By Mike Whitney
Let’s talk turkey. The dollar is getting hammered by the day. And the dollar is getting hammered by design, because the Fed wants a weaker currency to boost exports and lower the real burden of debt on the banks. (Yes, Martha, the banks are still insolvent) So, down goes the greenback, lower and lower, pushing up gas and food prices while the buying power of the average US worker vanishes down the plughole. And this process will continue for the foreseeable future because–as Obama stated earlier in the year–Washington is committed to “doubling exports in the next 5 years.” Think about that: “the next 5 years”. That’s the same as saying that the American worker will be reduced to third-world poverty in a half decade or so. It’s a death sentence.
And none of this has anything to do with lowering unemployment or raising GDP. In fact, the revisions of first quarter GDP reveal the lies behind the policy. The first announcement from the Commerce Department put GDP at 3.2%. Remember that? Now we’ve slipped to 1.4% and some predict the final revision could actually show negative growth. This is from the New York Times:
“Earlier this week we wrote that several prominent economic forecasters had lowered their estimates of gross domestic product growth in the first quarter of this year. Today saw even further declines. Macroeconomic Advisers, a forecasting firm, lowered its estimate to just 1.4 percent annualized, when just a few months ago they had pegged the number at 4.1 percent.
Capital Economics likewise brought its estimate down to 1 percent, writing in a client note:
Every data release last week seemed to necessitate a further downward revision to our first-quarter GDP growth forecast. By the end of the week when the dust had finally settled, that estimate was down to only 1% at an annualized pace. Indeed, there is now even a decent outside chance that the economy contracted outright.” (“G.D.P. Estimates Slide Further”, New York Times)
So, it’s all baloney. The economy isn’t growing. How could it be? Wages are flat, credit is still shrinking, (excluding student loans) and the only reason the unemployment numbers keep dropping is because more and more people are falling off the unemployment rolls. Everyone knows that. So, while there may be a slight uptick in consumption and retail; don’t be fooled. It’s just because it costs more to put food on the table or drive to work, not because people are scarfing up trinkets at the mall or living the highlife.
And the American people know what’s going; they can see through this “green shoots” charade. That’s why the latest survey from the New York Times showed that the “Nation’s Mood (is) at the Lowest Level in Two Years” and that “Americans are more pessimistic about the nation’s economic outlook and overall direction than they have been at any time since President Obama’s first two months in office when the country was still officially ensnared in the Great Recession.” (“Nation’s Mood at Lowest Level in Two Years, Poll Shows, New York Times)
People have lost faith in Obama, the congress, and the political process itself. They can see that the system is broken and no longer responds to the will of the people, which is why they’re throwing up their hands and giving up. It’s obvious. Gallup found the same thing. Here’s a clip from their recent poll:
“Americans’ optimism about the future direction of the U.S. economy plunged in March for the second month in a row, as the percentage of Americans saying the economy is “getting better” fell to 33% — down from 41% in January….Optimism about the future of the economy declined across all political parties during the first quarter….Gallup’s Economic Confidence Index, which includes the economic optimism measure, also plunged in March…” (“U.S. Economic Optimism Plummets in March”, Gallup)
So, all the “happy-times” propaganda has had zilch effect. The public’s not buying it. They know we’re in a Depression. How could they not know? They’re underwater on their mortgages, they can’t get a loan, their kids and Uncle Arnie can’t find work, and the guy in the Oval Office won’t do a damn thing to help out. Is it any wonder why so many people are giving up on capitalism entirely. Just take a look at this survey from Globescan for a real shocker:
“American public support for the free market economy has dropped sharply in the past year, and is now lower than in China, according to a GlobeScan poll released today…..When GlobeScan began tracking views in 2002, four in five Americans (80%) saw the free market as the best economic system for the future—the highest level of support among tracking countries. Support started to fall away in the following years and recovered slightly after the financial crisis in 2007/8, but has plummeted since 2009, falling 15 points in a year so that fewer than three in five (59%) now see free market capitalism as the best system for the future.
GlobeScan Chairman Doug Miller commented: “America is the last place we would have expected to see such a sharp drop in trust in the free enterprise system. This is not good news for business.”
The results mean that a number of the world’s major emerging economies have now matched or overtaken the USA in their enthusiasm for the free market. The Chinese and Brazilians, 67 per cent of whom regard the free market system as the best on offer, are now more positive about capitalism than Americans.” (“Sharp Drop in American Enthusiasm for Free Market, Poll Shows”, GlobeScan)
Can you believe it? The Chinese like capitalism better than Americans. How’s that for irony? And, don’t kid yourself, the average working slob isn’t spending his evenings thumbing through the Communist Manifesto while strumming L’Internationale on his 6-string. That’s nonsense. Americans are practical people. They know they’re getting screwed by both parties which is why their support for capitalism has eroded even faster under Obama. It fell “15 points in a year” since 2009. Way to go, Barry.
And things will only get worse when congress starts hacking away at the budget deficits, eliminating popular programs and services. That will just add more fuel to the fire and convince people that the system is beyond repair. Bottom line: Conditions will steadily deteriorate, activity will slow, and economy will enter a period of protracted stagflation.
But that doesn’t mean Wall Street will suffer. Hell, no. The markets will continue to bubble ever-higher fueled by lavish injections of monetary stimulus from the Fed just as they have for the last 3 years. As Bloomberg reported earlier in the week, Bernanke does not plan to end QE2 at the end of June as scheduled, but will continue to recycle the proceeds from maturing mortgage-backed securities (MBS) into bond purchases to ensure that the Blue Chips continue to post record profits while 42 million workers scrape by on food-stamps, and a couple million more wait to get booted out of their homes. Sounds fair, doesn’t it?
So, if it seems like the big banks are writing the policy; it’s because they are. Think of it like this: The US government keeps two sets of books. One is a record of all the public’s revenues and debts. The other is an off-balance sheet operation run by the Fed. When congress spends money, it must be approved through the normal democratic process. When the Fed spends money, it simply writes a check on an account backed by “the full faith and credit of the US Treasury” without any oversight or supervision. And, the debts that it rings-up, do not add to the budget deficits or force policymakers to impose constraints on the banks. No way. The $2 trillion in junk mortgage-backed securities (MBS) and other handouts the Fed has given to Wall Street since Lehman collapsed, should have sent the deficits into the stratosphere and forced the resolution (bankruptcy) of the nation’s largest banks. But they didn’t, because the Fed’s losses are kept “off-budget”, where they don’t attract congress’s scrutiny. So, anything goes. The only problem is that the Fed’s trillion dollar Bank Welfare Project has led to diminished buying power and a plunging dollar. So, it would be more accurate to call QE2 a stealth tax on working people, instead of “monetary stimulus”.(which it is not.) The truth is, Bernanke is deliberately flogging the dollar to help his underwater bank buddies stay afloat and to keep stocks “frothy”. But the net-result is a huge loss of personal wealth for everyone else. These are the real losers in Bernanke’s QE shell game.
Looking ahead, it will be more of the same. Stocks will continue to rally, the red ink on the Fed’s balance sheet will continue to build, and the dollar will continue its agonizing descent into oblivion.
The Fed is running the whole shooting match now and the rest of us are just bystanders with no say-so.
Welcome to Banktopia.