Signs of the Economic Apocalypse, 3-27-06

From Signs of the Times, 3-27-06:

Gold closed at 560.00 dollars an ounce on Friday, up 1.0% from $554.70 for the week. The dollar closed at 0.8308 euros on Friday, up 1.3% from 0.8203 euros at the end of the previous week. That put the euro at 1.2036 dollars compared to $1.2190 the week before. Gold in euros would be 465.27 euros an ounce, up 2.2% from 455.05 euros for the week. Oil closed at 64.27 dollars a barrel on Friday, up 2.2% from $62.89 at the end of the previous week. Oil in euros would be 53.40 euros a barrel, up 3.5% from 51.59 euros a barrel the Friday before. The gold/oil ratio closed at 8.71 on Friday, down 1.3% from 8.82 the week before. In U.S. stocks, the Dow Jones Industrial Average closed at 11,279.97 on Friday, virtually unchanged from 11,279.65 at the close of the previous week. The NASDAQ closed at 2,312.82, up 0.3% from 2,306.48 the week before. In U.S. interest rates the yield on the ten-year U.S. Treasury note closed at 4.66% down one basis point from 4.67 at the end of the previous week.

Oil prices rose last week, not surprising given the news out of the Middle East. According to Greg Palast, that is no accident:

Yes, Bush went in for the oil -- not to get MORE of Iraq's oil, but to prevent Iraq producing TOO MUCH of it.

You must keep in mind who paid for George's ranch and Dick's bunker: Big Oil. And Big Oil -- and their buck-buddies, the Saudis -- don't make money from pumping more oil, but from pumping LESS of it. The lower the supply, the higher the price.

It's Economics 101. The oil industry is run by a cartel, OPEC, and what economists call an "oligopoly" -- a tiny handful of operators who make more money when there's less oil, not more of it. So, every time the "insurgents" blow up a pipeline in Basra, every time Mad Mahmoud in Tehran threatens to cut supply, the price of oil leaps. And Dick and George just LOVE it.

Dick and George didn't want more oil from Iraq, they wanted less. I know some of you, no matter what I write, insist that our President and his Veep are on the hunt for more crude so you can cheaply fill your family Hummer; that somehow, these two oil-patch babies are concerned that the price of gas in the USA is bumping up to $3 a gallon.

No so, gentle souls. Three bucks a gallon in the States (and a quid a litre in Britain) means colossal profits for Big Oil, and that makes Dick's ticker go pitty-pat with joy. The top oily-gopolists, the five largest oil companies, pulled in $113 billion in profit in 2005 -- compared to a piddly $34 billion in 2002 before Operation Iraqi Liberation. In other words, it's been a good war for Big Oil.

The question then becomes, are we really running out of energy if so much effort has to made to prevent more oil from reaching the market, or is it in someone’s interest to pretend that we are?

Evidence of the collapse of the housing bubble in the United States continued to accumulate last week.

U.S. Economy: New Home Sales Fell Most in Nine Years

March 24 (Bloomberg) -- Sales of new U.S. homes slumped by the most in nine years and demand for business equipment declined last month, prompting some economists to lower their growth forecasts.

Home purchases fell 10.5 percent to an annual rate of 1.08 million, causing prices to fall and leaving more houses on the market, the Commerce Department said in Washington. Orders for durable goods excluding transportation equipment fell 1.3 percent, the most since July, the department also said.

“The new home sales report is in an indication of what we'll see in the remainder of 2006 for housing, and that unequivocally points to a slowdown,” said Brian Bethune, an economist at Global Insight, a forecasting firm in Lexington, Massachusetts. At the same time, he said, “this will be more of an average quarter for business investment, not a stellar quarter.”

The drop in durable goods orders caused economists at Morgan Stanley to mark down their first-quarter growth estimate to 4.2 percent from 4.6 percent. U.S. Treasury securities rose on speculation less business investment and slower home sales will limit the number of Federal Reserve interest-rate increases.

The yield on the benchmark 10-year Treasury note fell 6 basis points to 4.67 percent at 4:04 p.m. in New York. A basis point is 0.01 percentage point. The dollar fell to $1.2039 per euro, the first drop in five days, from $1.1973 late yesterday.

‘More Cautious’

February's decline in home sales was the biggest since April 1997. Economists expected new home sales to fall to a 1.2 million rate from January's originally reported 1.233 million, according to the median of 61 forecasts in a Bloomberg News survey. Estimates ranged from 1.17 million to 1.275 million.

“Consumers are a little more cautious,” J. Larry Sorsby, chief financial officer of Hovnanian Enterprises Inc., New Jersey's largest homebuilder, said in an interview. “You can't open a newspaper these days without seeing someone saying the housing market is softening.”

The report comes a day after the National Association of Realtors said sales of previously owned homes rose 5.2 percent last month to an annual rate of 6.91 million. Purchases of new homes are considered a leading indicator of housing because they are based on contract signings, which typically occur at least a month before the closing. The rise in February sales of existing homes may have reflected purchase decisions made in January, when record-warm temperatures brought out buyers.

The median selling price of a new home last month fell 2.9 percent from February 2005, to $230,400, the first decrease since December 2003 and the biggest year-over-year decline since January 2003.

The number of homes for sale rose to a record 548,000 from January's 525,000. At the current sales pace, there were enough new homes on the market to satisfy demand for the next 6.3 months, the largest amount in more than a decade.

Less Affordable

Rising mortgage rates are making new homes less affordable. The average rate on a 30-year mortgage rose to 6.25 percent in February from 6.15 percent the month before, according to Freddie Mac.

Sales fell in two of four regions. They declined 29 percent in the West and 6.4 percent in the South. Sales rose 12.7 percent in the Northeast and 5.2 percent in the Midwest.

Facing imminent bankruptcy, the inhabitants of the United States (we can no longer call them “citizens”) have let their leaders take away hard-won labor rights of the last century and, the political rights fought for for more than three centuries.

France, at least, still has inhabitants worthy of being called citizens. Some of our American readers may wonder what all the fuss is now in France. Over a million young people and other workers have turned out to protest a new policy that would allow employers to fire workers during their first two year contract. Since most workers in the United States are treated that way for their entire careers, some may be puzzled at the French worker’s militancy. What the French understand, having watched what neoliberalism has done in the United States and elsewhere, is that if you give an inch, they will take a mile. Better to put up a fight for that first inch.

Compare what the French, through united action, have been able to prevent to what the U.S. labor movement agrees to:

GM, Delphi, US autoworkers’ union agree to massive job-cutting program

By Jerry White

23 March 2006

The United Auto Workers (UAW) union has concluded a deal with General Motors and its former parts company Delphi Corporation that paves the way for a major contraction in the US auto industry and the permanent elimination of tens of thousands of jobs.

The “Special Attrition Program” announced Wednesday provides retirement incentives and buyouts aimed at moving out of the plants an older generation of autoworkers who have attained wage levels, benefits and working conditions that Wall Street and the auto executives consider luxurious and uncompetitive. The goal of the corporations and their financial advisors is to create a much smaller, younger and more highly exploited workforce that will be paid lower wages, enjoy no job security at all and lack any guarantee of a pension or medical benefits upon retirement.

The deal is aimed at accelerating GM’s previously announced plans to shut down 12 factories and eliminate 30,000 jobs across North America by the end of 2008, including 25,000 of its 105,000 US hourly workers. Auto parts maker Delphi filed for bankruptcy in October 2005 claiming the labor agreements it had inherited from GM made it impossible to do business in North America. The firm wants to shut several plants of its own and wipe out more than two-thirds of its 34,000 US hourly workers’ jobs over the next three years.

As a result of the massive downsizing, GM—which once sold one out of every two cars in America—will be reduced to a much smaller operation, and cede its position as the world’s largest automaker to Toyota. With these job cuts and others being demanded by billionaire investor and major GM stockholder Kirk Kerkorian, the auto company could soon have as few as 50,000 hourly workers in the US. In 1978, GM employed 466,000 hourly workers, and as late as 1993 had 233,000 blue-collar employees.

Under the three-way agreement GM will offer hourly workers various buyouts or early retirement incentives, starting with a $35,000 payout to some 36,000 workers already eligible to retire because they have 30 years or more of service with GM or are at least 65 years old. Another 27,000 workers within a few years of retirement would receive no payout, but would be credited with 30 years.

According to the Wall Street Journal, GM employees with at least 10 years seniority will have the option of a one-time $140,000 buyout to “sever all ties to GM and Delphi, including health care and other post-retirement benefits.” Employees with less than 10 years seniority can choose a onetime payment of $70,000 under the same conditions.

Under the terms of a previous agreement GM is obligated to pay benefits to some Delphi employees and retirees who worked for the automaker before the unit was spun off in 1999.

Delphi will offer cash payments of $35,000 to 13,000 workers, slightly more than half the 24,000 hourly workers represented by the UAW, while it negotiates similar buyouts with unions representing the remaining workers. Delphi said GM had agreed to pay the cost of the lump-sum buyouts and cover the cost of their retirement benefits.

The union and management claim these higher seniority workers will receive their full pension and retiree medical benefits. The idea that retiree benefits are somehow inviolable, however, is a fantasy. Last year the UAW bureaucracy negotiated an unprecedented cut in medical benefits—including the imposition of hundreds of dollars in co-pays each for 500,000 former GM workers and their families—and then got the deal narrowly ratified by barring retirees from voting on it.

…Delphi, GM and the union bureaucracy are using the pressures and threats workers confront—talk of a possible GM bankruptcy, the unrelenting downsizing of the auto industry and the uncertainty of getting any pension or medical benefits at all—to push through the severance deals. Workers will have up to 52 days to decide whether to take buyouts once they learn details in plant meetings.

UAW leaders have been pressuring Delphi workers to uproot their families and move hundreds of miles to take jobs at GM plants that no GM worker wants. According to the Detroit Free Press, UAW Vice President Richard Shoemaker told workers if they refused to take these jobs, they would be sent to the bottom of the list of workers waiting to transfer to GM in the future and might never get a job. (See: “US autoworkers union pressures Delphi workers to accept concessions deal”)

It goes almost without saying that the UAW bureaucracy excludes any struggle against the destruction of tens of thousands of jobs. The union has an unbroken record in recent decades of labor-management collaboration and imposing the downsizing and cost-cutting demands of the auto bosses. But the present deal goes further.

The New York Times noted, “The agreement marks unprecedented cooperation by the union, which has been put in the position of convincing its members to give up jobs that the UAW has fought for decades to protect.” For a period of time, the strategy of the UAW bureaucracy was to defend the jobs—therefore the revenue flow from membership dues—of a core number of older workers at the Big Three auto companies—GM, Ford and Chrysler—while membership of the UAW overall fell from 1.53 million members in 1979 to 650,000 today.

