy is never so apparent as in contrasting the leaders of the movement with their own Aryan ideals: the club footed Goebbels, Himmler the chicken farmer, the sybaritic Göring, the weak minded and superstitious Hess, and the boorish fanatic Hitler.  And the ordinary people made jokes about it, until even humour was crushed under the jackboot, choked out as fear and greed became pervasive.  Through an astute combination of terror, propaganda, and the perversion of the law, an entire people were persuaded to sleepwalk into the abyss.

The author includes, almost as throwaways, some interesting insights into the German character and its mutation under the Nazis.  In particular I was struck by his description of them doting on their dogs and their horses, and the national laws forbidding cruelty to animals, so that the horses, as Dodd the Virginia gentleman farmer observed, were among the fattest and best kept he had ever seen.  And in the end of it all, during the Russian assault that leveled the area around the Tiergarten and the Reichstag, a stray shell struck the stables, and the horses stampeded down the ruined avenues, in flames.

As long as the personal interests of the status quo of the wealthy and powerful were served, those in positions of responsibility said and did nothing, until it was too late even for them.

"What most occupied the attention of the State Department [in 1934] was the outstanding German debt to American creditors. It was a strange juxtaposition. In Germany there was blood, viscera, and gunfire; at the State Department in Washington, there were white shirts [of the wealthy career diplomats and career politicians], Hull's red pencils, and mounting frustration with [Ambassador] Dodd to press America's case [for full payment of the sovereign German debt]...

In Berlin, Dodd was unmoved. He thought it pointless to pursue full payment, because Germany simply did not have the money, and there were far more important issues at stake...

Through his first year in Germany [1933], Dodd had been struck again and again by the strange indifference to atrocity that had settled over the nation, the willingness of the populace and the moderate elements in the government to accept each new oppressive decree, each new act of violence, without protest...

Dodd continued to hope that the murders would so outrage the German public that the [Hitler] regime would fall, but as the days passed he saw no evidence of any such outpouring of anger...

For Dodd, a diplomat by accident, not demeanor, the whole thing was appalling. He was a scholar and a Jeffersonian democrat, a farmer who loved history and the old Germany in which he had studied as a young man. Now there was official murder on a terrifying scale. Dodd's friends and acquaintances, people who had been to his house for dinner or tea, had been shot dead.

Hitler's purge [June 30, 1934] would become known as 'The Night of the Long Knives,' and in time would be considered one of the most important episodes in his ascent, the first act in the great tragedy of appeasement...

This lack of reaction arose partly because many in Germany and elsewhere chose to believe Hitler's claim that he had suppressed an imminent rebellion that would have caused far more bloodshed. Evidence soon emerged, however, that showed that in fact Hitler's account was false...

The controlled press, not surprisingly, praised Hitler for his decisive behaviour...In a letter to Hull, Dodd forecast an even more terroristic regime... 'The people hardly notice this complete coup d'etat. It takes place in silence...I would swear that millions upon millions have no idea what a monstrous thing has occurred.'"

Erik Larson, The Garden of Beasts

Slouching Towards Bethlehem: Double Dip or Banana Split?

"If the 2010 contraction we are now monitoring in consumer demand for discretionary durable goods scales to the full economy as faithfully as the "Great Recession" did, the second dip will, at minimum, be 33% more painful than the first dip and will extend at least half again as long."

This is the case for trouble dead ahead, a worse decline in consumer activity and therefore GDP than the first, and the likelihood of further quantitative easing from the US Federal Reserve to patch over the inability of the political process to reform the financial system and balance the real economy because of their myriad conflicts of interest. These policy errors favoring a small minority will most likely result in a stagflation of the most pernicious and corrosive kind, high unemployment and a rising price of essentials, that may ultimately test the fabric of society. Obsession and sociopathy are not generally ruled or limited by the equilibrium of common sense and ordinary appetite, so I would not expect the powerful minority to draw back from the brink of this crisis voluntarily: a classic scenario for exogenous change. I would enjoy the moral irony of all this if I was watching from the distant future.

The good want power, but to weep barren tears.
The powerful want goodness: worse need for them.
The wise want love, and those who love want wisdom;
And all best things are thus confused to ill.

Shelley, Prometheus Unbound

NBER: Double Dip or Banana Split?
Consumer Metrics Institute
September 21, 2010

We founded the Consumer Metrics Institute precisely because we felt that the economic bureaucrats in Washington were out of touch with the economy that most of us live in. They remind us of those patients sitting in wheelchairs in the "memory impaired" wards at nursing homes: with crystal clear recall of 1937 but no clue about what they ate for breakfast. Thank you, NBER, for making our case.

