Signs of the Economic Apocalypse 11-14-05

From Signs of the Times 11-14-05:

The dollar closed at 0.8531 euros on Friday, up 0.8% from 0.8464 on the previous Friday. That put the euro at 1.1722 dollars, compared to $1.1815 the week before. Gold rebounded, closing at 470.00 dollars an ounce, up 2.6% from $458.00 at the previous week’s close. Gold in euros broke the 400 barrier, closing at 400.96 euros an ounce, up 3.4% from 387.64 the Friday before. Oil closed at 57.53 dollars a barrel, down 5.3% from $60.58 the week before. Oil in euros would be 49.08 euros a barrel at Friday’s close, down 4.5% compared to 51.27 for the previous week. The gold/oil ratio closed at 8.17 up 8.1% from 7.56 the week before. In the U.S stock market, the Dow Jones Industrial Average closed at 10,686.04, up 1.5% from 10,530.76 at the previous Friday’s close. The NASDAQ closed at 2,202.47, up 1.5% 2,169.43. The yield on the ten-year U.S. Treasury note closed at 4.57%, down nine basis points from 4.66 the week before.

The past week contained good financial news for the United States imperial economy despite storm clouds on the horizon. Oil prices are down, the dollar is gaining ground on the euro and stocks were up (though still down for the year). Could it be that the plummeting of Bush’s popularity to a new low of 37% is seen by global investors as a sign that there is some sanity in the United States? Of course the euro is not helped by the French riots, but one would think that U.S. financial indicators would have been disturbed at the revolt against neoliberal imperialism in Argentina the week before, but I guess not.

No deal in Argentina

Americas summit ends in debacle for Bush
By Bill Van Auken

7 November 2005

President Bush left Argentina Saturday after failing to achieve an agreement on reopening talks on forming a hemisphere-wide Free Trade Area of the Americas (FTAA). The Fourth Summit of the Americas turned into a debacle for the US administration, with rioting in the streets of Mar del Plata, mass repudiation of Bush by the Argentine people and open defiance of US policies on the part of South America’s principal economic powers.

“I am a bit surprised,” Bush told Argentine President Néstor Kirchner as he departed the country, the Argentine daily Pagina 12 reported. “Something happened here that I hadn’t foreseen.”

US officials indicated that they were taken aback by Kirchner’s speech, which denounced the role of the International Monetary Fund and US-backed policies in provoking the catastrophic economic collapse of December 2001 from which millions of Argentines have yet to recover.

“Kirchner’s speech was very disappointing,” a US diplomat told the Argentine daily Clarín. “He kept talking to his people. The truth is his harshness surprised me.”

The “harshness” of the Argentine president, however, was a pale reflection of the mass hatred exhibited by the Argentine people towards Bush, whose presence in the country provoked not only the demonstrations and rioting in Mar del Plata, but strikes by teachers and public employees throughout the country.

…Venezuelan President Hugo Chavez, who voiced the most intransigent opposition to the trade pact and participated in a mass anti-Bush rally held during the summit, gloated over the US administration’s defeat. “The great loser today was George W. Bush,” Chavez told the press after Bush’s departure. “The man went away wounded. You could see defeat on his face.”

In other good news for investors to grab onto, retail sales increased in the United States. Looking deeper though there is some troubling news there as well. With growing gaps between rich and poor in the United States, there is no such thing as the average consumer, if there ever was one. We now see analysts who look at the retail sales distinguishing between rich and poor retailing:

Last week, retailers reported October same stores sales that were stronger than analysts’ estimates. The ICSC’s tally of chain store sales increased 4.4%. This was on top of a 4.1% gain last October, which was the strongest month during the second-half of 2005. With retail sales only increasing 1.8% last November, it is likely that retailers will post strong growth in November. November will benefit from Halloween falling on a Monday, since retailers generally close the monthly books on the last Sunday of each month. The ICSC also noted that total sales increased 10.8%, which is the largest increase since June this year. The average monthly gain in total sales has been 10.1% this year. This follows an average gain of 9.7% last year.