By accepting this new round of corporate restructuring—which also includes Ford’s plans to eliminate 30,000 North American jobs—the union bureaucracy hopes that it can retain its perks and privileges by collaborating in a unprecedented rollback in the living standards and working conditions of the much reduced number of workers who remain in the auto industry. The benchmark for what future Big Three autoworkers will face is being set by Delphi, which is demanding a 60 percent wage cut from its remaining workers, from $27 an hour to as low as $12.50.

…Expressing the general the contempt of America’s wealthy elite towards the working class, one “labor expert” quoted by the New York Times, suggested that the biggest problem the auto industry faced was the outlandish belief of workers that they had a right to a secure job and decent pay. “They almost see their job as a property right,” complained Gary N. Chaison, professor of labor relations in Clark University in Worcester, Massachusetts.

Related to these labor right rollbacks is the rollback in centuries-old constitutional rights of U.S. and British citizens:

Democratic rights and the attack on constitutionalism

By Richard Hoffman

23 March 2006

…The current state of affairs in the United States concerning constitutional government and law is a profound expression of a social and political system in an advanced stage of disintegration. Indeed, it reflects the decay of liberal capitalism as a world historical system in a country which did once represent the apogee of democratic government, grounded in the most noble ideas of human culture and emancipation.

I think it worthwhile to remind ourselves, as we appraise the political culture and attitude of America’s ruling elite today, of the ideas and political culture that guided the founders of the American Republic, for in these ideas is distilled the cultural and intellectual outlook of the most advanced elements of a social class in the ascent. Such a review reveals as much about their outlook as it does about the present leadership of the United States.

Lying on his deathbed in 1826, Thomas Jefferson, the third president of the United States, between 1801 and 1809, wrote his last letter, declining for reasons of poor health an invitation to attend the 50th Independence Day celebrations in Washington. He apologised for being unable to attend and continued:

“I should, indeed, with peculiar delight, have met and exchanged there congratulations personally with the small band, the remnant of that host of worthies, who joined with us on that day, in the bold and doubtful election we were to make for our country, between submission or the sword; and to have enjoyed with them the consolatory fact, that our fellow citizens, after half a century of experience and prosperity, continue to approve the choice we made.

“May it be to the world, what I believe it will be (to some parts sooner, to others later, but finally to all), the signal of arousing men to burst the chains under which monkish ignorance and superstition had persuaded them to bind themselves, and to assume the blessings and security of self-government.

“That form which we have substituted, restores the free right to the unbounded exercise of reason and freedom of opinion. All eyes are opened, or opening, to the rights of man. The general spread of the light of science has already laid open to every view the palpable truth, that the mass of mankind has not been born with saddles on their backs, nor a favoured few booted and spurred, ready to ride them legitimately, by the grace of God. These are grounds of hope for others. For ourselves, let the annual return of this day forever refresh our recollections of these rights, and an undiminished devotion to them.”

…The seventeenth century crisis and the origins of democratic government

It is possible to find parallels in the 1930s with the present economic context. But in terms of the current attack on the constitutional system by the Bush administration, I think to find an equal historical parallel in the English speaking world one is truly forced to go back to the time of the Stuarts in the seventeenth century, and their violent attempt to exert the prerogatives of the Crown, resulting in the English Revolution and the Civil War, which laid the foundations of bourgeois democracy.

The Bush administration is attempting to destroy these centuries-old democratic foundations and establish a form of dictatorial rule freed from the constraints of law.

…Permit me to quote from a scholarly work on the development of political theory during the seventeenth century crisis:

“During the years between the accession of James I and the outbreak of the English Civil War, in spite of the momentous issues at stake there was a poverty of ideas in both the Royal and Parliamentary camps. However, once the civil war broke out, political and constitutional thought was to flourish in England as never before and to furnish herself with a stock of ideas, many of which continue to be the currency of constitutional discussion today” (M.A. Judson, The Crisis of the Constitution, an essay in Constitutional and Political Thought in England, 1603-1645, New Brunswick, Rutgers University Press, 1949).

Liberal democracy as it emerged in its relatively finished form in the United States was the product of three great revolutions and accompanying civil wars: the English Revolution and Civil War, the American Revolution (1776-1781) and the American Civil War (1861-1865). The constitution itself was the product of six years of flourishing political and intellectual debate between 1781 and 1787, in which attention was frequently directed back to the English Revolution—particularly by the radical Whigs, who believed that government in Britain had been corrupted over the past century and who were determined to ensure that the peoples’ rights would be secure and inalienable forever.

This system of government and rights, developed through a long and extraordinary struggle for liberty, is being stripped from the American people—and in other countries such as Australia and Britain—with barely a murmur in the political establishment. This is a startling expression of the general erosion of democratic consciousness within the population as a whole and in particular in the middle classes, which have historically formed the social basis of bourgeois democracy. Ultimately, this is the product of decades of social and cultural decay under the pressure of American capitalism and everything it stands for: exploitation, aggression, possessive individualism, misogyny and backwardness.

…Unlike the English bourgeoisie in the seventeenth century, the American ruling class no longer embraces a system based on laws implemented by courts—it does not feel that such a system sufficiently enables it to pursue its interests unhindered.

Guantánamo Bay

Guantánamo Bay, in terms of what it represents in the exercise of executive power, is perhaps the most extraordinary development in English law in centuries. It is difficult to find any precedent for it.

The Magna Carta, which guaranteed habeas corpus, was extracted from King John almost 800 years ago in 1215 precisely to stop him from throwing a man in a dungeon and leaving him there to rot without a trial. Yet that is precisely what George W. Bush and his henchman are doing—and proclaim openly, to the whole world, the right to do.

Of course, it is true that America has committed war crimes in the past. But the executive always denied knowledge of them. It has never previously renounced the Geneva Convention.

..All the fundamental principles of the constitutional system have been attacked by the Bush administration; habeas corpus, so significant in the seventeenth century conflict, has been denied. The powers of arrest, imprisonment, spying and torture, all of which were fundamental in the struggle with the monarchy, have been restored to the centre of executive power…

Why has this situation of virtual lawlessness in government come about?

Fundamentally the reason for the collapse of American democracy—for the destruction of the constitutional system—is because of the ruthless domination of private interests in the political system of the United States.

This has taken place with spectacular speed over the last twenty years. A layer comprised of the financial and industrial oligarchy now holds complete sway over the processes of government in the United States. The social, cultural and moral character of this milieu is, not to put too fine a point on it, very ugly, and probably more appropriately the domain of novelists and playwrights, serious ones at least, rather than political analysts. But the political culture within it is vicious, crude and reactionary in the extreme.

…Democracy is incompatible with the degree of social inequality that has developed in the United States and with the character of its ruling elites. The disintegration of the democratic system and the resort to openly authoritarian rule are hallmarks of the collapse of the liberal capitalist system. These processes express not the strength of the system, but its demise…

Classical economics, which one empowered liberal democracy, has now been turned against it. Neo-classical economics now serves the interests of a predatory oligarchy opposed to the individual liberties of classic liberalism. That explains the strange disconnect one feels reading economists today.

Here’s Jay Hanson of DieOff.org on University Trained Liars:

We have seen how America was specifically designed to be a "special interest" government -- a government by, for, and of the rich. The role of the social scientist in America is simply to prevent the public from discovering how American politics actually works -- to provide an "umbrella of protection" [1] over the rich.

Ever since the Physiocrats, economists have begun with the political claim that "the market" is the best means to manage society and have spent over 200 years working backwards trying to prove it. They have failed. The bizarre result of 200 years spent reverse-engineering is a theory that must only reference itself to be even moderately coherent. In other words, economic theory is about economic theory -- it's a monstrous circular argument. This is typical:

"Economists assume people that people make 'rational' decisions but abstain from testing that assumption. Instead of testing, economists invoke 'revealed preferences theory' which states that choices are rational because they are based on preferences that are known through the choices that are made. In other words, economists resort to meaningless, circular arguments and mathematical conjuring tricks to justify their political program." [2]

Those free marketers, who bother to rationalize their arguments, base them on three deliberate lies:

DELIBERATE LIE #1. "Wants" are the identical to "needs". This is the foundational lie that sets one up to swallow the other two lies. Right wingers (it is boilerplate economic theory) deliberately lie about this because they want you to believe that Donald Trump "needs" another million dollar painting on the wall of one of his mansions just as badly as a welfare mother "needs" health care for her children. This amounts to a license for the rich to hog limited resources (on a spherical planet, all resources are "limited") and serves as the Vaseline for the rest of the lies.

DELIBERATE LIE #2. People are "rational utility maximizers". Although even economists admit this is a lie, it is still boilerplate economic theory. Economists MUST lie about this because if people are being manipulated by marketing, then the so-called "free market" obviously requires government intervention.

In a Liberal Democracy, tax payers are ultimately responsible for a individual if that individual becomes destitute or a criminal. Economists use the "rational utility maximizer" lie to prevent government intervention in markets when intervention would serve the common good. For example, a rational government would intervene in markets to prevent con artists from peddling their worthless shit to an unsuspecting public. (We have all seen those suckers dumping their last dollar in a slot machine.)

Economists argue that government can not possibly know what an individual "needs". If people are manipulated by advertisers, flashing lights, and sex symbols, then government has a good reason to intervene in the market for an individual's welfare because these causalities are dumped on government to care for after the con artists have cleaned them out. For example, a federal law could be passed that would limit legalized gambling to high net worth individuals (it's now done with options and futures trading).

By having university-trained liars (economists) convince the victims that they alone are responsible for their own actions (instead of a team of best-professionals-money-can-buy who were hired to exploit the public), the rich evade responsibility for their actions. Thus, "the market" repeats the basic motif of American politics and illustrates what makes it so clever: the rich manipulate unsuspecting citizens for fun and profit, deplete common resources, externalize social costs onto the tax payer, and blame the victims themselves or the elected screwups and their cronies for social problems. It's brilliant!!!

DELIBERATE LIE #3. The market is "efficient". This is central to economic theory, but it's also a deliberate lie (actually an "idiosyncratic redefinition" of terms). Economists know that people who do not have economic training are going to assume that "efficient" is used in the same way that engineers use the word: acting or producing effectively with a minimum of waste, expense, or unnecessary effort.

But for economists, "efficient" means "efficient distribution" of resources: the rich get richer and the poor get poorer. The reason economists use idiosyncratic redefinitions instead of coining new terms (like every other discipline) is to make them better liars!

Idiosyncratic redefinition allows economists can stand in front of your local Rotary Club and appear to HONESTLY use words that mean one thing to them, while Club members think they mean something completely different. This is how economists evade our innate ability to spot liars.