In contrast, we measure what consumers are actually doing on a daily basis. If, for the sake of argument, we accept that we are not experiencing just "one big scoop," but rather a "double dip" (thereby making the 1930's a "banana split"), we can show evidence that the first dip ended early in 2009. Arguably, we've been monitoring in real-time what could be viewed as two independent consumer demand contraction events that were separated by a stimulus induced "sugar high" last summer. If so, the first dip is ancient history. What is important now is future course of the second dip -- which may just now be revealing itself.

We are far enough "up-stream" in the economic cycle that we can measure changes in consumer demand for discretionary durable goods long before those changes flow "down-stream" to the factories and the GDP. From our up-stream vantage point the "double dip" is not hypothetical, but rather something that we have been watching unfold on a daily basis since January. Now, for the first time, we may have measured what will be the worst of the second dip when it eventually hits the factories -- all because, ironically, our data has started to improve.

Over the 45 days from August 1 to September 15, our Weighted Composite Index has improved substantially, rising from recording a year-over-year contraction rate in excess of 9% to recently registering a contraction rate much nearer to 3%. This is the largest positive movement that we have seen since late 2009. That said, it is important to remember that consumer demand for discretionary durable goods is still contracting, albeit at a slower rate. But the improvement has stopped (at least temporarily) the decline of our 91-day trailing quarter average (our Daily Growth Index):



Our Daily Growth Index reached a -5.86% contraction rate on September 12, which was fully 97% as bad as the worst contraction rate reached during the "Great Recession of 2008" (-6.02% on August 29, 2008). A calendar quarter of comparable GDP growth has occurred among only 1.29% of all quarters of U.S. GDP growth recorded by the Bureau of Economic Analysis of the U.S. Department of Commerce, since the spring of 1947. This corresponds to level of contraction that should be expected only once in 19.4 years, and it comes close on the heels of the 2008 contraction that should occur only once in every 21.4 years.

One of the tools that we have used to monitor the 2010 contraction event is a chart that we call our "Contraction Watch," which overlays graphically the day-by-day progression of the current 2010 contraction onto the "Great Recession of 2008":



In the above chart the two contractions are aligned on the left margin at the first day during each event that our Daily Growth Index went negative, and they progress day-by-day to the right, tracing out the daily rate of contraction. This chart conveys important information about the 2010 event, in particular how it differs in profile from the "Great Recession of 2008." It has now lasted three weeks longer than the "Great Recession" and is perhaps only just now forming a bottom. Furthermore, that bottom is very nearly as low as the one experienced in 2008. Even if the 2010 contraction immediately starts to retrace the recovery pattern seen in 2008, we should expect at least another 120 days or so of net contraction before the consumer portion of the economy is growing once again.

We have previously pointed out that the true severity of any contraction event is the area between the "zero" axis in the above chart and the line being traced out by the daily contraction values. By that measure the "Great Recession of 2008" had a total of 793 percentage-days of contraction, and its severity can be visualized as the amount of area covered by red in the chart below:



Similarly, the current 2010 contraction has just reached 592 percentage-days, and its severity can be visualized as the amount of area covered by blue in this chart:



The blue area above already covers about 75% of the area covered by the 2008 "Great Recession", and the curve has only just begun to start back up. Looking ahead, should the 2010 event recover from its bottom exactly like the 2008 event did, it would still experience another 466 percentage-days of contraction before ending -- resulting in a grand total of 1058 percentage-days of contraction for the 2010 event, fully 33% more severe than the "Great Recession of 2008."

That probably bears repeating: if the 2010 contraction we are now monitoring in consumer demand for discretionary durable goods scales to the full economy as faithfully as the "Great Recession" did, the second dip will, at minimum, be 33% more painful than the first dip and will extend at least half again as long. This, of course, assumes that stimuli comparable to those seen in 2008-2009 will be available to cause such a recovery during 2010-2011. Furthermore, the upturn that we measured in 2008 started when unemployment was still at a 6.1% rate, substantially better than we are observing now. Absent fresh consumer stimuli and dropping unemployment rates, the consumer demand contraction we are witnessing now could very well linger even longer.