Most retailers reported that same store sales were driven mostly by average ticket size and the number of transactions increased less and declined at a few retailers. This was most evident in retailers that sell to lower-income consumers. Dollar General said that it noticed a “payroll cycle,” meaning sales were stronger on days on the days workers typically get paid. This is another indication that lower-income households continued to struggle during the month. Conversely, according to the ICSC survey, luxury retailers were one of the best performing categories, along with wholesales clubs and footwear.

As we can see with the retail data, the rich in the United States are doing very well. Why should they worry if the U.S. consumer market dies if the end game has been reached and a relative few can control everything in a high-tech feudalism? Can it be that retail sales in the United States can remain strong with a wave of bankruptcies and asset deflation on the horizon? Can the rich pick up the consuming slack from the poor and formerly middle-class? We may be entering a period of reverse Fordism. Once again the workers will not be able to afford what they produce and the rich will overconsume all over the place.

Wall Street bonuses expected to soar again in 2005

As jobs and wages decline

By Joseph Kay

10 November 2005
Bonuses on Wall Street are expected to soar this year according to two reports released this week. These bonuses make up the bulk of compensation for top executives and managers of banks and brokerages and are rising as a result of frenzied activity in the hedge funds and mergers and acquisitions markets, as well as sharp increases in energy prices.

An article in the Wall Street Journal on November 8 reported that Wall Street executives are expecting a “bonus bonanza” this year. According to the Journal, citing data from a report to be released by the executive search firm Options Group, compensation is expected to increase by 20 percent, with some bankers and traders expecting even higher windfalls.

The Journal reported, “Investment bankers, who arrange mergers and stock offerings for corporations... are expected to be among the Street’s biggest winners this year, with compensation rising 20% to 25% on average, according to the study. For an investment banker at the managing director level, a senior post on Wall Street, that will translate into an average pay package of between $2.2 million to $3.3 million this year. A global head of investment banking could pull in on average anywhere between $7 million and $10 million.”

Fueled by a surfeit of cash in corporate coffers and relatively low interest rates worldwide, global merger and acquisition volume surged to $2.3 trillion by the beginning of November. This is the most active merger and acquisition market since 2000, at the peak of the US stock market bubble when such activity reached record highs. Mergers and acquisitions are often accompanied by cuts in labor costs, including layoffs, for which executives reward themselves as well as their advisors and bankers on Wall Street.

Another factor behind the surge in Wall Street bonuses is the sharp increase in energy prices, which has hurt consumers but has translated into gains for commodity traders as well as the energy companies themselves. The Journal reported that bonuses for commodity traders could increase by an average of 30 percent over 2004. It quotes Options Group co-founder Michael Karp as noting, “There was lots of volatility in this area and a lot of people made a lot of money here.”

Citing a report put out by Johnson Associates Inc., a compensation consulting firm, the New York Times reported November 8 a somewhat lower increase for investment bankers, of between 10 and 20 percent.

The Times noted, however, “The big winners could be traders involved in commodities and energy, in particular, proprietary traders who deal in those two high-octane growth areas. They could receive pay increases of 40 percent to 50 percent,” the newspaper wrote, “with some walking away with $15 million to $20 million each, according to one investment banking executive who is prohibited by his firm from commenting on compensation issues.”

Big gains are also expected among those who are engaged in the booming hedge fund trading sector. Hedge funds have become a principal tool for wealthy investors, with assets of about $1 trillion. The funds have seen increases in asset value of about 17 percent annually in recent years. They are a highly speculative branch of the securities trading market, usually employing computer models to extract profits from temporary fluctuations in the stock and derivatives markets.

…Living standards for a tiny section comprising the Wall Street elite are booming. Julian Niccolini, managing partner of the Four Season’s Restaurant in New York, explained to the Journal the impact of the Wall Street bonanza from his own perspective: “It’s white-truffle season and people are paying as much as $180 for a main course. The economy seems to be going in the right direction and I think this is the most money people have ever had.”

Well, the most money that some people have ever had. Indeed compensation on Wall Street has seen a substantial recovery since declines in 2001 and 2002, though average compensation has not yet reached the peaks of the stock market boom of the late 1990s and 2000. However, the much-touted economic recovery of the past two years has not led to gains for the broad majority of the population.

There has been no substantial improvement in the jobs market over the past two years. The remaining sectors of the economy that have had relatively high-paying and secure jobs—such as the auto and the airline industries—are seeing a sustained assault on wages and benefits.