Far from being "efficient", the so-called "free market" is the MOST INEFFICIENT aspect of our society. A back-of-the-envelope calculation by Tom Wayburn suggests that the so-called "free market" WASTES 90% of our natural resources. In other words, we could be self-sufficient in oil (and bring our troops home) by ending "the market" and reorganizing into a new type of "common interest" government instead of the "special interest" government we have had since inception (see http://www.faithfact.com/thefoundingofamerica.htm).

On a spherical planet, governed by the laws of thermodynamics, "the market" WILL end -- sooner-or-later, one-way-or-another.
[1] http://www.dieoff.com/page235.htm [2] LUNATIC POLITICS, 1998 http://www.dieoff.com/page141.htm [3] http://www.faithfact.com/thefoundingofamerica.htm "

In another essay, Hanson zeroes in on the fundamental weakness of neoclassical economics: its complete dependence on linear analysis:

Our understanding of the world in which we live is inherently imperfect. This creates difficulties for the social sciences from which the natural sciences are exempt. Scientific method has discovered universally valid generalizations that can explain and predict events in the natural world. To make such generalizations possible, the events must be independent of statements that relate to them.

But in society, participants must make decisions about events that are contingent on their decisions. The separation between statements and facts, a characteristic of science, is lacking. Participants are obliged to act on the basis of imperfect understanding, bringing biases to bear, with unfortunate consequences for the social sciences. Participants' thinking introduces an element of indeterminacy missing from the natural sciences.

Economic theory has sought to imitate l9th-century physics by introducing the concept of equilibrium. The postulate of a long-run equilibrium is indispensable to turning economics into a hard science. Unfortunately, the participants' bias can wreak havoc with equilibrium, particularly in financial markets. The participants' bias can influence the future that the markets are supposed to discount.

Sometimes the interaction between the participants' thinking and the actual state of affairs sets off a self-reinforcing process that doesn't leave the underlying reality unaffected. The absence of equilibrium deprives economics of its claim to being a hard science and also deprives laissez faire ideology of its scientific underpinnings. Outcomes do not necessarily correspond to expectations, and actions have unintended consequences.

Standard economics not only fails to incorporate non-linear feedback mechanisms into its analysis, but it also cannot deal with singularities, major confluences of event that have not happened before, catastrophes, in other words. Surely the climatological and ecological limits that seven billion, high energy consuming humans on this planet are careening towards constitutes such a singularity. We need to ask ourselves, are these weaknesses of economics deliberate? In other words, as Hanson suggests, are those weaknesses there to fool the rest of us? Does the oligarchy have some kind of better, more effective economics that they keep to themselves?

Signs of the Economic Apocalypse 3-20-06

From Signs of the Times, 3-20-06:

Gold closed at 554.70 dollars an ounce on Friday, up 2.2% from $542.50 for the week. The dollar closed at 0.8203 euros at Friday’s close, down 2.4% from 0.8396 euros at the end of the previous week. The euro, then closed at 1.2190 dollars, compared to $1.1910 at the end of the week before. Gold in euros would be 455.05 an ounce, down 0.1% from 455.50 the week before. Oil closed at 62.89 dollars a barrel on Friday, up 4.9% from $59.96 for the week. Oil in euros would be 51.59 euros a barrel, up 2.4% from 50.34 the week before. The gold/oil ratio closed at 8.82, down 2.6% from 9.05 at the end of the previous week. In U.S. stocks, the Dow closed at 11,279.65 on Friday, up 1.8% from 11,076.34 at the close of the previous Friday. The NASDAQ closed at 2,306.48, up 2.0% from 2,262.04 at the end of the week before. In U.S. interest rates, the yield on the ten-year U.S. Treasury note closed at 4.67%, down 9 basis points from 4.76 at the end of the previous week.

Not too bad, all in all. Oil was up in dollar terms but still less than it was two weeks ago ($63.67/bl.). Gold is also lower than it was two weeks ago ($567.20/oz.). Why do market levels seem so normal when the underlying economic foundation seems so unstable? Could it be that military spending will take over the role of demand stimulant from consumer spending? Could it be that “the economy” will continue to look heathy while the average person sinks into servitude? While U.S. consumers are getting squeezed between lower wages and rising cost of debt and basic goods, deficit military spending is going through the roof:

U.S. War Spending to Rise 44% to $9.8 Bln a Month, Report Says

March 17 (Bloomberg) -- U.S. military spending in Iraq and Afghanistan will average 44 percent more in the current fiscal year than in fiscal 2005, the nonpartisan Congressional Research Service said.

Spending will rise to $9.8 billion a month from the $6.8 billion a month the Pentagon said it spent last year, the research service said. The group's March 10 report cites “substantial” expenses to replace or repair damaged weapons, aircraft, vehicles, radios and spare parts.

It also figures in costs for health care, fuel, national intelligence and the training of Iraqi and Afghan security forces -- “now a substantial expense,” it said.
The research service said it considers “all war and occupation costs,” while the Pentagon counts just the cost of personnel, maintenance and operations.

The House approved emergency funding that includes the military spending last night by a vote of 348-71. The measure authorizes $72 billion for war costs and almost $20 billion for hurricane relief. The Senate is expected to pass it next month.

Congress already has approved $50 billion in supplemental war funding for the current fiscal year, which ends Sept. 30, after spending $100 billion last year. To date, Congress has approved about $337 billion for the wars since Sept. 11, 2001.

This extra demand stimulant provided by military spending may make up, at least for a while, the loss from things like this:

Mortgage delinquencies rise in Q4
Report comes as mortgage rates cool in latest week
By Robert Schroeder, MarketWatch
Last Update: 4:54 PM ET Mar 16, 2006

WASHINGTON (MarketWatch) -- Consumers had greater trouble meeting their mortgage obligations in the fourth quarter, as borrowers faced higher energy prices, interest rates and continuing difficulties from Hurricane Katrina, a mortgage bankers' group said Thursday.

Delinquencies on residential properties climbed to 4.70% in the fourth quarter of 2005, up from 4.38% a year ago, according to a Mortgage Bankers Association survey. In the third quarter, delinquencies were 4.44%, the group said.

Doug Duncan, the bankers' group's chief economist, said the increase isn't surprising.

"We have been expecting an up-tick in delinquencies due to a number of factors," he said in a statement. He cited increased amounts of adjustable-rate and sub-prime mortgages, rising energy prices and climbing interest rates.

The group's report comes as mortgage-finance company Freddie Mac released new figures showing home loans are getting cheaper.

The benchmark 30-year fixed rate mortgage average fell in the week ending Thursday, Freddie said, to 6.34% from 6.37%. The 15-year loan also fell, to 5.37% from 6%. One-year and five-year rates also fell, the company said.

The problem is that the media seems to be doing its best to frighten us with two seemingly inevitable horrible near-future events: the U.S. attack on Iran and a Bird Flu Pandemic, both of which would ruin the world economy. There are many different thinks that could bring on doomsday in the near future. Why concentrate so much on an influenza epidemic? It would only make sense if you wanted to spook the markets. Indeed, the stage seems to be set for a currency collapse for the dollar. Just in Time supply chain techniques and global sourcing of most goods make the U.S. economy more vulnerable than every to catastrophic shortages in key items should travel and shipping restrictions be put in place in the event of a pandemic.:

Is Business Ready for a Flu Pandemic?
By Elisabeth Rosenthal and Keith Bradsher
March 16, 2006

Rome — Governments worldwide have spent billions planning for a potential influenza pandemic: buying medicines, running disaster drills, developing strategies for tighter border controls. But one piece of the plan may be missing: the ability of corporations to continue to provide vital services.

Airlines, for instance, would have to fly health experts around the world and overnight couriers would have to rush medical supplies to the front lines. Banks would need to ensure that computer systems continued to move money internationally and that local customers could get cash. News outlets would have to keep broadcasting so people could get information that might mean the difference between life and death.

"I tell companies to use their imagination to think of all the unintended consequences," said Mark Layton, global leader for enterprise risk services at Deloitte & Touche in New York. "Will suppliers be able to deliver goods? How about services they've outsourced — are they still reliable?"

Experts say that many essential functions would have to continue despite the likelihood of a depleted work force and more limited transportation. Up to 40 percent of employees could be sick at one time.

Indeed, the return of the bird migration season has touched off new worries over how a serious outbreak could interrupt business in many parts of the world simultaneously, perhaps for months on end.

…"A pandemic flu outbreak in any part of the world would potentially cripple supply chains, dramatically reduce available labor pools," the report said. "In a world where the global supply chain and real-time inventories determine most everything we do, down to the food available for purchase in our grocery stores, one begins to understand the importance of advanced planning."

…Some of the most important planning involves not employee health, but how to continue to deliver vital services in a crisis. Time Warner's Cable News Network is making preparations to stay on the air from different locations.

"If there should be something that quarantines the production center here in Hong Kong, we could hand off to London and Atlanta," Stephen Marcopoto, president of Turner International Asia Pacific, a Time Warner unit in Hong Kong, said.
Time Warner is also working to create a mechanized cart that could automatically load tape after tape into a satellite transmission system, so it could keep stations like Cartoon Network on the air — a boon if children were homebound for months.

Nice to know we will still get cartoons.

The skillfully choreographed Fear of Flu pandemic (Remember last summer when Bush claimed to be reading a book about the 1918 flu pandemic? That certainly was a signal for what was to come.) is taking place at a time triple deficits are increasing at a rapid rate, central banks are quietly shifting funds away from the dollar and the United States is losing control of its imperial semi-periphery in Latin America. According to Bill Van Auken:

There is no doubt a profound objective significance to the coming to power of a series of Latin American regimes that in one way or another identify with the “left” and voice opposition to US economic and political policies.

In US ruling circles there is growing disquiet over the region. Thus, the latest issue of Foreign Affairs carries an article entitled “Is Washington Losing Latin America?” Its author is one Peter Hakim, head of the Inter-American Dialogue, a big business-funded think tank that promotes Washington’s version of free trade in the region.

He condemns both the Clinton and Bush administrations for benign, or not so benign, neglect toward the region, allowing “... US policy on Latin America [to] drift without much steam or direction” after a period in which he claims Latin America was headed in “the right direction.”

In reality, reduced US influence in Latin America is neither merely a matter of foreign policy mistakes nor the result of subjective decisions by this or that politician. Rather, it is bound up with changes in the world economy as well as the catastrophic effects of the US-backed policies introduced during the period when Hakim claims the region was headed “in the right direction.”

These changes in the world economy brought on by globalization include the relative decline in the position of US capitalism vis-à-vis Western Europe and, increasingly, as we have discussed in previous reports, China.