Supporting that concern is the shape of the 2010 contraction in the above charts, which is significantly different from that of the "Great Recession of 2008." Of particular interest is the fact that in 2010 consumer demand plateaued for some time in a zone between 1% and 3% contraction from about day-25 through about day-180, before falling off the plateau. Since our data is always reflecting year-over-year changes in consumer demand, we had anticipated a sharp dip in our index as an inverted reflection of the stimuli-induced "green shoots" of late last summer. The long plateau described above, however, is not a reflection of any such now lapsed stimuli -- and as such it may be a new normal baseline for a lingering consumer contraction. Before we get too excited about a new recovery we will wait until our Daily Growth Index breaks significantly above the plateau levels visible in the 2010 line within our "Contraction Watch."

We are monitoring the behavior of internet shopping consumers on a daily basis. Those "up-stream" consumer activities will flow "down-stream" to factories and the GDP over the course of weeks or quarters. It's really not unlike being far up a great river and watching a water-level gauge predict that communities further down the river will be flooding catastrophically in a few days or weeks. Although our flood-gauge may have just peaked, unfortunately the damage further downstream remains inevitable -- it simply hasn't arrived yet.

Where We Are Today: Interest Rates 'Too High,' Double Dip on Deck, the Failure of Economics

David Rosenberg of Gluskin Sheff is a daily read of mine. His most recent breakfast message does a remarkably concise job of summarizing the US financial markets.

The reason for the gold market rally is obvious; declining production in the face of record monetization and increasing demand. The same financial engineers in the central banks that ruined the economy had been suppressing the price of gold through managed sales for almost thirty years in a desperate reaction to the Nixon assault on Bretton Woods in 1971. And now we see the fruits of their long contrivance, and its inevitable failure. The world will have to develop a replacement to this incredible farce we call globalization and world trade based on arbitrary and easily manipulated values.

At the same time, Dave points out that according to the Taylor Rule the Fed is overly tight, even with ZIRP! We have spoken about this in the past, in making a distinction between quantitative and qualitative easing. This also speaks to the massive deformity which the US economy had become under first Greenspan and then Bernanke, and a financial sector turned outsized predator, with little connection to real market discipline of supply and demand thanks in large part to the proliferation of derivatives.

Ben could mitigate this with the interest payments on reserves which the Fed is now allowing. I suspect at some point he will, even taking them negative if necessary. But the Fed's first priority is the insolvent Wall Street firms, and the continued charade that allows them to still pay outrageous bonuses while the nations suffers between the hammer of unemployment and the anvil of a toxic disaster in the Gulf and the collapse of its local economies. The first policy failure was in not nationalizing the insolvent US banks like Goldman and liquidating them. The second policy error is the failure to engage in serious financial reform, severely curtailing the derivatives market to something more resembling a well regulated insurance industry, and separating it completely from the commercial banking system.

It takes a certain kind of mindset and attitude to understand this dynamic, and few economists have yet taken up that challenge; economic contraction in the face of very low interest rates, with gold soaring in a bull market while long term inflation vectors are near record lows. It should be acknowledged that the Fed is active in the markets, 'tinkering' with the longer end of the yield curve among other things. And of course, derivatives, easily printed and without position limits, are pressed on various targets in the real economy almost at will by the banks and hedge funds, distorting prices and markets, destroying real wealth.

And yet this is what we have, facts in collision with theories. The austerity reaction in Europe is the resurrection of Hoover, of the liquidationism which drove the US into the agony of the trough of the Great Depression of 1933. This was of course the moment of failure for the Austrian School. It is one thing to be able to spot a problem and to stop it ahead of time, which their theories do well. But the Austrians seemed unable then, and now, to recommend practical and implementable programs to remedy the current situation in which the US now finds itself.

This is not to say the theory has failed, but rather that it has intellectual arteriosclerosis and atrophy. It is one thing to read and write about riding a bicycle or having sex; it is another thing to get out of your rooms and do it, and actually learn something. To their credit they were certainly not fooled by the neo-liberals. But their response is little better than the neo-Keynesians, which is to reflexively stimulate or liquidate without practical reforms and actually fixing the distortions which policy errors over a long period of time have caused.

I have to admit that I like to tweak the nose of 'the Austrian school' now and then. But since I tend to hit the neo-liberals with brass knuckles, and the neo-Keynesians with the kind of premeditated distance one gives to a crotchety old maiden aunt dwindling into senility, I would hope they understand that it is not personal; all of the modern schools of economic thought have failed. All of them, for varying reasons. That is all well and good and human, but it is the lack of recognition of that failure, and the resolution to adapt and do better, and to roll up one's sleeves and actually shame the politicians into doing better for the people, that is so cloying.

