Monthly Archives: September 2012

“Helicopter Ben” Lives Up to His Name – But What Will Be His Legacy?

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Ben Bernanke said the Fed will buy $85 billion in US debt every month through to the end of 2013. That means, by that time, the Fed balance sheet will have 25% of US GDP on its hands. It will eventually have to unwind all that. That will be hard to do.

But for the short term, look for higher prices at the pump, higher food prices, more desperate people about to retire that can’t get good yields on their investments, more insolvent state pension plans, aaaaaand… more riots, revolutions, and civil wars around the world.

Food prices spike up when the Fed does a round of QE*. When the Fed did its first move in 2008, we saw massive riots in the poor nations of the world. When QE2 hit in 2010, the riots were severe enough in North Africa to deliver the Arab Spring. Prices were already high enough this year to intensify the Syrian civil war and provide the foundation for the latest round of anti-US violence in Egypt, Libya, Yemen, Sudan, Tunisia, and Morocco (so far). This new QE looks set to send food prices even higher – and they were already higher in 2012 than they were in 2010.

Jeremy Grantham has said that we are five years into a severe global food shortage. This “QE to Infinity and Beyond” business from Bernanke is going to exacerbate that situation. We may soon see nuclear armed Pakistan and China descend into civil war because of food prices. China might be able to avoid war through draconian internal measures, but Pakistan is not capable of such action in my assessment.

The law of diminishing returns says that this QE will have less effect on the US economy than previous ones. It might even have no effect on the US economy outside of fueling a stock market bubble that will have tremendous fallout when it pops. But that law of diminishing returns is the least of our worries when we look at the law of inflation and how those food prices are going to affect Central America, South America, North Africa, Sub-Saharan Africa, the Middle East, South Asia, Central Asia, Southeast Asia, and East Asia. Think about each in turn, because we do ourselves a disservice if we lump them all together. Can governments in those regions withstand an even more severe food shortage than the one they’re facing now?

*QE= Quantitative Easing, or the Federal Reserve’s purchase of bank loans that may or may not be dodgy… Japan tried it in 2001 and found it to be highly ineffective in the long run.

An Angry Redaction

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OK, so I endorsed Obama because I can’t stand the foreign policy people connected to Romney. Now I have to un-endorse Obama because I can’t stand the foreign policy people connected to his organization. Not only is a third carrier group underway to the Persian Gulf, which can only serve to further provoke and inflame Iran, Russia, and China, but this happened: Video of undemocratic stunt at Democratic convention…

That is unreal! The party wanted to add a platform plank that required a two-thirds majority. I don’t care if it was right or wrong to add the plank. It could have been about endorsing the official dog food of the Democratic party, for all I care. They ran the vote three times, and it was clear to me that there wasn’t a two-thirds majority for the plank… and the chairman rammed it through, anyway, claiming he heard a two-thirds majority in favor of it.

Democracy, that ain’t. Sorry, Democrats, but stuff like this should be unacceptable. At least half the people there didn’t want to have that on the party platform. In a two-thirds majority situation, the measure should have been defeated, not added to the platform.

This is all about power. Naked, aggressive power. I’ve seen this in the GOP, and I’m looking at it right now in the Democrat party. It’s like breaking a hole in the drywall and seeing the wood frame shot through with termite tunnels. How far does this go? How long has this been going on? If it’s been going on too long, is the structure able to be saved, or is it beyond repair?

I know that sounds terribly negative, and it’ll sound even more so when I say I don’t think it is savable, not with this system in place around it. I have hope for the future, but it lies more in myself and my community than in the people that hold power in the USA. There are ways to fix this mess, but they have to come from within individuals and not from within party platforms, as we can see here…

Dystopian Nonfiction

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Unless you live off the interest of your interest, you’re poor. Got that? If you think you’re middle class, then you just think you have a shot at getting rich. In the USA, that’s in the past unless you’re ready to participate in some truly massive crimes. Born poor, you stay poor, because that’s the way it is and you can check the statistics on that for yourself. I’m here today to talk about how to calculate the rate of decrease of wealth among the poor in the USA.

It’s simple. Look at the interest rates they’re paying on credit cards, houses, cars, and other loans. The interest rate is money they are boxing up and shipping to the richest of the rich, because that’s who’s lending the money at interest. I’ll start with the credit cards. The average interest rate on credit cards in the USA is just short of 17% and the average credit card debt in the USA is $16,000 per household. Now, yes, I know those are averages: the poorest folks don’t have credit card debt and the folks that call themselves middle class have many times more than that in credit card debt, but they’ll serve for my illustration just fine. 17% of $16,000 is $2720 in interest paid by every household in the USA on credit cards. There are 114 million (and change) households, so that’s roughly 113 million households that aren’t in the top 1%, so they’ll be paying that interest… so that’s about $308 billion dollars a year that go from the bottom to the top in credit card interest. Money flows uphill, people.

Put another way, credit card debt provides over $300,000 in income every year for the top 1%. They don’t have to work for it: you do. That 6% of average household income going to pay only the interest on the credit cars is paying for a year-round vacation for those beautiful people at the top. But wait – there’s more!

College loans in the USA are at $1 trillion now. That’s more debt than what’s in the credit cards. The average interest rate on student loans is 7.9%. That’s an additional $79 billion flowing uphill. If we have the households average all this out again, that’s $700 per household per year. That average household income of $44,389 just got squeezed by another 1.5% What could we do with a 7.5% pay increase? Well, the richest folks certainly don’t want to end their gravy train, so you’re not having that.

Don’t believe me? Look at how real wages have been flat or declining for a very, very long time. At the same time, our banks made it possible to borrow money in ways that it’s never been borrowed before. That’s two sources of increased profits: making you borrow more and paying you less than what you’re worth.

Then there’s mortgages: if credit cards are #3 and student loans are #2, then mortgages are #1. While it was relatively easy to get numbers on the first two things, mortgages seem to be a good deal more obfuscated in terms of aggregate data. No surprise to me: This is an industry in which 20% of the professionals have a felony conviction and the main real estate lobbying group has made sure that property purchases are exempt from money laundering restrictions – which means that high-end property in the USA is the perfect sink for the profits of crime.

This helped, though: http://www.cnt.org/repository/heavy_load_10_06.pdf. Fun fact: people that spend less money on houses away from city centers, on average, pay considerably more for transportation. 48% of household income goes in that direction – money for the real estate people, mortgage banks, car finance companies, and big oil.

Working families – under $50,000 in annual household income – pay another 9% of income in transportation costs. They also pay 15% of their income for food and 7.7% for medical care. 57 + 15 + 7.7 + the 7.5 from above = 87.2% of income… that leaves $5800 per year for everything else in our average family of $44K income. Could be worse – and it is for those closer to the poverty line – but it could also be better, without those interest payments going up to the people that really don’t need more of our money.

It could be much, much better as well if we didn’t have banks being run as casinos for the benefit of those rich people that aren’t content to simply hit us up for our spare cash every year. No, they need to make massive gambles in which they gain all the profits but – thanks to their lobbyists and de facto ownership of Congress – have zero risk of paying out to cover any losses. Trillions of dollars of losses.

Each trillion a megabank loses means $8849 per non-rich household in America. The nine biggest banks in the USA are on the hook for over $228 trillion in derivatives that are on the razor’s edge of going bust – that would be over $2 million per household in the USA when the bill comes due.

Don’t worry: we won’t have to pay it all at once. I’m sure we can arrange a payment plan.