The Monroe Doctrine—the seminal US foreign policy of opposing any outside power extending its influence into the Western Hemisphere—has effectively become a dead letter. For nearly 200 years, successive governments in Washington invoked this doctrine as the justification for US interventions in the region and, throughout the twentieth century, for the imposition of military dictatorships to suppress the revolutionary movement of the working class. For most of that period the doctrine was embraced by national bourgeois regimes that subordinated themselves to US imperialism. This consensus has been shattered by changed economic relations.

US rivals gain economic influence

The European Union has in the course of the last decade eclipsed US capitalism as the principal source of foreign direct investment and trade in South America. The US remains first in terms of trade within the Latin American region as a whole, thanks to its close ties to Mexico under the 1993 NAFTA accord. Two-thirds of US exports to the region go to Mexico, and much of these consist of parts sent across the border to the maquiladora plants set up to exploit cheaper Mexican labor in the production of goods for the US market.

Even more disturbingly for Washington, China is playing an increasingly assertive role south of the Rio Grande. Chinese President Hu Jintao and the country’s vice president, Zeng Qinghong, have made two tours of Latin America in the course of the last two years, signing trade pacts and military-to-military agreements. The region has become an increasingly important source of raw materials for China’s industries. China’s imports from the region have increased six-fold over the past six years and are expected to reach the $100 billion-a-year mark by the end of this decade.

To secure access to scarce strategic resources, China has pledged to invest $100 billion in the building of roads, ports and other infrastructure over the course of the next decade. Beijing is pursuing a number of major projects, including initiatives aimed at securing access to Venezuelan oil, Bolivian natural gas and key minerals.

The US Congress has held two hearings on what is perceived as a Chinese menace in this longstanding US sphere of influence and semi-colonial domination. Testifying before Congress last year, then-Assistant Secretary of State for Western Hemisphere Affairs Roger Noriega vowed that the administration would be “attentive to any indication that economic collaboration will feed political relations that could run counter to our key objectives for the region.”

In short, these changes in global economic relations mean that US capitalism is by no means the only game in town—nor in many cases the most profitable one—as far as Latin America is concerned, and the growing economic relations between the region and America’s rivals have provided the region’s regimes with room to maneuver that goes beyond that which was associated with the Cold War balancing act performed by many nationalist regimes between Washington and Moscow. This is one of the key material foundations of the so-called turn to the left. In some ways this trend could perhaps better be described as a turn to the euro and the yuan.

The loss of U.S. imperial control over Latin America cannot be separated from the loss of the Iraq War and the alienation of the rest of the world from U.S. policy. Around the world, the United States is despised more and feared less than it was five years ago. With the Dubai/U.S. port controversy, a new factor was added. The economic nationalism of U.S. citizens, fueled by years of the neocon and fundamentalist demonizing of Arabs and Muslims, has provoked a reaction against the dollar (and the empire it symbolizes) in the Middle East:

Arab central banks move assets out of dollar

By Philip Thornton, Economics Correspondent
14 March 2006

Middle Eastern anger over the decision by the US to block a Dubai company from buying five of its ports hit the dollar yesterday as a number of central banks said they were considering switching reserves into euros.

The United Arab Emirates, which includes Dubai, said it was looking to move one-tenth of its dollar reserves into euros, while the governor of the Saudi Arabian central bank condemned the US move as "discrimination".

Separately, Syria responded to US sanctions against two of its banks by confirming plans to use euros instead of dollars for its external transactions.

The remarks combined to knock the dollar, which fell against the euro, pound and yen yesterday as analysts warned other central banks might follow suit.

Last week the US caused dismay after political opposition to the takeover of P&O by Dubai Ports World forced DPW to agree to transfer P&O's US port management business to a "US entity" .

The governor of the UAE central bank, Sultan Nasser al-Suweidi, said the bank was looking to convert 10 per cent of its reserves, which stand at $23bn (£13.5bn), from dollars to euros. "They are contravening their own principles," he said. "Investors are going to take this into consideration [and] will look at investment opportunities through new binoculars."

Hamad Saud al-Sayyari, the governor of the Saudi Arabian monetary authority, said: "Is it protection or discrimination? Is it okay for US companies to buy everywhere but it is not okay for other companies to buy the US?"

Syria has switched the state's foreign currency transactions to euros from dollars, the head of the state-owned Commercial Bank of Syria, Duraid Durgham, said.
Last week the White House told US financial institutions to terminate all correspondent accounts involving the Commercial Bank of Syria because of money-laundering concerns. Mohammad al-Hussein, Syria's finance minister, said: "Syria affirms that this decision and its timing are fundamentally political."

The euro rose a quarter of one percentage point against the dollar to a one-week high of $1.1945, although it retreated in later trading.

Monica Fan, at RBC Capital Markets, said: "The issue is whether we will see similar attitudes taken by other Middle Eastern banks. It is a question of momentum."

In such conditions, how are we to think the dollar can maintain its value? Brad Delong published this Plato-style dialogue last week:

Global Imbalances

Agathon: You look tired.

Kapelikos: Freshly back from the other coast. Airline load factors are just too high.

Agathon: Who were you talking to?

Kapelikos: MegaBankCorp--their investors.

Agathon: What were you talking about?

Kapelikos: The usual--global imbalances.

Agathon: And what did you say?

Kapelikos: That the global economy is unbalanced--that current patterns of trade are unsustainable--that things that are unsustainable eventually, somehow, stop. What else can you say?

Agathon: And the argument on the other side? I'm not sure I understand it.

Kapelikos: I know I don't.

Agathon: Is it roughly this? "U.S. real GDP is growing at about $400 billion a year. At a capital-output ratio of 3.5-to-1, that means $1.4 trillion of new America-located wealth each year. We can sell off $1 trillion of that every year to foreigners in order to finance our import bill. And still be richer than we were last year. What's unsustainable about that?" Is that the argument?

Kapelikos: Could be. But that's incoherent--it misses the difference between the trade deficit and the current account. Ten years down the road the current-account deficit is not $1 but $1.4 trillion--$1 trillion of net imports and $0.4 trillion of interest, rent, and profits owed on foreign-owned property here. To hold the annual current-account deficit at $1 trillion requires that the trade deficit shrink, which requires that the dollar decline, which means that foreigners investing in America are making bad decisions.

Agathon: And when do your models predict the dollar will fall?

Kapelikos: 2003.

Agathon: Three years ago?

Kapelikos: Yep.

Agathon: But as long as people believe the argument on the other side, the dollar doesn't decline, and the argument looks correct?

Kapelikos: Yep--for one more year.

Agathon: How many more yars are you going to be saying, "Wait just one more year"?

Kapelikos: Until I can say, "I told you so."

Agathon: Can't you be more specific than that?

Kapelikos: Ok. How about this. International financial crises tend to come--currencies crash--when interest rates rise in the world economy's core. The Bank of Japan has just joined the ECB and the Federal Reserve in raising interest rates.

Think of the damage caused by currency crashes in recent decades in middle-level economies (Thailand, Argentina, Mexico, etc.) Imagine what the effects would be of a collapse of a currency which happens to be the world’s reserve currency, in a country which also happens to be the imperial hegemon and whose consumers drive world consumption.

Signs of the Economic Apocalypse, 3-13-06

Apologies for the late posting. The blog was flagged as spam by Blogspot's web bots.

From Signs of the Times 3-13-06:

Gold closed at 542.50 dollars an ounce on Friday, down 4.6% from $567.20 for the week. The dollar closed at 0.8396 euros Friday, up 1.1% from 0.8307 the week before. That would put the euro at 1.1910 dollars, compared to 1.2038 at the end of the previous week. Gold in euros would be 455.50, down 3.4% from 471.17 euros an ounce the week before. Oil closed at 59.96 dollars a barrel, down 6.2% from $63.67 at the close of the previous week. Oil in euros would be 50.34 euros a barrel, down 5.1% from 52.89 for the week. The gold/oil ratio closed at 9.05 up 1.6% from 8.91 at the end of the previous week. In U.S. stocks, the Dow Jones Industrial Average closed at 11,076.34 on Friday, up 0.4% from 11,033.20 for the week, while the NASDAQ closed at 2,262.04 down 1.9% from 2,306.08. The yield on the ten-year U.S. Treasury note closed at 4.76, up 8 basis points from 4.68 for the week.

A good week for the U.S. imperial economy, if the numbers are any indication. Gold and oil fell sharply and the dollar rose. But the interests of the owners and managers of the imperial economy and those of the average person in the United States have diverged. Unemployment was up last month, though the media focussed on the fact that the jobs numbers for February exceeded expectations. Notice how much space the following Bloomberg article devotes to positive spin and how little space is given to the negative numbers (bolded).

February Payrolls Rise 243,000; Jobless Rate at 4.8%

March 10 (Bloomberg) -- American employers added a greater- than-expected 243,000 workers in February and incomes rose, signs the job market will bolster consumer spending and economic growth. The unemployment rate increased to 4.8 percent.

The gain in employment followed a 170,000 rise in January that was smaller than previously reported, the Labor Department said today in Washington. The jobless rate rose from 4.7 percent the previous month, the lowest level since July 2001, as more workers entered the labor force seeking jobs.

Economic growth will depend more on jobs this year as housing, a source of strength in the last four years, starts to fade, economists said. Wages in the last 12 months rose by the most in more than four years, posing a risk of higher inflation.

“The labor market is heating up,” Mark Vitner, a senior economist at Wachovia Corp. in Charlotte, North Carolina, said before the report. “Businesses have pushed as hard as they can in getting work out of their existing workforces and it's time to expand.” The Federal Reserve “might have to raise rates more than they really want to.”

Economists expected payrolls would rise by 210,000 last month following a previously reported increase of 193,000 in January, according to the median of 77 forecasts in a Bloomberg News survey. Estimates ranged from increases of 100,000 to 300,000. Economists also projected the unemployment rate would hold at 4.7 percent.

Service Jobs

Employment in service-producing industries, which include retailers, banks and government agencies, rose 198,000 last month after rising 105,000 in January, the report showed. The increase was led by education, health-care and business services jobs.

Construction employment rose 41,000 after a gain of 55,000 in January. Mining, including oil and gas industries, added 5,000 jobs.

Manufacturing lost 1,000 jobs last month, the first decline in five months. The manufacturing workweek rose to 41 hours from 40.9 in January and overtime rose to 4.6 hours from 4.5 hours.

Average weekly hours worked by production workers fell to 33.7 hours in February from 33.8 the prior month. Economists expected hours would hold at 33.8 for a sixth month, according to the Bloomberg News survey.