The failure of economists in general to speak out, except in the usual sniping reminiscent of departmental politics, is leaving the field open to quackery, and the draconian measures of oligarchy. Just as their failure to speak out permitted China to distort the world economy, and Greenspan to destroy the economic infrastructure of the US.

The current economic landscape seems littered with self serving cronyism, broken theories disconnected from reality, quackery, and obtuse boasting from dismal failures. Economics seems more like astrology, or Elliot Wave theory, or the writings of Nostradamus, with so little rigor that it can be used to 'prove' or justify just about any outcome, after it has happened. In short, economics seems these days to be little more than propaganda, social commentary rather than harder science or something as simply practical as mechanical engineering.

What I am saying is that all the economic schools of thought have come up short, failing badly, the free market neo-liberals most spectacularly of all. Their failure is not in having got it wrong, but in continuing to beat the dead horses of their theories until the stench is unbearable.

The lack of significant financial reform, and restraint of unbridled speculation through the use of derivatives, is going to strangle the western world until they can bring themselves to restrain their banking system gone mad.

The U.S. turned 234 years old yesterday, and yet over half of the nation’s money supply was created since Helicopter Ben took over the flight controls four years ago.

No wonder gold is in a full fledged bull market. The annual output of gold has declined 12% in the past decade while the marginal cost has more than doubled, to $500, according to David Hale. Moreover, David points out in his recent report that since 1900, more than 80% of the world’s proven reserves have ready been mined.

The marginal cost of pressing on Dr. Bernanke’s printing machine is basically zero, and, the prospects of a re-expansion of QE by the Fed as double-dip risks rise with each and every passing data-point are rather high.

Gold has corrected to the 50-day moving average in recent weeks, which in the past has been a terrific entry point — for the past six months, each low has been higher and each high has been higher too. Nice upward channel that is to be respected and to be bought.

As for double dip risks, the ECRI leading index is predicting over 50-50 odds of such, and is exactly where it was in December 2007 when unbeknownst to the vast majority at the time that the downturn was just getting started.

As an aside, even after cutting his growth forecast on Friday, Bank of America’s chief economist went on CNBC after the market closed and declared that the economy would manage to “muddle through” — this has now become the widespread consensus that all this is nothing more than a temporary soft patch. [akin to quicksand, an economic netherworld such as that which the kereitsu inflicted on the people of Japan - Jesse]

Jeffrey Frankel, a member of the NBER’s business cycle committee, had this to say over the weekend:

“You cannot rule out a double dip, in light of Europe’s problems … I think the next couple of months of indicators will be more telling than the last couple of months.”

Economists have spent so much time trying to assess when the last recession ended that they have taken the eye off the ball as to when the next one would begin. Yet this is what the NBER is grappling with — maybe the same day the NBER announces that the last recession ended in June 2009, they will tell us that another one began in June 2010.

Can a sub 3% yield on the 10-year note and the “flattest” Treasury curve (still near 230bps, mind you, for the 2s/10s spread) in nine months really be sending out the wrong message of heightened hard-landing risks? Or, for that matter, the lowest close in the S&P 500 since September 4th of last year. Did anyone back then think we would go from Labour Day to Independence Day with nothing to show for it?"

...What does not get enough play is that Fed policy is tighter than it should be right now, based on the Taylor Rule, believe it or not — zero policy rate and the size of the Fed’s balance sheet is equivalent to a -2% rate, when at this stage the two tools should be equivalent to a -5% rate. [We might have an effective negative rate if the government had not fouled the measures of inflation - Jesse] And, fiscal policy is actually far less stimulative than meets the eye when the impact of State/local government restraint is factored into the equation. In the past two months, whether one looks at the Kansas City or St. Louis Fed’s stress indices, there have been 60 basis points of tightening in overall financial conditions, just as the economy is hitting a possible inflection point.

David Rosenberg, Gluskin Sheff, Breakfast with Dave

A double dip recession will be a strong indication, if not a proof, of policy error, both on the part of the Federal Reserve and of the Obama Economic Team. When the recession can no longer be hidden from the public the reaction could be swift. The oligarchs are acting pre-emptively to cushion the blow on their ill gotten gains by preaching austerity measures, at a time when the lower and middle classes are taking it on the chin. Empathy and common sense have little place with obsessive sociopaths

Part of the problem is the China peg to the US dollar. This obviously thwarts the international market's system of checks and balances, its ability to adjust naturally to changes in economic fortunes. That peg and devaluation ought never have been allowed.