According to a US Census Bureau report released on August 30, the number of Americans living in poverty increased in 2004 by 1.1 million. The poverty rate, now 12.7 percent of the population (37 million people), has increased for four consecutive years from 2000 to 2004. Even this figure understates the level of poverty in the US, as the official poverty level is much lower than the income required to meet basic needs.

Other figures also document the precarious financial position of growing number of Americans: rising debt levels, persistent unemployment and underemployment, rising requests for emergency food assistance and increased homelessness.

Real income has declined over the past year for most workers, who have seen stagnating or declining nominal wages together with a sharp growth in consumer prices, especially for energy. The situation is expected to get much worse as the winter months produce home heating bills that are up to 50 percent more than the already steep prices of last year.

The huge profits reported by energy companies in the past quarter—including a record $9.9 billion pulled in by ExxonMobil alone—have come directly out of the pockets of ordinary consumers who have faced mounting prices for gasoline and natural gas.

Note that high gains and high compensation are in the areas showing the most volatility, especially the hedge funds For an easily understandable explanation of hedge funds and derivatives, non-linear financial entities if there ever were one, see this article by Michael Panzner. These are vulnerable to, and contributors to, a growing volatility. As Kay wrote, they also profit, at least for a while, from that volatility. As Panzner and many others have warned, eventually the volatility overwhelms the system, causing panic and crash.

Panzner compares the situation with hedge funds now to New Orleans prior to Hurricane Katrina, in that in both cases disasters had been predicted for a long time, but the longer the disaster did not strike, the more complacency set in. What he ignores, however, is evidence in both cases that the disaster was no accident and that there are some who will benefit by it. In fact, as the above article by Joseph Kay shows, hedge funds have helped push along the concentration of wealth into fewer and fewer hands. Al Martin wrote about both things last week:

Hedge Funds In Trouble, MacroEconomics of Global Collapse & Forced Population Reduction

This is an invisible cloud and it very well may be the so-called derivative time bomb that people have been talking about for the last 10 years. So this is an attempt at the most macro-economic view possible, what’s creating this global economic malaise, as can be seen in investor confidence indices globally.

It should be noted that in many countries– Germany, Britain, Italy, some of the Asian market countries–investor confidence has reached levels frankly not seen since the Great Depression.The macro-economic phenomenon that is creating this is a long-term cycle, which started immediately after the Second World War, when the entire planet began to consume more than it produced through debt financing.

In order to pick up the global economies after the war and continue to accommodate an unrestricted population growth policy, all governments, including the United States, began to encourage the massive accumulation of debt by government, by business and industry, and by the people. After the Second World War, all governments began to encourage a massive accumulation of debt in order to push up GDP in all the nations.

So where are we? We are at the end of a very long cycle, which can no longer be sustained. And what is the implication? The end result is global economic collapse.

…But to get back to the cascading collapse of hedge funds and the money of these hedge funds which has been liquidated. The losers are a combination of high-net-worth individuals and institutional clients.

And here’s the forecast. The intermediate-term implication is an increased volatility in global equity debt and commodities markets. We can expect the current volatility to increase, not to decrease. Increased volatility is a sign of stress. Expect volatility to continue to increase, particularly over the next 3 or 4 years.

Ultimately, as volatility increases, liquidity is reduced because those who make markets, those who fund those markets, as well as the governments that back those who fund those that make the markets become nervous. That is what caused the whole Refco unraveling. Planetary economic liquidity is gradually drying up.

What central banks around the planet have been doing is covering up the huge hits that were taken in the late 1990s (from 1997 to 2002). Now look at the number of hedge fund debacles. These were multi-billion-dollar hedge fund debacles, starting with LTC (Long Term Capital), including Julian Robertson’s Tiger funds, and including Enron because Enron became a de facto hedge fund. It was no longer an energy company; it was a de facto hedge fund. And what central banks have done is provided the liquidity to hide these losses.

…Simply put, we are seeing the signs of the so-called end times. And when people say, What can be done to put us back on track? I say: Look. We’re beyond that point. So what could put us back on track? Turn the clock back 50 years and do things differently.

