by Bryan Zepp Jamieson
The stock markets exploded upwards last week, gaining about 600 in the Dow and erasing nearly half of what had officially become a “correction.” That’s when the market sags 10% in dollar value from its last peak. That isn’t as bad as a bear market (where it dumps 20% in dollar value) and nowhere near a crash, but coming mere weeks after another drop in interest rates, it was worrisome.
The reason for the rebound (dismissed in most quarters as a “dead cat bounce”) was that Bernanke and other members of the Fed hinted broadly that they would cut interest rates again in January, perhaps another half a percent. This loosens credit (which, is exactly what got us into this mess in the first place, but never mind that) which spurs economic growth.
Oh, happy happy joy joy! Happy days are here again!
Well, not quite.
The credit crisis hasn’t gone away. Citigroup, America’s biggest bank, could maintain solvency only by letting Abu Dhabi take control of 11% of their operations for $7.5 billion, which is to be paid back at a stunning 11% interest rate. That says more about what the loaners at Abu Dhabi think the dollar is going to be worth in a year than anything else, and the fact that Citigroup had to choke back tears and accept it shows that they share that same pessimistic view. Abu Dhabi, incidentally, is the same bunch of over-wealthy oil clowns who brought us the BCCI scandal in the 80s. Back then, when bank auditors first noticed problems in the books, Abu Dhabi responded by telling the US government to either head off the investigation or they would pull all their petrodollars out of the US. Back then, the government had some spine and integrity, and laughed at them. Today, Abu Dhabi has a far larger stake in the US economy, and the government is a weak, brittle, corrupt entity, mirroring the vicious tiny men of the GOP.
It would have looked better if they had just gone to the Mafia for a loan. Not as desperate, and they might have gotten better terms. And the Mafia might be more honest than the Abu Dhabi sharks.
There has been all sorts of pontificating in the media about What This All Means, ranging from the absurd (Putsch is working hard to ensure that his successor inherits a happy and prosperous economy) to the intuitively profound (Victor Keegan talking about how the world will watch a struggle for supremacy among three currency blocs: the US, Europe, and China). As usual, the corporate media has lots of babble about what it means for exporters and importers, and can the poor underprivileged children of hedge fund managers ever hope to get a magic unicorn for their 12th birthday? Most of which matters to the people who buy the ads in the New York Times and the Wall Street Urinal, but isn’t worth a load of bollocks to the average guy in the street.
So what does it mean for me and thee?
It means that on the international markets, they plan to let the dollar plunge some more. It’s already down about 22% against the basket of currencies that includes the Euro, the Pound, the Swiss Frank, the Yen and the Yuan. It might have been more than that, but China has had the Yuan artificially pegged to the dollar for some time in order to maintain their trade imbalance with the US (lots of cheap shit for those Wal-Mart shoppers!). Canada and Japan have both moved to devalue their currencies in order to avoid the de facto protectionism of the falling US dollar.
What are the stock listings and economic growth measured in? Dollars, of course.
And there are two things that can increase the number of dollars reflecting the markets and the general economy.
One way is to get the markets and the economy to add value. More goods and services are being sold, corporate profits are up, and that reflects in gaudy increases in the numbers that Washington can point to in order to assure one and all that they are doing a splendid job of managing the economy.
The other is to make dollars worth less, so it takes more dollars to reflect the true value of goods and services and corporate profits. If the dollar is only worth seventy eight cents in 2006 dollars, then you need nearly twenty-five percent more dollars in order to arrive at the same value. Thus Washington can point to the gaudy numbers in order to assure one and all that they are doing a splendid job of managing the economy. A jump of 25% means we just barely broke even.
This masks a lot of things, including big economic slowdowns. You say that Xmas shopping is up 8% over last year? Normally that would be great news! But if the dollar is worth 22% less, it means that the amounts actually being spent are down about 15%. If you factor in population growth (about 2.3%) that means that the average buyer is spending – value, not dollars – about 17.5% less this year. Worse, the shopping frenzy was sparked by desperate retailers selling stuff steeply discounted, and consumers, hard pressed to make ends meet, are jumping on the deals, and unlike years when they feel more prosperous, blowing off buying other items at a higher markup. They waltz out the doors with the loss leaders in their arms, and no army of goods behind the loss leaders. Which means the retailers are getting their asses handed to them on a lead platter.
You’ll hear lots of chirps out of Washington about economic growth, but it will be at the fake CPI number of 3.5% inflation. I think inflation is about 22%; the Economist pegs it at 16%. The average cost of living for average people might have jumped even higher, except for the fact that a lot of people who were paying mortgages last year aren’t doing so this year. Living in your car DOES save money, there is that to be said for it.
That’s why the administration is trashing the dollar. It isn’t to try to iron out the trade deficit, something that has been around since the late 80s. It’s to mask the fact that the country is sliding into a Depression. Republicans already have a grim outlook for next years election: a Depression might leave them with 55 seats in the Senate and 30 in the House, and no hope of getting the White House back before about 2024. If then.
So they are sinking the dollar, knowing you’ll get clouted in the teeth with runaway inflation ($6 gas and hamburger $5 a pound, happy days are here again) but just trying to maintain the pretense that things are holding together, just so they can finish looting the country and maybe minimize their losses next November.
The ship is sinking, and as far as the Putsch administration is concerned, the role of the American people is to be that of temporary ballast while they make their get away.
Progressive writers welcome: Communication among participants is one of the keys to a vibrant effective publication. Write for us. Send commentary, letters, and articles to the Editor, Norla Antinoro, at editorwe@yahoo.com. We! Magazine is a safeplace for progressives to come together to develop more effective ways to communicate our principles and values. Whether you have a question related to expressing progressive values, a story to share, praise or criticism for the language of a politician or political pundit, we look forward to reading what you have to share. This internet magazine site is about working together to contribute to shaping debate and building a progressive conscience.
Labels: Depression, Inflation, Dollar Value, Economy
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