But this is merely one instance in a series of economic manipulations and sometimes aggressive deceptions by the world powers that have been occurring since 1971, when Nixon unilaterally broke the Bretton Woods regime and took down the international gold standard, and not incidentally brought Greenspan into the service of the federal government.

Reform is the only solution that is sustainable. Austerity or stimulus without reform are worse than useless. One does not fix a car with a blown engine by flooding it with gasoline, since it did not run out of gas, but in fact blew up from prolonged abuses and disrepair. And on the other hand, one cannot restart the economy by watching it burn, waiting for the flames to extinguish themselves, hoping for a chance to start over anew and do it 'the right way' according to theory. By the time you would wish to get started, there will have been a revolution conducted by the impatient and long suffering people. So what does one do?

You fix it. You restore it to a state when it was last actually working, and resist the temptation to 'optimize' and redesign it on the fly, cramming in pet projects that surpass performance tweaks. That can come later, after the system is running again in some reasonable way. You take the harder hits when they can be absorbed with toppling the recovery.

That is how it is. Everything else is noise, excuses, partisanship, and waffling.

SP Daily Chart: Looking Ugly as Baghdad Barrack Declares Economic Victory

By now you will have heard about the shocking miss on the US Payrolls Number, made even more shocking by the cheerleading that preceded it by the likes of Goldman Sachs(who were probably on the other end of that trade> and by Barack Obama himself.

The administration had nothing constructive to say this morning except for mindless sloganeering by the likes of Christina Romer, Obama's chief on the Council of Economic Advisor, who is unlikely to inspire confidence when delivering even good news, much less a clear sign of economic policy errors and a double dip in the making.

With Romer, Summers, and Geithner, the President has managed to put together the economic scream team. Even Volcker is starting to look tired and ineffective. His recent proposal of a VAT, the most regressive of taxes, sounded less like a democratic reform and more like something from the Bilderberg playbook. One has to wonder how long will it be until they start recommending the sale of key sovereign assets to corporate oligarchs.

And then there was Baghdad Barrack, talking up the economy and the jobs numbers this morning at a Maryland truck garage. He seems to be trying to run a bluff, talking his way past his team's economic policy errors and corruption, a reflexive strategy that may have served him better when he had no real responsibilities or quantifiable results.

One might feel better if the other party had not already proven itself to be the party of the elite and the wealthy special interests, without vision or ability, creating many of the problems that are sinking the US today. Things do indeed seem bleak when the reform government fails.

It appears that the SP futures may be forming a bear flag, with another big step down to follow. That would be 'bad news' because below the support at 1040 is a disturbing possibility of a triple digit SP 500.

Chart Updated at 3:30 EDT

The Economic Policy Error Behind the Stock Market Rally and the Next Phase of the Financial Crisis

"The 20th century has been characterized by three developments of great political importance: The growth of democracy, the growth of corporate power, and the growth of corporate propaganda as a means of protecting corporate power against democracy."

Alex Carey

The strategy of the Bernanke Federal Reserve and of the Obama Administration's economic team is fairly clear: prevent the bank failures of the 1930's by propping up the biggest banks with huge infusions of publicly subsidized capital, and hope that they start lending again as the economy recovers. It is a variation of the 'trickle down' theory of economics adjusted by the perceived Fed policy errors of the first Great Depression, with little from the New Deal programs.

Bernanke is famously a student of the first Great Depression, even as General Joffre, the architect of the Ligne Maginot, was a student of the first World War. And Larry Summers is remarkably similar to Marshal Pétain. Tim, on the other hand, seems to be a student of very little, not even apparently of the tax code which he administers, except perhaps the art of being a manservant, a valet to the powerful.

Failure number one of course is that the banks that they chose to support are not responsible commercial banks engaged primarily in lending to small business and localized activity. Those banks are the local and regional banks that are failing in record numbers. The banks they chose to save are those who have heavily contributed to the campaign coffers and job prospects of Washington politicians. Goldman Sachs, for example, is a glorified hedge fund dedicated to speculation and enormous amounts of leverage. One only has to look at the source of their profits to understand what it is that they do with their capital and energy. And it is largely from 'trading.'