The bottom line is that joblessness was up, manufacturing jobs were lost, and any small pay raises were not enough to keep up with inflation.

In more bad news for the average person, interest rates including mortgage rates continued their rise and most analysts predict the Federal Reserve Board will raise interest rates again. They cite the fact that U.S. workers on average increased their pay by 3.5% last year. While that was below the rate of inflation, the people who can live on their investments and who don’t depend on paychecks view the small rise in pay with alarm.

30-Year Mortgage Rates Jump to 2-Year High
By Martin Crutsinger, AP Economics Writer

Rates on 30-year mortgages jumped to the highest level in 2 1/2 years this week, driven higher by inflation worries in financial markets.

Mortgage giant Freddie Mac reported Thursday that rates on 30-year, fixed-rate mortgages averaged 6.37 percent this week, according to its weekly survey.

That was up sharply from a nationwide average of 6.24 percent last week and left 30-year rates at the highest level since they averaged 6.44 percent the week of Sept. 5, 2003.

"Stronger than expected gains in the manufacturing and service industries — coupled with higher labor costs — ignited inflation concerns, which led to the rise in mortgage rates this week," said Frank Nothaft, chief economist at Freddie Mac.

He said investors have begun to worry that the Federal Reserve, which has been raising interest rates to combat inflation, may not stop with just one or two more rate hikes but may actually boost rates three more times this year.

The rising rates have begun to cool the sizzling housing market with sales of both new and existing homes posting bigger-than-expected declines in January.

Nothaft said the housing sector, which posted record sales levels for five straight years, was shifting to a slower pace, but he predicted the decline would not be severe enough to disrupt the overall economy like the bursting of the stock market did in 2000.

"We see no signs of a bursting bubble, but rather a return to a more normal pace of activity," he said.

Some economists believe that 30-year mortgage rates could rise as high as 7 percent by the end of the year.

The Freddie Mac survey found sharp increases for all types of mortgages this week.

There are ominous signs of a real crash in real estate, despite what the AP writer said. Interest rates are designed to slow the economy, but there are other signs that the people who control the money are about to slam the breaks. The Signs of the Times published this piece from Safehaven.com on Saturday, but it is worth revisiting.

The Fed Officially Kicks Off the Next Recession

Robert McHugh
March 12, 2006

It is official. A recession is coming. How do I know? Because this week new Fed Chairman Ben Bernanke gave an official warning to bankers about commercial real estate loans. That is always the kickoff to a recession. It is the starter's gun, the national anthem before a ballgame, the opening hymn at a church service. Here is how it works. The Fed has three official tools to control the money supply: Setting reserve requirements (telling banks how much of their deposits they cannot lend. The higher the reserve requirements, the less loans, the less money creation by the economy). The second tool is open market operations. Here they set the amount of money in the system by buying or selling securities. Third is setting the discount rate, the rate of interest banks must pay to borrow money at the Fed. Theoretically, the higher the rate, the less money banks will borrow, the less they have to lend, and the less money that is created by the banking system.

However, there is a fourth tool, a stealth tool, which has more power and impact than the other three. It is called the Federal Reserve Bank examiner. He/she is the person who goes into a bank about once a year and decides which loans are good and which are bad. Based upon their holy edict, a loan is classified in one of several categories which determines how much money the banks must set aside from earnings to reserve for possible losses. It is completely an estimation game. So the rules can and do change, based upon the whims of the examiner, taking his marching orders from the Fed Chairman. If the Fed wants the money supply to expand, then Fed examiners come in with reasonable standards for review of loans, and classify those loans with a general leaning that they will be repaid according to terms. Thus banks do not have to reserve as much for possible estimated losses and are in effect not discouraged from making more loans. When the Fed wants money supply to grow, aggressive lending standards often get passing grades. That's when you business people will see your friendly bank commercial lender more often, jawing you into that expansion project you've been thinking about, inviting you to golf outings and ball games. They want more loans. They need your expansion project.

However, once the Fed Chair sounds the alarm about commercial real estate loans, it starts an entire chain of events that ultimately and unequivocally leads to economic recession. Here's what happens. Out of the blue... those friendly back-slapping Federal Reserve examiners… show up with a scowl that droops like the golden arch. They ask for the files, a table, an outlet, a coffee pot, and the key to the little boys and girls room. About two days after they arrive, the banker knows something has changed, something serious, and he gets this knot in the pit of his stomach that will last for about three years. Examiner Margo asks for a meeting with banker Joe. She brings her supervisor to raise the fear level of the meeting. The Bank's President, Joe, brings his top commercial lender for protection of his fanny, and that lender brings his junior lender who will ultimately be the sacrificial lamb and get the ax should things blow up.

Bottom line: Margo feels that a good commercial real estate loan, paying on time, plenty of collateral, doesn't quite throw off enough cashflow on its financial statements in file, and is now suddenly rated below satisfactory. Not quite doubtful. What this means is the banker now has to set aside 20 percent of the loan in reserves for possible losses. That reduces income, and he has a big one-time hit coming to earnings this quarter.

…At the end of the day, a junior lender gets canned, the Board steps up the heat on the President to do something about this, and banker Joe and his senior lender immediately decide to stop making commercial real estate loans.

For the economy, this means a credit crunch has started. Expansion stops. Willing buyers can no longer obtain financing to buy properties. This reduces demand for properties at the exact same time bankers are encouraging these suddenly classified borrowers on their books to sell their properties and pay back the loans. This increases the supply of properties for sale at the exact wrong time, lowering prices.

But the black hole is just getting started -- just beginning to suck the economy into the abyss. What I outlined above is merely round one.

About six month later, property values have dropped from this excess of supply and lack of demand due to the curtailing of bank commercial real estate loans. This means the collateral values of the loans on the bank's books have declined.

Another Fed examination is scheduled, they are back in, and with the battle well under way, it is time for these public servants to start shooting the wounded. They are fully aware that property values have dropped, and -- ignoring the fact that they caused them to drop -- they march to the file room, grab their favorite previously classified loans, and get to work. They assign the most experienced examiners to review the classified loans while they send the rookies to find potential problems among the previously good loans. But the action is with the classified bad boys.

That loan they rated less than satisfactory because of cashflow problems the last time they were in has now deteriorated to doubtful because of the compounded affect of collateral undervaluation. That means instead of setting aside 20 percent of the loan amount into the reserve for possible losses, banker Joe must now set aside 50 percent, another big hit to earnings. He had promised the Board of Directors that last year's one-time hit for potential loan losses would be a one-time occurrence. He realizes that is not the case, and begins to wish he had become a UPS delivery man.

At the end of the day, the bank's rating has dropped, the Board is scared about Director liability, and Joe is pulling out every political favor he's accumulated among a majority of the Board to keep him around for one more year. He agrees to sacrifice the bank's Senior Lending officer, who has served as a shield the past year, not making loans, but sitting in his office, ready to be ejected for the good of banker Joe's considerable stock options portfolio and other bennies that come with holding on to a bank presidency for a decade or so. The senior lender is replaced by a credit hack, someone with no people skills, adept at strong-arming bank borrowers into paying back the money. The goal is to shrink the loan portfolio by not making new ones, using the normal cashflow from payments to reduce outstandings, and to sell at a discount or coerce partial payments from existing loan customers who were rated unsatisfactory by the Federal Reserve's finest. This means lawyers get involved, lots of lawyers, skilled at scaring borrowers into "working out" loan repayments with this new nasty bank lender. This means less money is available for potential buyers of property in the economy, more distressed sale supply hits the market, and real estate values fall even further.

It is about now that everyone recognizes a recession is well underway, led by a real estate collapse. The truth of the matter is, the rules were changed by the Fed and nobody was told until it was too late, and the economy plunges. Voters scream, a few politicians get tossed, and the phrase "credit crunch" becomes a darling of the media. It takes action by the President of the United States to haul in the Federal Reserve Chairman, and explain to him the reality of the reappointment process every four years. Suddenly, at the next bank exam, a new friendlier, examination teams shows up, drinks more coffee, has a few extra newspapers tucked next to their laptops, are asking for fewer files, complain they have to rush to another job in two weeks so won't be there as long as the last time, and leave with little fanfare. The bankers are told in the wrap-up meeting, that they've improved their loan quality, the bank's rating is boosted one grade, and all is well with the world -- end of recession.

To those who have much, more has been given, though, as the numbers of billionaires has reached new highs. These are the people who will be able to buy up all the assets of the indebted workers for pennies on the dollar.

Billionaire Bacchanalia

Edited by Luisa Kroll and Allison Fass

Forbes.com

Making a billion just isn't what it used to be. In our inaugural ranking of the world's richest people 20 years ago we uncovered some 140 billionaires. This year the list is a record 793, up 102 from last year.

They're worth a combined $2.6 trillion, up 18% since last March. Their average net worth: $3.3 billion. Strong stock markets around the world (the U.S. being the notable exception) contributed to this surge in wealth.

…The U.S. is home to 44 new billionaires and commands nearly half of the fortunes on the roster. Bill Gates retains his title as the world's richest person for the twelfth straight year, proving that while it's getting easier to make a billion, the same can't be said for making $50 billion.

In second place is his good friend and bridge partner Warren Buffett. The Sage of Omaha is worth $42 billion this year, $2 billion less than last.

Other notables in the Top 20 include number 7, Bernard Arnault, the pope of fashion who runs LVMH and oversees its high-end brands including Louis Vuittton and Dom Perignon; and Roman Abramovich, the 39-year-old Russian oil baron who liquidated his biggest asset last year for $13 billion.

Seventy-eight women make the list, 10 more than last year, though only six are self-made including the Queen of All Media, Oprah Winfrey, Harry Potter author J.K. Rowling and Ebay's Meg Whitman.

Hind Hariri, daughter of slain Lebanese prime minister Rafik Hariri, who is eight months younger than Germany's Prince Albert von Thurn und Taxis, is, at 22, the list's youngest member.

Twelve people return to the list including Hiroshi Mikitani, founder of Japanese Internet shopping mall Rakuten.

Thirty-nine people depart from it. Eleven of them died including John Walton, the son of Wal-Mart founder Sam Walton; he perished in a plane crash last June.

The other 28 fell off either because of stock drops, repercussions from dubious ethics or because we discovered they shared it with more family members (individually, they each had less than $1 billion).

High profile drop-offs include Martha Stewart, whose net worth has fallen to an estimated $500 million since she got out of jail, and Mikhail Khodorkovsky, once Russia's richest man, who was convicted of fraud and theft and is serving an 8-year-prison sentence in Eastern Siberia.

