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I had to chuckle a little today as the corporate spokesmodels on Bloomberg were reviewing the day's trade, and noted the slump in gold with the VIX spiking and stocks slumping, as out of character. 'Duh, what's up with that?' was the most insightful comment of the day.
So, we have had round one of the post option expiry 'gut check' which I had suggested would occur. It was a little more intense than the chart might suggest, because ordinarily gold would have been rallying hard up to the 1650 level on a day like today. But that was not in the cards as dealt from the bottom of the deck.
So what next? I think gold and silver will consolidate and chop around until the deficit discussion is resolved, one way or the other. And I am still in a very defensive position against a correction because we have come far and fast, and the Wall Street wiseguys just do not have the goods to cover their bets, so they have to continue running their bluffs.
La Douleur back-kissed the key trendline it had just broken, so no strong clue there yet. It still is in a position to rally short term and retake the upper end of the trend. A lot of this depends on short term policy decisions in the States.
But in the long run, paper will deteriorate, because it has nowhere else to go. The end game for the eggheads is a worldwide central bank setting fiscal policy and dictating values under the direction of a few senior pigmen. I don't think they will get it, or at least just yet.
"State-sponsored [financial] terrorism is the systematic use of [economic] violence to create a general climate of fear in a population and thereby to bring about particular political objectives. It is employed by governments, or more often by extremist factions within governments, against that government’s citizens, against factions within the government, or against foreign governments or groups.”
Encyclopaedia Britannica
Wall Street was strapping on its dynamite duds today, preparating to bring a little more pressure to bear on the deficit reduction talks. Give us what we want or we will a) crash the economy b) move our jobs to the Cayman Islands c) stop contributing enormous sums to fund political campaigns d) all of the above.
And the major players are in intense meetings with the principals, from both the financial demimonde (ratings agencies) and the political swamps (congressman on payroll), getting briefed on what will actually happen so they can maximize their returns.
Just another day in the 'hood with the hoods.
What you see is not what you get.
In all this excitement, no one seems to remember that the President unilaterally refused to play the Bush tax cut card back in June. At least in public. I suspect strongly that the deals are being made behind the scenes, and much of what passes in public is for show, and political diversions.
The tax cuts expire in 2012. They offered an excellent bargaining chip, and one of the key drivers, along with the two unfunded discretionary wars and the out of control financial sector, of the current financial crisis that took the US from surplus to crisis in roughly ten years. If you were going to use that chip, the time to have done it was now, and not in an election year. And in a budget crisis not using it looks to be highly ideological if not mildly insane.
Obama is either a well-prepared Manchurian candidate for the monied interests, something I am not dismissing, or playing chess on a multi-dimensional board that I still do not quite understand, something which I am also not willing to dismiss completely just yet, but it does not look very likely. He could also be a haplessly inept idiot at the mercy of his advisors, but I doubt that very much now.
Bush was easy to read, as was Clinton, at least after the few two years. Obama is a bit harder, but perhaps that is by intent. Good or ill, I cannot yet tell. He keeps getting the benefit of the doubt, but as I said on his 100th day in the Presidency, that time is over and done.
No matter the motives, actions speak louder than words, and at the end of the day, he is a disaster, a betrayer to his supporters, a decidedly ineffective and uninspiring leader, a faux reformer, and likely to go down in history as one of the great unrealized moments in greatness, like Jimmy Carter or even worse, Andrew Johnson. And that is a shame, because it was entirely avoidable.
But for all those smug "I told you so's" out there, Obama is still probably better than having the Alaskan reality show star a shaky heartbeat away from the presidency, a truly frightening prospect that most people forget. McCain flamed out and sold out before his moment came, and I suspect it was because he had no other choice in a crony corporatist party that rules its members by threat and decree. Lack of dissent does not always imply a unanimity of thinking.
The door may be open for a viable third party movement in 2012. I would even welcome a primary challenger from the Democrats, in the manner of Robert Kennedy and Lyndon Johnson. But where is there any US politicians of that character, that level of leadership?
You may also wish to read The Weirdness of the Ten Year Deficit Reduction Discussion by James Kwak.
The Baseline Scenario
Two Can Play
By James Kwak
26 July 2011
Quick, what was the greatest conservative accomplishment of the George W. Bush presidency? It wasn’t Medicare Part D: that was a clever way to steal a Democratic issue and pass it in a form that was friendly to the pharmaceutical industry. It wasn’t Roberts and Alito: yes, they are young and conservative, but the majority is still only 5-4. It wasn’t Social Security privatization: that didn’t happen. Iraq? Getting political support to invade Iraq was a major coup, but everything went downhill from there.