Bernanke has (so he thinks) cleverly tied up much of the liquidity with which he has infused the banks as secure reserves which are paying riskless returns thanks to his innovation in sustaining a floor under the ZIRP by paying interest directly. But if you look at what he is doing, and all Bernanke has done, even in his buying a trillion dollars of bad mortgage debt, he is merely rescuing well-heeled creditors and the banks and hedge funds who engaged in reckless speculation during a housing mania that the Greenspan Federal Reserve had fostered, using the very funds from the people who were most greatly harmed. It is an almost perfect betrayal.

If the Administration and the Congress then succeed in paying for this subsidy to the wealthy by redirecting the Social Security funds which the people have already paid to the government trust fund, by making the case that they already have been expropriated, the betrayal would be complete.

The lack of productive investment and genuine stimulus for the real economy seen so far in the enormous subsidies put forward is appalling. Bernanke and his colleagues Larry Summers and Tim Geithner would have us believe that they had no choice. But informed and experienced commentators such as William K. Black have told us how they have misrepresented their choices.

Their current policies seem to lead the US into a 'zombie economy' at best, in which the Banks are doing well, but almost everyone else suffers from stagflation, particularly the lower and middle classes who obtain their income from productive labor. At worst, the bubble bursts again, and there is another, more furious, leg down, with greater and more lasting damage done to the ordinary people.

So what would have worked? The Fed and Treasury could have backstopped the public instead of the Wall Street banks. They could have temporarily increased and extended the FDIC coverage to much higher levels to guard against further bank runs and depositor losses, and then started dismantling the Wall Street banks through orderly liquidations. What message would this have sent to both savers and speculators? What message has been sent instead?

They could have provided liquidity more directly to the commercial paper markets, rather than trying to shove it through the failing Wall Street banks with much heavier costs and asset support. They needed no new laws or tools to do this. And financial reform and higher taxes on those who obtain outsized wealth without productive work would have curtailed a recurrence.

For example, the Treasury program to forestall mortgage foreclosures has helped in total, since its inception, a total of approximately 167,000 families. This is in a period in which about 200,000 families PER MONTH were losing their homes. And during which time the too big to fail banks were paying out enormous bonuses as though nothing had ever happened to 'retain talent and reward performance,' even while receiving subsidized funds. Its tough love for everyone, from homeowners to wager earners to local banks, except for the ringleaders in Wall Street. And they continue to resist and lobby against even modest reforms, spending millions per day on Washington to buy influence, with your money. This is a banana republic, nothing but crony capitalism.

So why did they do what they did? Are they in league with the banks? Was this some sort of conspiracy? No, I doubt this, although there are far too many secretive aspects to completely dismiss it. And most recently the threat of criminal charges for the NY Fed in their coverup of the AIG bailout by the lone independent investigator, Neil Barofsky, who was appointed by the outgoing presidential administration.

It is important to recall that none of these men have ever held a productive job in the real economy in their entire lives. Even young Tim is no spring chicken at age 48.

They were always the pampered products of the academy, Wall Street, and the government. Even though Mr. Obama has served the community at the street level, he shows none of the tempering of judgement and skills that one perceives in someone who has had to stand their time in the arena of leadership. He is best described as an influencer, an organizer of a timid degree compared to the giants that preceded him in this field. It seems to have been more of a stepping stone to a power base than a calling.

So they took care of their own, the biggest institutions, because that is their weltanschauung, their bias, or view of the world. It has been said that the Federal Reserve is the worst place to locate certain aspects of banking regulation, because they have a complete aversion to ever allowing a bank to fail, as it is a virtual admission of personal failure. It runs against their nature. That is why the FDIC is much more effective in this, as they do not own, or are not owned by, the banks. That is also why placing Consumer Protection Against Banking Abuse is a cruel farce. Couple this with a career experience in which the world is viewed through the lens of cost plus monopoly business management, and privileged power, and their inability to make the tough but effective decisions seems more understandable.

And the promise of future positions, and large amounts of lobbying money to their friends and mentors and sponsors, and the policy error that is ruining the country seems more understandable.

So now we have another asset bubble in the making, a new Ponzi scheme in the US equity market fomented by the Wall Street Banks packed with public funds, seeking to drive prices higher, for the apparent reason of obtaining confidence from the public, but with the effect of selling assets at inflated prices to public institutions yet again, with the inevitable collapse to follow when the reality of their value is discovered. And so the credit crisis will morph into a currency and sovereign debt crisis.