Where did these billionaires come from? What have they contributed to deserve such riches? Can the rise in the fortunes of the superrich really be a positive sign for the world economy? Maybe a little historical perspective is in order. Barry Grey of the World Socialist Web Site has published a two-part series this month called, “The Bush administration and the global decline of American capitalism.” Grey looks at the rise of the parasitical class of supperrich in longer-term historical perspective:

At the end of the war [the Second World War], the US occupied a position of overwhelming economic supremacy. It produced the vast bulk of the world’s steel, electricity, autos, etc., and it possessed almost all of the world’s gold holdings. This enabled the US, through the Marshall Plan and similar measures, to subsidize an economic revival in Europe and capitalist Asia that made possible two decades of rapid growth of the world economy. The post-war boom provided the economic basis for social reform policies that dampened class antagonisms—at least in North America, Western Europe and Japan.

But the attempt of American capitalism to rebuild world capitalism inevitably ran up against contradictions lodged in the fundamental contradiction between world economy and the nation-state system. In promoting the industrial and financial revival of Europe and Japan, the US was strengthening imperialist competitors and rivals. By the 1960s, the dollar was coming under increasing pressure and countries such as Germany and Japan were gearing up to challenge American dominance in world markets—including the American market.

The social and political shock waves from these tectonic shifts in the economic foundation took increasingly explosive forms in the 1960s within the US. One need only mention the assassination of John F. Kennedy in 1963 and the political assassinations that followed later in the decade, the civil rights struggles, militant wages struggles in virtually every sector of the economy, the urban riots, and the mass movement against the war in Vietnam. These social and political upheavals, in turn, acted upon and intensified the underlying economic crisis.

The erosion of American capitalism’s previously hegemonic position in the world economy found definitive expression in Richard Nixon’s August 15, 1971 measures. Under conditions of a run on the dollar and dwindling gold reserves in Fort Knox, Nixon ended dollar-gold convertibility, which had served as the lynchpin of the global financial arrangements established by the Bretton Woods agreements of 1944.

This was a major turning point, marking in general terms both the end of the post-war boom and the end of American industrial and financial hegemony. What followed was the oil shock of 1973-74, spiraling inflation and the deepest recession in the US since the 1930s.

Throughout the 1970s the US remained in the grip of a profound economic malaise, which was dubbed “stagflation”—a combination of slow economic growth and steep inflation. At the same time, US capitalism was facing an ever-greater challenge from its major competitors in Europe and Asia—Germany and Japan, in particular. American corporations—in steel, auto, electronics and other industries—were rapidly losing market share internationally, and within the US, foreign auto and steel imports were growing, cutting significantly into the share of the domestic market controlled by the Big Three auto companies and steel giants such as US Steel.

The American working class, despite its political subordination to the capitalist two-party system, which was enforced by the trade union bureaucracy, retained much of the militancy that attended the birth of the mass industrial unions in the sit-down strikes of the 1930s and industry-wide strikes that continued in the post-war period. There were bitter strikes throughout the 1970s, and a marked political radicalization among young workers in virtually every industry.

…This militancy was connected to a whole series of social reforms and regulations on business dating back to Roosevelt’s New Deal. These were generally seen, with justification, as concessions wrenched by the working class from the American ruling class. Facing a steep and obvious decline in its global economic position, stagnant growth, mounting debt, chronic inflation, falling profit rates, the US ruling elite was compelled to launch an attack on these past reforms and regulations, which in various ways placed restrictions on the operations of the capitalist market, and in that way weaken the position of the working class and undermine its militant resistance.

Deregulation

The first major step in this direction was the policy of deregulation, inaugurated by the Carter administration and promoted by liberals such as Senator Edward Kennedy. Targeting first mass transport industries such as commercial air travel and trucking, deregulation represented the beginning of a ruling class counteroffensive. The political and ideological premise of deregulation was the innate superiority of the market to government regulation and control.

The overthrow of the Shah and the resulting spike in oil prices in 1979 brought the economic crisis in the US to a head, leading to another major turning point with the appointment of Wall Street banker Paul Volcker to head the Federal Reserve Board. Volcker, a Democrat, launched the American version of shock therapy—hiking interest rates to unprecedented levels in order to “wring inflation out of the economy” by plunging the US into a deep recession.

This was a dramatic and highly conscious move to force the closure of plants and factories, drive up unemployment and create the conditions for a frontal assault on the past gains of the working class.

…As auto, steel, rubber, electrical and other industrial plants closed down around the country, business journals such as Business Week began openly to speak of the “deindustrialization” of America. Very rapidly, traditional industrial centers such as Detroit, Cleveland, Pittsburgh, Youngstown, parts of Los Angeles were devastated by plant closures and mass layoffs. Whole cities were turned into centers of economic dislocation, poverty and misery. Hundreds of thousands, then millions of workers almost overnight found themselves without a decent-paying job.

This was the birth of the so-called “rust belt,” which for the most part persists in large sections of the country. Manifested in abandoned stone and mortar and abandoned human beings was the objective decline in the world position of American capitalism.

The election of the right-wing Republican presidential candidate Ronald Reagan in 1980 signaled an intensification of the anti-working class offensive that had been launched under the previous, Democratic administration. “Reaganomics” became the catchphrase for a ruthless policy of union-busting, wage-cutting, the gutting of social programs, tax cuts for corporations and the wealthy, and the lifting of regulations on industrial pollution, workplace health and safety and many other aspects of economic life.

Economic policy was formulated quite openly to facilitate a vast transfer of wealth from the working population to the richest and most privileged layers, on the essentially parasitic basis of a massive downsizing of industry and a sharp increase in the national debt. The stock market became more than ever the focus of personal wealth accumulation for the financial elite, and driving up share values became a central preoccupation of government economic and social policy.

The decade of the 1980s saw a return to open and violent strikebreaking, employing goon squads, private police, state repression, frame-ups and victimizations—tactics that had largely receded in the post-war period. The working class resisted, waging dozens of bitter strikes in virtually all sectors of the economy. But every struggle was betrayed by the AFL-CIO, which isolated the struggles and then exploited their defeat to repudiate the militant traditions of the past and establish corporatist relations with the employers, all the while opposing any move toward a break with the Democratic Party and an independent political party.

By the end of the decade, the American labor movement had been essentially destroyed as a social instrument of resistance to US big business.

Retrenchment, bankruptcies, parasitism

The retrenchment in basic industry and other sectors has proceeded apace, punctuated by a series of spectacular bankruptcies. Flagship companies which symbolized the power of American capitalism have disappeared: Pan American Airlines and Eastern Airlines immediately come to mind. Since the late 1990s, more than 50 US steel producers have gone into bankruptcy, including such giants as Bethlehem, LTV, Republic, National and Wheeling-Pittsburgh. The Big Three auto companies have relentlessly downsized, slashing their work forces by more than half.

One can speak of a “hollowing out” of the American economy, in which corporate profit-making and the personal enrichment of the ruling elite grew increasingly divorced from the production of useful goods and the expansion of productive facilities, and more and more bound up with speculation in stocks and bonds and other forms of essentially parasitic activity. Outright swindling, accounting fraud and other forms of corporate criminality proliferated. Investment in research and development, maintaining and improving the industrial and social infrastructure—including education, health care, even roads, bridges, ports, levees, the electrical grid, the housing stock, the environment—took a back seat.

…The elevation of the “free market” to the status of political dogma and secular religion continues to produce disastrous results. Recent years have seen a new wave of corporate bankruptcies—from United Airlines and US Air to Delphi, the world’s largest auto parts maker. General Motors itself—once the world’s largest corporation and symbol par excellence of American industrial might—is flirting with bankruptcy, as is Ford.

These deep-going changes have had a major impact on relations between the classes, and on the social physiognomy of the various classes within the US. The American ruling elite itself has changed. The general process of decline finds a noxious expression in the political, intellectual and even moral decay of the ruling layers. In general, the most predatory, ignorant, short-sighted and reactionary elements have risen to the top.

Further on I will refer to the current list of Forbes magazine’s 400 richest Americans. For the present, I wish only to note that the current crop of multi-millionaires and multi-billionaires differ, broadly speaking, in one important respect from the robber barons who bestraddled American society a century ago. The Rockefellers, Carnegies, Fords, Edisons, Firestones who dominated economic life back then were ruthless and politically reactionary men. But they made their fortunes by overseeing the construction of industrial empires. Their names are associated with an immense development of the productive forces.

The current batch of moguls has, for the most part, no such relationship to the development of industry or productive capacity. Warren Buffett, Kirk Kerkorian, Carl Icahn, Sumner Redstone leave in their wake no industrial empires. In many cases, they and their peers made their fortunes by downsizing and asset-stripping what the robber barons had built. They are the beneficiaries of leveraged buyouts, mega-mergers and various, often esoteric, forms of speculation.

This parasitism reached new levels in the heady days of the Clinton administration, when the stock market spiraled upward and swindling and accounting fraud assumed malignant proportions. The general plundering of the American economy by the ruling elite was compounded by the wholesale plundering of companies by their own top executives.

Social inequality

The enormous concentration of wealth at the very top of American society and the growth of social inequality are part of the same process of decline, in terms of the world market, and internal decay. That American society ever more openly assumes the form of a plutocracy is a symptom not of health and vigor, but rather the opposite. The previous ability of the American ruling class—under enormous pressure from below, and certainly not without internal friction—to bring about a general rise in working class living standards and a moderation of economic disparities was an expression of economic strength and confidence in the future.

Those conditions no longer exist. There are by now hundreds of studies and thousands of statistics documenting the staggering and ever-widening chasm between the uppermost social layers and the vast majority of the American people. Large sections of the population live in a state of desperation and near destitution. But more broadly, working people and most of the professional, managerial and self-employed population have been swept up in a permanent maelstrom of economic insecurity and dislocation.

Just to cite one statistic: the New York Times recently reported that the very wealthiest Americans—some 45,000 taxpayers with incomes starting at $1.6 million, who comprise the top 0.1 percent—saw their share of the nation’s income more than double since the 1970s, reaching 10 percent in the year 2000. That is a level of income concentration last seen in the 1920s.

The existence of such obscene levels of wealth and grotesque levels of inequality is noted only on occasion in the media, and even more rarely by the Democratic Party, which still claims to be the “party of the people.” The mind set that prevails in ruling circles—“liberal” as well as conservative—was starkly revealed in the recent strike by transit workers in New York. Even as workers who make $50,000 a year were being roundly denounced by politicians and newspapers as greedy thugs and rats, it was reported that Wall Street was planning to hand out some $21.5 billion in year-end executive bonuses…

A snapshot of America’s ruling elite

To return to the question of the changes in the composition of the American ruling elite, this is an important question that requires serious analysis. A systematic examination of this issue is beyond the scope of this report. However, I think some insight can be gleaned from a look at Forbes magazine’s most recent list of the 400 richest Americans.

