SP 500 and NDX Futures Daily Charts - Wall St. In Denial

The Wall Street wiseguys would like to hand this rally off to mom and pop and their funds. But mom and pop are still largely sitting this one out. And it is making them nervous.

Wall St. blames the government, and the uncertainty over the debt and the currency.

But this is the usual deflection and denial. The markets are so obviously foul that normal honest people want little or nothing to do with them. And they are voting with their feet.

It could be that the Fed and the Administration will choose to inflate another stock bubble, and people will, as some ex-Fed governor turned stock analyst used to snigger, will drive the baby boombers back into stocks because they have no choice.

Those who remember the market doldrums of the 1970's will know that you can cheat the people only so much, and then tend to go away for quite some time, until the next gimmick shows up.

Money Supply Figures: Monetary Inflation But Real Economy Is Dysfunctional

"He that gives good advice, builds with one hand; he that gives good counsel and example, builds with both; but he that gives good admonition and bad example, builds with one hand and pulls down with the other."

Francis Bacon

The growth in the MZM and M2 money supplies are very strong, almost remarkably so given the very slack growth in employment and GDP.

So why do we not see any serious inflation in prices?  Or real gains in employment for that matter.

As an aside, I think some of the more 'modern'  and aggressively modified measures of price inflation, like chained CPI, do not measure price inflation at all, but the consumer behaviour of product substitution under increasingly trying circumstances as people cope by reducing their standard of living. That is a measure of gradual deprivation, not inflation.

I would like to see a system where no social policy is passed that the leadership of a country does not accept first.  If there is to be austerity, pension cuts, reductions in medical services and food, let them accept it first for the good of the country and an example to their citizens.  I do not say this out of meanness, but charity.  For the double standard with selective justice is the slow and silent killer of oligarchies.

The velocity of money tells part of the story. Please note that those charts below are based on much longer timeframes to show that they are a trend, and not a short term affect of the collapse.

The 'velocity of money' is a calculation that shows the relationship between money supply and real economic activity as a ratio. It is falling to new lows. Some might even use the word 'plummet.' There is lots of new money, but not so much real activity.

The standard economic answer would be that the US is in a liquidity trap, and the recovery will have lags in employment gains.   The money is added, and then recovery follows, with employment showing the longest delay.  The standard remedy would be to create more jobs, artificially if necessary.  But that is not much different than unemployment insurance and programs like food stamps.  It is kind, and sensible, but not sustainable. 

A liquidity trap is described by Keynesian economics as a condition in which injections of money can support zero interest rates, but fail to generate real economic activity.

I think the current situation in the US and UK in particular involves a serious policy error in the failure to address the problems and imbalances that caused the financialization of the real economy, and its subsequent collapse under the weight of malinvestment and corruption.

Aggregate demand is not stimulated because sufficient money does not reach consumers, as it passes through a corrupt and broken financial and political system, being diverted largely to insiders at 'the top.'  Nothing could be more clear than looking at the statistics regarding income inequality.

Any gains by the large middle and lower classes will tend to be short term and illusory, involving more household balance sheet problems and debt until the system is reformed.  Some of this has to do with a policy bias that considers the vast mass of the people as consumers, but not as workers.

Merely adding more financialized money into an unreformed system will further compound the problems, and ultimately force a more significant crisis and change.  This is true whether done does it via more debt issuance or flashier gimmicks like modern monetary totems.

The underlying social tensions can only be ignored by the comfortable for so long.  As a corollary, applying austerity without reform is insanely self-destructive.  The proof of this is forthcoming.

Japan has been able to hold their system together for a protracted period of slack recovery due to their demographics, their industrial policy position in the world economy, and a largely homogeneous and communal society that cares for its own.  The US and the UK will have a shorter half life I am afraid.

The situation is Europe is a bit different, and likely to result in serious dislocations in their organizational fabric fairly soon if some of the problems there are not addressed.  The monetary union without fiscal cohesion is inherently unstable.  Only fraud allowed it to last as long as it did.

There is a possibility that the current policies in the US may succeed if austerity if not applied, and something happens in the currency war to affect the balance of trade.  I am not optimistic  So let's see what happens.

The UK may provide a good counter example to the US  Some new school of economic thought may find some useful data from that, if they can free themselves from the 'say for pay' mentality that currently impairs the public policy discussion in a disgraced profession.

Gold Daily and Silver Weekly Charts - Fire Up the Crazy Train

This entire 'platinum coin' discussion was a bit surreal.  I was entirely disappointed with many of the arguments in favor of it. 