The answer is obvious: the tax cuts of 2001 and 2003. Together, they were a wish list of conservative tax policy: a reduction in the top marginal income tax rate from 39.1 percent to 35 percent; a reduction in the top rates for capital gains and dividends to 15 percent; much higher contribution limits for tax-preferred retirement accounts (meaning that if you have enough money to save, you can shield more of it from taxes); and eventual elimination of the estate tax. In total, when fully phased in, the Bush-era tax cuts sliced almost 3 percent of GDP out of federal government revenues.*
And most of that money stayed in the pockets of the wealthy. According to the Tax Policy Center, 65 percent of the dollar value of the tax cuts (in 2010, once the 2001 and 2003 tax cuts were phased in) went to the top income quintile, and a staggering 20 percent — that’s tens of billions of dollars — went to the top 0.1 percent. Even if you look at the impact in percentage terms, the rich still took home more than their share: after-tax income went up by 0.7 percent for the bottom quintile, 2.5-2.6 percent for the middle three quintiles, 4.0 percent for the top quintile, and 8.2 percent for the top 0.1 percent.
Everyone knows all that already. Who cares? The point today is that President Obama can make this epic conservative victory vanish by snapping his fingers. He can say, “I promise to veto any bill that extends any of the tax cuts.” (Or, if he prefers, he can say, “I promise to veto any bill that extends any of the tax cuts, except the income tax rate reductions for the ‘middle class.’”)
Why would he do such a thing? Think about where the debt ceiling negotiations are today. The House Republicans are effectively holding the financial system and the economy hostage, demanding a massive, spending-cuts-only deficit reduction package. What makes this a smart move (where “smart” is defined solely in terms of likelihood of winning, not the risk being taken) is that if they can force Obama to choose between (a) raising the debt ceiling on their terms and (b) not raising it at all, he is going to choose (a). Even if he would be better off politically letting the government default and blaming it on the Republicans, no one thinks he would actually let it happen.**
Well, Obama has a hostage, too, if he wants to use it: the Bush tax cuts. From the Republicans’ position, just thinking about themselves and what they want (not about the country as a whole), are a few trillion in spending cuts over ten years — averaging something like 1.5 percent of GDP — worth giving up the greatest accomplishment of the entire conservative revolution?
Now, I’m not enough of a political strategist to know exactly how this would play out. For Obama to use the threat, he has to be willing to go through with it. That means mutual assured destruction: the Republicans insist on $3 trillion in spending cuts as the price to pay for raising the debt ceiling; Obama agrees in order to prevent default; and then Obama lets $3-4 trillion in tax cuts expire. Politically, it means being willing to argue in 2012 that letting the tax cuts expire was the right thing for the country. But that’s not an impossible case. Back in 2001, every aspect of the tax cuts was unpopular, other than the fact that they were tax cuts. (See Hacker and Pierson, Off Center, pp. 50-51.) Alternatively, Obama could propose a bill that extends just the “middle class” tax cuts on a take-it-or-leave-it basis.
As I said, I can’t tell you what the political percentages are. But it seems to me there has to be some leverage here that Obama can use — if he wants to.
* In the January 2007 Budget and Economic Outlook, the total 2017 cost of extending all the tax cuts, in addition to but not including patching the AMT, was projected to be $616 billion (Table 1-5), or 2.9 percent of GDP. I chose the 2007 projection because (a) it goes out to 2017, which is when some tax cuts were scheduled to expire and (b) it is before 2008, when the tax cuts to stimulate the economy began.
** What makes it a somewhat less smart move is that, with the Senate in the hands of the Democrats, the Republicans have no clear way of forcing Obama to sign or veto their deficit reduction bill. If the two houses can’t agree on a plan, Obama can avoid having to make the choice (and the end of the world will be Congress’s fault).
Obama Gives in to GOP on Bush Tax Cuts, and More
By Thomas Hartmann
Tuesday 28 June 2011
Yesterday – Senator Bernie Sander wrote a letter to President Obama telling him not to give in to Republican demands in the debt limit negotiations – and to fight for “shared sacrifice” by taxing millionaires and billionaires along with any new spending cuts. Unfortunately – the President didn’t get the message and the White House stated yesterday that the President is taking repealing the Bush tax cuts for millionaires and billionaires off the table. Which leaves mostly spending cuts targeting working families still on the table. Looks like America's oligarchs - and the Republican Party they own - win again."
The corporatist strategy has been to give generous tax cuts to the wealthy, spend money like drunken sailors on things that benefit the monied interests, and then declare a budget crisis and take the difference out of the hides of the middle class, the weak, and the elderly. So far Obama is following the same playbook, with a little dusting of compassionate sounding hoo-hah.
Stock futures fell to the familiar key support around 1307. The same principles on this chart still apply. 1295 is very important and below 1290 is an area very near to the edge of the cliff.