Restricting our consideration to the top fifty billionaires on the list, the first thing that strikes one is who is missing. There are no Fords, Rockefellers, DuPonts. No scions of the “captains of industry” who occupied such a prominent place in the Sixty Families that bestrode America’s industrial and financial empire during much of the last century.

Topping the list, at $51 billion, is Microsoft’s William Gates. Then comes Warren Buffett, with $40 billion. The source of his wealth is listed as Berkshire Hathaway, an investment firm. The next three positions are occupied by the heads of computer and computer-related firms. Then come five members of the Walton family, whose fortunes are based on the retail giant Wal-Mart—now the largest corporation in the world.

Outside of computers, the other industrial sector prominently represented in the top 50 list is oil and energy. Fully six of the top 50 have listed as the source of their wealth activities of an entirely speculative character: Kirk Kerkorian ($10 billion from investments and casinos), Carl Icahn ($8.5 billion from leveraged buyouts), Philip Anschultz ($7.2 billion from investments), George Soros ($7.2 billion from hedge funds), Ronald Perelman ($6 billion from leveraged buyouts) and Eli Broad ($5.5 billion from investments).

This gives some indication of the underlying decay of American capitalism. And this decline—concretely expressed in massive budget, balance of trade, and balance of payments deficits—has very real consequences for the US on the international arena. The decline in the global economic position of American capitalism has prompted the intensified turn by the ruling elite to militarism and war. Wall Street and Washington seek to use their military supremacy to offset their economic decline.

Signs of the Economic Apocalypse, 3-6-06

From Signs of the Times 3-6-06:

Gold closed at 567.20 dollars an ounce on Friday, up 1.1% from $562.00 the week before. The dollar closed at 0.8307 euros on Friday, down 1.4% from 0.8420 for the week. That would put the euro at 1.2038 dollars, compared to 1.1876 at the end of the week before. Gold in euros, then fell to 471.17 euros an ounce from 472.38 for the week, a drop of 0.3%. Oil closed at $63.67 a barrel, up 1.2% from $62.91 at the previous week’s close. Oil in euros also fell, closing at 52.89 euros a barrel, down less than 0.2% from 52.97 for the week. The gold/oil ratio ended at 8.91, down 0.1% from 8.92 at the end of the previous week. In U.S. stocks, the Dow closed at 11,033.20, down 0.3% from 11,061.85 at the close of the week before. The NASDAQ closed at 2,306.08, up 0.8% from 2,287.04 for the week. Bonds fell last week in the United States, with the yield on the ten-year U.S. Treasury note rising to 4.68% up 11 basis points from 4.57 the week before.

As we can see from comparing the price of gold and oil in euros and against each other, oil and gold did not rise last week, rather, the dollar fell. The fact that this happened as U.S. interest rates rose, which usually strengthens currencies, is not a good sign for the imperial economy. Record low approval ratings for the U.S. president G. Bush, while continually downplayed by the mainstream U.S. media, who never refer to him as “the phenomenally unpopular president” or “the widely despised George Bush” even though that is true, cannot be hid from international investors. Nor can the U.S. media hide the disastrous news coming out of Iraq and Afghanistan from the savvy international banking and investment community. They are even having a hard time hiding it from the United States public. The small town next to where I live, a white, rural town with a population of less than 3,000, saw a protest of more than 20 people on the town common calling for the impeachment of Bush and for the reinstating of the Constitution last week. That’s almost 1 in 100 people. If a similar proportion showed up in New York it would number over 100,000. Significantly, the protest was covered positively and prominently in the conservative small-town newspaper. It can be argued, though, that they don’t need to hide anything anymore, now that the Patriot Act as been expanded and made permanent last week. The treasury and the broader common wealth (understood literally) has been plundered and the Constitution has breathed its last breath.

Last week I wrote “The mainstream media’s economic news was particularly positive until the end of last week, when no one could hide the bad news for the U.S. empire. The shocks on Thursday and Friday drove the price of gold and oil up and made even optimists uneasy.” I am not so sure upon rereading it that that is exactly true. What MSM is actually doing is splitting. I have seen articles demonstrating optimism about the U.S. economy side-by-side with articles bemoaning the perilous geopolitical situation or the bad straits of the U.S. empire. Or vice versa: optimism about the empire and pessimism about the economy. One of the things the pathocrats have done is first to separate economics from everything else (politics, morality, geopolitical power relations, etc.), then elevate it above everything else. They do the same with the environment, as if the basic underpinnings of economic life, natural resources, can be somehow separated from the health of the economy. It is hard to tell if it’s denial or deliberate creation of congnitive dissonance.

Signs are multiplying that the housing bubble is about to turn into the housing crash.

U.S. Economy: Sales of New Homes Decline, Inventory a Record

Feb. 27 (Bloomberg) -- New-home sales in the U.S. fell to the lowest level in a year in January and the number of properties on the market was the most ever, more signs housing is losing its luster after five record years.

Sales declined a greater-than-expected 5 percent to an annual rate of 1.233 million from a revised 1.298 million in December, the Commerce Department said today in Washington. The number of homes for sale rose to an all-time high of 528,000 in January from December's 515,000.

Higher mortgage rates and home prices will push down sales and may contribute to a slowing of the economy in the second half, economists said. Home construction may not add to economic growth this year for the first time in more than a decade, leaving homebuilders less optimistic.

“The combination of slower demand and looser supply is likely to put downward pressure on housing-price growth,” said Jonathan Basile, an economist at Credit Suisse in New York. “Housing won't be the driver for growth as it has been.”

The following report from Massachusetts shows how the places where housing rose the most during the bubble will be the places that fall the most during the crash:

Mass. home sales plummet 21%
January prices also slip but condo deals climb
By Chris Reidy, Globe Staff
March 1, 2006

The number of single-family homes sold statewide fell 21 percent in January, the largest year-to-year decrease in monthly home sales since April 1995, and another sign that the once red-hot local real estate market is cooling, the Massachusetts Association of Realtors reported yesterday.

Based on the supply of homes for sale, up sharply from a year ago, the real estate market favored the buyer in January.

“For the last few years, buyers often outnumbered the supply of homes for sale, allowing prices to escalate rapidly, but that's no longer the case," said association president David Wluka.

The median selling price for a single-family home dropped to $345,500, compared with $346,000 in January, 2005, when the sales total was the second highest on record for January.

Sales of single-family homes fell for the fourth month in a row, something that hasn't happened since early 2003.

More significantly, single-family home prices in January fell 0.1 percent, breaking a 114-month streak of rising prices. At the peak of the market, between April 2004 and March 2005, prices rose at a double-digit percentage clip for 11 of those 12 months.

The state's real estate market is cooling much faster than the national market. Nationwide, home sales were down last month 4.8 percent from the pace of the previous January, according to the National Association of Realtors, but prices were still rising. Across the country, the median price for an existing single-family home was up 13.1 percent from a year ago, to $210,500.

Thus, a similar report from the other coast:

California home sales drop 24% in January
Decline reflects rising mortgage interest rates and weakening consumer confidence.
February 28, 2006: 7:26 PM EST

SAN FRANCISCO (Reuters) - California's housing market is slowing as analysts had predicted, underscored by a slump in home sales in January, according to the California Association of Realtors.

Sales of existing, single-family detached homes in California totaled 500,470 at a seasonally adjusted annualized rate in January, down 24.1 percent from a year earlier and 5.9 percent from December, according to the report from the association.

The declines reflect a weakening in consumer confidence, and a rise in mortgage interest rates which have sidelined nervous home buyers, the association said.

"We have now seen three months in a row where sales have dropped more than expected," said Robert Kleinhenz, an economist with the association. "At least some home buyers have adopted a wait-and-see attitude."

Declining sales had been expected. January is a slow month for sales and financing for home purchases is becoming more challenging with interest rates on the upswing and home prices holding at lofty levels.

And this from Florida:

Florida Bubble Busts Wide Open

Wednesday, March 01, 2006

Sarasota Bradenton

The Herald Tribune is reporting a 48% home sales drop in Sarasota-Bradenton.

The high season peaked in mid-February but so far there is little evidence of a long-awaited and often-predicted real estate recovery.

In fact, the Sarasota-Bradenton market had the dubious distinction of being the Florida market with the biggest decline in sales during January: a precipitous 48 percent drop when compared with the same month a year ago -- more than double the state's 19 percent decline.

The Charlotte County-North Port market saw its sales drop 18 percent during the same time frame, the Florida Association of Realtors reported Tuesday.

But values held steady. Sarasota-Bradenton posted a 23 percent increase in median sales price to $353,500 while its neighbor to the south climbed 16 percent to $227,400 when comparing January with the same 2005 month.

"I can tell you the buyers are here," said Scott Sosso, president of Sarasota-based Prudential Palms Realty, which saw its closings dip 10 percent during January. "The problem is with the sellers who don't have their homes priced correctly."…

In Charlotte County-North Port, the condo action was far more anemic, dropping a whopping 92 percent as prices swooned 18 percent to $165,000…

Palm Beach County

The Palm Beach Post is reporting Palm Beach County has a mini-blood bath going.

Wednesday, March 01, 2006

Maybe the housing bubble hasn't burst, but it's losing air fast.

The median price of an existing home sold in Palm Beach County in January fell to $393,700, well below the November peak of $421,500 and the first time the typical home has sold for less than $400,000 since July.

Meantime, sales volumes plunged as buyers — wary that prices will keep falling and a better deal could be around the corner — waited out the slowdown. The number of sales in Palm Beach County plummeted 39 percent compared with a year ago, the Florida Association of Realtors said Tuesday."

Palm Beach County has a mini-blood bath going," said David Dweck, a Boca Raton real estate agent and investor who heads the Boca Real Estate Investment Club.…

The price dip in the Treasure Coast was less dramatic. The median home price in Martin and St. Lucie counties was $261,500 in January, down slightly from December and 3 percent below September's record high of $269,400.

Sales volumes also fell in the Treasure Coast, dropping 44 percent compared with a year ago.

Broward County

The South Florida Sun-Sentinel is reporting The boom is gone: Home sales fall 36% in Broward.

South Florida's five-year housing boom is over.

Prospective home buyers are finding prices falling to more affordable levels. Sellers are waiting impatiently as their houses sit on the market for weeks and months, only to receive tepid interest before reducing their asking prices.

"We're entering a new part of the cycle," said Brad Hunter, a West Palm Beach housing analyst. "We're in the process of returning to reality."