Be prepared to hear very conflicting views of the economy and the monetary system from various and so-called 'authoratative' sources.  Especially unsupported assertions and somewhat hysterical forecasts of doom and gloom, and just blatant talking of books.

The worst thing we have to fear is fear-mongering from those who lust for power.

If gold does get hit in a panic sell off due to the debt ceiling impasse, it could be a spectacular longer term addition to a portfolio.  It may not, as it is hard to tell how this will unfold at the moment.  There may be a sell off and then a flight to quality.  These markets are no longer reliable indicators and reflections of reality except for the long term.

I own no miners at this time.  To me that is owning bullion with leverage.  There will be a time for that.

The fog of currency war is descending.

SP 500 and NDX Futures Daily Charts

Bullish news out of China had the markets up initially but the reality of the debt ceiling confrontation is starting to weigh on the market.

The market is a bit richly priced. I think we may see another leg up to try and suck in some additional funds before they short it and ride it down on reality.

Democracy Now: Taibbi and Black on the Bailouts

Baker: Wall Street Thanks You For Your Service, Mr. Geithner

"The greatest danger in times of turbulence is not the turbulence; it is to act with yesterday’s logic."

Peter Drucker

I would of course add 'with self-serving dishonesty' to Mr. Drucker's prescription. But I think in a better age that sort of thing was understood.

The manner in which the financial crisis was handled, and is still being managed, is a policy error that will be studied by history, and hopefully the next school of Economics that will rise out of the ashes of their failure to provide meaningful reform for what really went wrong.

The worst of the economists and politicians have been acting as hacks in support of a massive fraud for the usual benefits.   And some of what we might have hoped would be the better ones have been mindlessly applying old remedies, or at least a portion of them without understanding and admitting the underlying problems, caught up in a credibility trap of dull atavism and careerism.

The intellectual and political leadership of this generation has been weighed and found wanting. A great generation often produces one that lapses into crisis, before the next rises to the challenge of the occasion.

So I have some hope that a new school of Economics and policy making will rise out of the abject failure of the old.  Not a school that has better and more intricate tools, broader power, and flashier gimmicks, but one that aspires to wisdom and virtue, especially the value of open honesty.

"The best lack all conviction, while the worst are filled with passionate intensity."

This crisis has been all about the failure of the best to uphold their oaths, and to let justice be done, at the urging of the worst. And now they compound their errors and dissemble in their embarrassment and shame. Or at least those who are still capable of feeling such emotions.

There will be no real and sustainable recovery without reform.

The Guardian
Wall Street thanks you for your service, Tim Geithner
By Dean Baker
11 January 2013

Treasury Secretary Timothy Geithner's departure from the Obama administration invites comparisons with Klemens von Metternich. Metternich was the foreign minister of the Austrian empire who engineered the restoration of the old order and the suppression of democracy across Europe after the defeat of Napoleon.

This was an impressive diplomatic feat – given the widespread popular contempt for Europe's monarchical regimes. In the same vein, protecting Wall Street from the financial and economic havoc they brought upon themselves and the country was an enormous accomplishment.

During his tenure as head of the New York Fed and then as treasury secretary, most, if not all, of the major Wall Street banks would have collapsed if the government had not intervened to save them. This process began with the collapse of Bear Stearns, which was bought up by JP Morgan in a deal involving huge subsidies from the Fed.

The collapse of Lehman Brothers, a second major investment bank, started a run on the three remaining investment banks that would have led to the collapse of Merrill Lynch, Morgan Stanley, and Goldman Sachs if the Fed, FDIC, and treasury had not taken extraordinary measures to save them. Citigroup and Bank of America both needed emergency facilities established by the Fed and treasury explicitly for their support, in addition to all the below market-rate loans they received from the government at the time. Without this massive government support, there can be no doubt that both of them would currently be operating under the supervision of a bankruptcy judge.

Of the six banks that dominate the US banking system, only Wells Fargo and JP Morgan could conceivably have survived without hoards of cash rained down on them by the federal government. Even these two are questionmarks, since both helped themselves to trillions of dollars of below market-rate loans, in addition to indirectly benefiting from the bailout of the other banks that protected many of their assets.

Had it not been for Geithner and his sidekicks, therefore, we would have been permanently rid of an incredibly bloated financial sector that haunts the economy like a horrible albatross...

Read the entire article here.

Bill Moyers: The Crony Capitalist Blowout

Gold Daily and Silver Weekly Charts

Coiling for a move, pretty much as expected.

Watch out for the debt ceiling battle. It could be a wild ride.