As we have stated before, there is no scenario now in which the planet can generate sufficient gross domestic product after 2011- 2013. After that time frame, there is no scenario under which the planet can generate sufficient gross domestic product to service the total global debt. It simply cannot be done. Even if you monetize global debt with a huge round of inflation, eventually that very inflation makes markets illiquid and no longer functioning.

…The post-World War II problem was: how to rebuild societies, how to maintain an extraordinarily high level of economic growth, how to make consumption a larger portion of each nation-state’s GDP, which we certainly have in this country. Personal consumption as a percentage of GDP is twice what it was at the end of the Second World War. The fraction is approximately the same in all other countries.

This “solution” however makes economies more subject to boom-bust cycles. That’s why we have these endless series of recessions -- booms, recessions, booms, recessions -- because you make the global economy much more tied to consumer spending than business spending. You effectively weaken the global economy because individuals are never in the position to repay ever-increasing sums of debt the way business and industry or government can. Individuals do not have the unlimited ability to borrow money.

We now add a new post-war component in the United States, and that is an organized right-wing cabal committed to fraud and committed to sapping the global capital machine, as it were. This then represents yet a further drag on the global economy.

But there are reasons behind this. I’ve been asked this question on shows before: “Why do Bushes commit frauds endlessly? Why does the Cabal exist? Why was there a military industrial complex formed after the Second World War? And why did it spawn a right-wing political cabal that consistently acts to defraud in order to consolidate wealth and power?”

There is a reason. And that is to consolidate wealth and power. They understood that post-war economics was a losing proposition, and that, in fact, eventually the planet would suffer a global economic collapse. At that point, it would be necessary to have as much of the planet’s wealth concentrated into as few hands as possible and have those few hands control whatever government, military, industrial power remains in the post-economically collapsed environment in order to begin a secondary rebuilding process.

The end result of this policy would necessitate a Global Command and Control Economy. There would be no other choice.An economically collapsed planet would force some hard solutions onto the problems of overpopulation. That is, after all, the root problem since it is the root decision that was made after the war, since it was politically impossible in all nation-states to tell the people the truth, that you’ve got to start now controlling population growth because the planet’s resources are diminishing.

The planet’s future industrial economic infrastructure, based on the remaining non-renewable and semi-renewable resources that the planet can produce, this fraction doesn’t work after you get much above 5 billion people on the planet.

This gets back to the “useless eaters” solution. How do you deal with “excess” population? In a post-economically collapsed environment, a government is not really going to be able to provide any help. Like Africa, there will be mass starvation, but it will not be only in Africa anymore, but across the entire planet. Particularly in First World countries.

And this is where conspiracy reality meets conspiracy theory. What further augments my contention about this plan: global agreements, led by the United States, were made in the mid-1970s, to use low-yield thermonuclear and other so-called containable non-conventional weapons systems for the purposes of forced population reduction in a post-economically collapsed world. In other words, even in the mid-1970s, there was a political and military recognition of reality.

The “ultimate solution” was that the economic policy set forth across the planet in a post-war environment would lead to economic collapse because it did not contain one key component: global population growth control, particularly in the industrialized nations, which consume 10, or 20, or 50 times more non-renewable resources than do citizens in Third World countries. Therefore, in the 1970s, governments became increasingly alarmed.

…How common was this understanding? It was very common at the Department of Defense. They were the ones who drew up a lot of plans for it. The State Department also was aware of it. It wasn’t any secret.In 1975, when this all came together, the then-new Gerald Ford Regime was a little disorganized in the beginning, but there really wasn’t any effort to hide this at the time.

…That’s why the Department of Defense had set up… the infamous National Programs Office… in 1975: to plan for the logistical operation targeting the mobile launch sites, etc., necessary for the use of throwing low-yield non-conventional containable munitions against high-density population targets.

And who were the prominent players in the Gerald Ford administration? Well there was Vice President Nelson Rockefeller, for example, and Secretary of State Henry Kissinger. Not to mention Chief of Staff Dick Cheney and Secretary of Defense, Donald Rumsfeld. While I don’t agree with these assumptions: that we have to reduce population, that this is reality and we have no choice, as Martin is peddling, there is a lot of evidence that those in charge are going to act as if that is the case. See David McGowan and Laura Knight-Jadczyk for more on population reduction.