What a shame. What a disappointing performance for a reform government that promised change that the people could believe in.

"...surveys show that the usual investors in major rallies – pension funds, hedge funds and retail investors – have not been net buyers of equities. And he says the most likely explanation for this anomaly in the biggest stock market rally since the 1930s is that major investment banks are the anxious buyers.

“Their buying would appear to be for one of two reasons. Firstly because they think the authorities will prevail in their (so far unsuccessful) efforts to inflate their way out of debt liquidation; or secondly because they are too big to fail and so can afford to take a huge gamble that enough buying will convince others to rush in and buy their inventory of risk assets at even higher prices."

Financial Times, Equity Rally Not Driven by the Usual Investors, Financial Times, April 28

And it should be noted that the Wall Street demimonde, the financial media, the financial commentators regulators and legislators, are widely supportive of this, because they draw they pay and employment prospects from an enlarged financial sector. So they are natural enthusiasts. Similem habent labra lactucam.

And of course there is the mainstream media, which is generally silent, or simply pleads confusion and ignorance, when things financial are discussed out of deference to their corporate owners, and the difficulties of actually engaging in investigative journalism, rather than acting as a guest host to a competitive debate among lobbyists and ideologues. It is the path of least resistance, and greatest returns. And it leads to an economy that consists of little else besides usury, propaganda, and fraud.

"I promise you a new Rome. I promise you a new Empire." Marcus Licinius Crassus, who defeated Spartacus, and helped give rise to the first of the Caesars

Why be negative? Better to be playing safe while Rome burns and the Republic falls.

Managing Perceptions: Fed Raises Discount Rate After the Close

"The last duty of a central banker is to tell the public the truth." Alan Blinder, former Vice Chairman of the Federal Reserve

In a largely symbolic move, the Fed raised the Discount Rate after the bell by 25 basis points to .75%.

As you know, the Discount Rate is the interest rate that the Fed charges banks who borrow from them short term on an emergency basis.

This is the shaping of perception by the Fed. It does not raise rates for the consumer or businesses, and does not affect the rates and guarantees in the many Fed and Treasury programs which are still supporting the commercial banks.

One has to wonder why the Fed chose to jawbone at this time. Is this a move to help them with next week's $100+ Billion Treasury auction? We are discounting rumours that the nose counts among the Primary Dealers showed the risk of another 'failed' auction was rising.

Or was this mainly to provide another opportunity for the bullion banks to take the prices down ahead of their option expiration next week? Plan B stands for Bernays.

"We looked into the abyss if the gold price rose further. A further rise would have taken down one or several trading houses, which might have taken down all the rest in their wake. Therefore at any price, at any cost, the central banks had to quell the gold price, manage it. It was very difficult to get the gold price under control but we have now succeeded. The US Fed was very active in getting the gold price down. So was the U.K." Eddie George, Bank of England Governor to Nicholas J. Morrell

Its all about managing perception.

When the Fed starts backing off on quantitative easing, we will know that things are truly changing. Bernanke is all too aware of the Fed's policy error in 1931 of raises rates prematurely, which caused the second leg down to the trough of the Depression in 1933. So let the Fed wave their hands all they want, but watch the Adjusted Monetary Base. In other words, its not what they say, but rather what they do.

One wonders if Obama is also aware of Hoover's policy error in trying to balance the budget as the nation slid into the most serious part of the Great Depression. He is certainly no FDR, and the nation is unlikely to be on the road to recovery during his hapless Administration. Will he, like Greenspan, later confess that he erred for a theory, a mistaken belief? A small comfort for those they have ruined.

Man wird nie betrogen, man betrügt sich selbst.
[We are never deceived; we but deceive ourselves.]
Johann Wolfgang von Goethe

WSJ
Fed Raises Discount Rate Quarter Percentage Point
By LUCA DI LEO And JON HILSENRATH

WASHINGTON— The U.S. Federal Reserve Thursday raised the rate it charges banks for emergency loans by a quarter percentage point, but emphasized that the step didn't represent a broader tightening of credit.

In a widely expected move, the U.S. central bank said the increase in the discount rate to 75 basis points from half a point was part of its step away from its emergency-lending efforts. The increase will be effective from Friday.

"Like the closure of a number of extraordinary credit programs earlier this month, these changes are intended as a further normalization of the Federal Reserve's lending facilities," the Fed said in a statement...