I am sitting largely in cash now this morning for the short term. I wanted to distance myself from the market, and provide an opportunity to think more about the current situation. Taking profits seemed like the right thing to do.
If you give people blanks, they sometimes fill them in as they will. And so I was reflecting on some email exchanges of the past several weeks. I do not have a comments section here, because I do not have the time or energy to moderate it. I did that once for a friend and it put me off it forever. But I do have an active email and take comments on it all day long. I moderate the frivolous and ugly with a spam filter lately and it seems to be working well.
Why do I put forward these thoughts? Why don't I charge for it, or take ads? Why don't I do interviews and speak at rallies, and direct a group of followers to promote messages in comments and 'pile on' to those who do not agree with us?
As I recently answered to a fellow blogger, because I do not need the money. So why bind myself to some agenda, even if a little, by taking it? I give out of the excess and abundance given to me. Yes, there are definite sacrifices and self-limitations, and they extend to family. And that is sometimes a cause for unease. But the necessities are covered.
Why do I witness to my beliefs, and alienate some worldly and influential people, and even believers with different viewpoints and prejudices, and incur the consequences of diminished opportunity? It limits the acceptability of my message in many sites and areas. You might be surprised, but it does. And it hurts. And the ability to see the ugliness for which people can be capable is discouraging. But then there are the consolations that seem to come, as they are most needed, from the most unexpected sources, the kind word, the occasional graciousness of the spirit.
This is not some incidental thing, it is what I am, it defines me. I am not my own, to do as I will. I owe a triple allegiance to the truth and what is most human, the very pinnacle of existence, by creation, by redemption, and by continuation. If I do not do good when there is a price to be paid that is in reality very slight as these things go, how could I expect to pay the price when the stakes are high?
What is it that I want? I don't want anything. This is why I shun the spotlight. I want neither money nor followers, nor recognition or fame. I want to be a simple, honorable man. Husband and father. And that is work enough for anyone.
What makes me think I can know the Truth? Why do I sound so much like a leftist lately? By the way, I find that particularly ironic, since I am a life long pragmatic conservative in the tradition of Edmund Burke, with a tinge of the libertarian. It just shows how far things have shifted from center.
I have a scientific mind, so I do not proceed from the assumption that I know the truth in this world, as truth is a never ending journey, a way of life that one never reaches until the very end of this world. So I start at the bottom and slowly, carefully, work up from there, taking things where they lead me, constantly reviewing the landscape, continuously learning, pursuing an ever-retreating horizon, with the occasional view from the peaks.
If I have any fear, if there is any recurrent theme in my energy and my prayer, it is not to mislead people and myself, even unintentionally. I not only do not seek to promote a point of view with the misuse of facts, I beat my own conclusions bloody, almost every day, looking for any weakness and misapprehension, constantly absorbing new data and ideas. I expose myself to a wide variety of thoughts and opinions, almost to exhaustion.
Forecasting the future here is exceptionally difficult because there are so many exogenous, and yet outcome critical, variables. There are powerful forces promoting certain ends for their own benefit, but there are other forces working against them. It is a conflict, and the fronts are not always easily seen through the fog of war.
And so even at best, I know I am not and cannot always be right, so it is never an easy place to be thinking, wrestling with the uncertain and taking its measure, much less acting upon it. But this is where I am, and must be. Going forward, one step at a time, in fear and trembling at my own weakness and insufficiency.
When my site was improbably recognized as among the ten most influential by some very kind people, links to pieces on my site dropped off a cliff. Those in the blogosphere probably figured that since I was already 'successful' that there was no need to encourage it, since I was no longer a colleague, but the competition. There is only one competition that counts in these times, and that is to stand for goodness and justice in a terrible class and currency war.
And I also continued to strike out on a line of thinking that people in the financial world and the fortunate may not favor. And so it is not popular. If you want to be popular, tell people what they wish to hear, not what they may need to hear. And the greater a person becomes in the favor of the world, the less tolerant they are of contradiction. Good fortune and wealth can be a terrible trap, the most ponderous of burdens, because we are so unwilling to let go of them, even a little, as they drag us down into the abyss.
And so the temptation to change my approach, to post hysterical (and not just hysterically funny) headlines and pieces that are misleading, to fan the flames of passion and prejudice become high. I can understand that. Isolation is no picnic, and the crowd has its allure. Everyone desires to be liked. I am human.
And it is because I seek to be truly human that I cannot be otherwise. People seem to have lost their sense, their voice, of humanity. How can I remain silent, when good and innocent people become prey? Who am I to do this, why me?
I do not seek this. At times I wish to run away, to hide in my library or the kitchen, rather than be taken where I do not wish to go. I came to the study of money for a blessing, but I have found a work. And I cannot leave it, because this is where I am meant to be. And so I am here.