January sales of existing single-family homes declined dramatically in Broward and Miami-Dade counties compared with January 2005, the Florida Association of Realtors said Tuesday. The number of home sales fell 36 percent in Broward to 552 -- the fewest used homes sold in the county in one month since the Orlando-based state Realtors group started tracking home sales and prices in 1994. In Miami-Dade, home sales in January dropped 28 percent from a year ago to 580.

The real estate slowdown also has spread to the once-frenetic condominium market. The state Realtors association Tuesday reported monthly condo sales for the first time. Existing condo sales for January dropped 21 percent in Broward and 13 percent in Miami-Dade, compared with the same period last year. The median price rose 31 percent to $211,500 in Broward and 11 percent to $259,000 in Miami-Dade.

Despite the slowdown, Hunter doesn't foresee a bubble bursting and said the housing market should remain strong through the rest of the year.

Naples

Naples News is reporting Naples home sales down 31 percent.

Naples home sales down 31 percent

Hardly surprising, and certainly not devastating.

Naples home sales plunged 31 percent in January 2006 compared with January 2005, while condominium sales dropped 41 percent in those same months.

In Lee County, sales of existing homes fell 9 percent in January compared to the same month a year ago. The $287,200 average price of Lee County homes sold in January was 31 percent higher than 12 months ago, but down almost 11 percent from the $322,000 average price in December…

Lee County

The News-Press is reporting Lee existing-home sales, prices drop in January.

Prices and the number of sales for existing single-family homes in Lee County fell sharply in January as the inventory of unsold houses soared.

The median sales price was $287,200, down 10.9 percent from December's $322,300. Sales declined 30.7 percent from 1,084 to 751.Compared to a year ago, Lee County's January median price was up 31 percent and the number of sales declined 9 percent.

Meanwhile, said Fort Myers-based real estate broker Denny Grimes of Denny Grimes & Co., "The inventory's still climbing. There are more than 11,000 houses on the market, triple what it was at the low point in the second quarter of last year."

Summary
· Sarasota-Bradenton - 48 percent drop in home sales
· Sarasota-Bradenton - 41 percent drop in condo sales
· Charlotte County North Port - 18 percent drop in home sales
· Charlotte County North Port - 92 percent drop in condo sales
· Palm Beach County - 39 percent drop in sales
· Martin and St. Lucie counties - 44 percent drop in sales
· Broward County - 36 percent drop in sales
· Broward County - the fewest used homes sold in the county in one month since 1994 Miami-Dade County - 28 percent drop in sales
· Naples - 31 percent drop in sales
· Lee County - 9 percent drop in sales

Even lower mortgage rates couldn’t spur demand:

US home loan applications fall despite rate dropWednesday March 1, 7:04 am ET By Julie Haviv

NEW YORK (Reuters) - U.S. mortgage applications fell last week as lower interest rates failed to spur demand for loans to purchase homes, an industry trade group said on Wednesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity for the week ended February 24 fell 1.2 percent to 571.5 from the previous week's 578.5.

The MBA's seasonally adjusted purchase mortgage index decreased 1.9 percent to 400.8 from the previous week's 408.7. The index, considered to be a timely gauge of U.S. home sales, was also below its year-ago level of 440.0.

Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 6.18 percent, down 0.04 percentage point from the previous week.

The 30-year fixed-rate mortgage, the industry benchmark, is substantially above its 2005 low of 5.47 percent in late June, but below its 2005 high of 6.33 percent reached in the week of November 11.

Fixed 15-year mortgage rates averaged 5.84 percent, down from 5.87 percent the previous week. Rates on one-year adjustable-rate mortgages (ARMs) increased to 5.64 percent from 5.60 percent.

Last week's drop in rates, however, managed to marginally impact demand for home refinancing.

Theroxylander in Flame blogger makes a simple yet effective point:

Two very simple statistical data: new home starts at 2.28 million annual rate in January, new home sales at 1.23 million rate. The supply exceeds the demand by 85%, and this supply is coming as a wave just few months from now.

Because the housing asset bubble is one of only two things keeping the U.S. economy alive (the other is military spending), no effort will be spared by the Federal Reserve Board to keep the bubble inflated. Yet, in spite of these inflationary policies, they are still having trouble keeping the boom going.

US Fed chairman Bernanke will not prick asset bubbles

By Nick Beams1 March 2006

Like his predecessor Alan Greenspan, the new chairman of the US Federal Reserve Board, Ben Bernanke will take no measures to deflate housing or other asset bubbles in the American economy.

Bernanke made his position clear in response to a question that came at the conclusion of his first major speech on monetary policy since taking over from Greenspan a month ago. The central bank, he claimed, “doesn’t really have good instruments for addressing asset price bubbles should they exist, particularly if they are in one particular segment or another.”

He acknowledged that while the Fed needed to “pay close attention” to changes in asset prices because they had an impact on spending and economic growth, it was “generally a bad idea for the Fed to be the arbiter of asset prices.”

“The Fed doesn’t really have any better information than other people in the market about what the correct value of asset prices is,” he told his audience at a symposium held last Friday at Princeton University.

This is the same position adopted by Greenspan when confronted by critics who suggested that the Fed should have taken action to halt the stock market bubble in the 1990s. In fact, Greenspan knew full well that the escalating stock market was a financial bubble. The reason he took no action was not due to lack of information or a belief that the “market knows best” but the opposition that such measures would have generated from leading figures in the financial elite.

When the stock market spiral ended in 2001, Greenspan cut interest rates to record lows in order to prevent a recession. But this has led to a rapid rise in house prices over the past five years—55 percent overall according to the Office of Federal Housing Oversight—and much more in some areas.

If Bernanke is wary of pricking this latest bubble, it is because of the crucial role that escalating house prices have played financing debt and consumption spending. Household debt has become an increasingly important factor in maintaining American economic growth because of the decline in real wages for the majority of ordinary wage earners.

According to a survey by the Federal Reserve issued last week, the growth in US household incomes has fallen sharply compared to the last years of the 1990s.
Between 2001 and 2004, the median inflation-adjusted income in the US rose by 1.6 percent before taxes, compared to an increase of 9.5 percent in the three years to 2001. This change was “strongly influenced by a 6.2 percent decline in the overall median amount of wages measured in the survey,” the Federal Reserve noted in a summary of its findings.

While Bernanke wants to continue the policies of his predecessor, how long he is able to do so is another matter. Paul Volcker, who was Fed chairman from 1979 to 1987, pointed to the mounting balance of trade deficit—$726 billion last year—as the main problem confronting the new chairman.

In an implicit criticism of Greenspan, Volcker said in an interview following the speech: “Bernanke is not inheriting the best of situations. How would you like to be responsible for an economy that’s dependent upon $700 billion of foreign money every year? I don’t know what I would do about it, but he’s going to have to do something about it sooner or later.”

Last April, in a comment published in the Washington Post, Volcker warned that the US economy was “skating on increasingly thin ice” and that at some point confidence in capital markets, which was supporting the inflow of funds into the US, could fade. Since then the ice has got even thinner, as the balance of payments deficit has blown out to more than 6 percent of gross domestic product.

Interestingly, George Ure thinks that the policy to deliberately introduce inflation to maintain asset prices may work—for a while:

It appears there is a well coordinated effort of the G7/G-8 to instigate a global round of inflation of equities and other instruments in order to cause a short term bout of inflation to preserve the values in real estate equity. (That's why the Dow is going up when inflation numbers come out - the Dow is being prices like a hard asset - a very strange turn indeed.)

In the background, the Fed, you'll recall, is less interested in maintaining "honest money [e.g. money that will have the same purchasing power tomorrow as it does today] than it is in maintaining predictability of monetary performance. In other words, the Fed's deep thinkers know that if we have some measure of inflation, the country can survive with its power class holding on to the reigns of power and to some extent, the retirement savings of the Baby Boomers intact. That's why our Global Index (and aggregate of more than a half dozen stock markets and available to subscribers) has made a move above trend line recently. I expect this came well in advance of the global bad news about housing.

Of course, the $64 gazillion dollar question is whether this global inflation plan will work. Short term my answer is yes, or Elaine and I would not have purchased the adjoining 16 acres. Long term, it will all blow up at some point because when corporations run out of ways to cut costs they cut worker incomes and cut workers, which is what brings about deflation and TEOTWAWKI (the end of the world as we know it) financially. Consumption drops and the economic engine reversed and drives the world into the dirt - as happened in the 1930's.

Nick Beam’s annual report on the world economy for the World Socialist Website goes into more detail about the vulnerabilities:

Nick Beams: Report on the world economy in 2006

Part One
By Nick Beams

28 February 2006
This year has opened with predictions of further strong growth in all the major industrial economies and in the global economy as a whole, following a world growth rate of 4 percent in 2005—the highest level for some time.

The president of the European Central Bank, Jean Claude Trichet, told a meeting of bankers on January 9 that global economic growth in 2006 could even exceed that of last year. Others share this view. According to Trichet, central bankers believe that “global growth is continuing at a pace that is dynamic and we don’t even exclude that global growth could be a little bit higher in 2006 in comparison with 2005.”

As if to confirm this rosy outlook, the Dow Jones industrial average went past 11,000 the following day—the first time it has reached that level since June 2001—after having gained more than 2 percent in the first four trading sessions of the New Year. The last time the Dow went past 11,000 there were predictions it could go to 36,000. Such claims are no longer made but there is, at least on the surface, the appearance of optimism.

The US economy is predicted to grow by 3.4 percent in the coming year, the eurozone by 1.9 percent, Japan by 2.0 percent, and the United Kingdom by 2.1 percent. China, having announced a 10 percent growth rate for 2005, is expected to expand by at least 8-9 percent in the coming year. Corporate profitability is also set to rise, with predictions of the profit increase for the S&P 500 at 13 percent.

However, behind the short-term optimistic outlook, serious economists have concerns about the state of the global economy. They point to a series of deep-going structural imbalances and tensions—above all generated by the mounting US balance of payments deficit and accelerating indebtedness—which, at a certain point, must give rise to rapid changes, if not a crisis. These concerns were reflected in a number of comments published as the year opened.

Adam Posen, an economist with the Institute for International Economics, in an article entitled “Batten down the hatches in case the storm hits,” drew an analogy with Hurricane Katrina, and warned of the “potential economic storm that will be generated by the inevitable adjustment of global imbalances.”

“No one could have prevented Katrina, but the damage from it could have been significantly reduced. Similarly, there are policy steps that should be taken to batten down the global economy ahead of a potentially severe shock from renewed trade protectionism or dollar adjustment.”

Little, however, had been done. “If the governments of the big economies wanted to learn from Katrina, though, they would take action to limit the damage that resolving the current global imbalances could bring” (Financial Times December 28, 2005).

While Posen did not explicitly make the point, there is a fear that if and when an economic Katrina does hit, the response of financial authorities will be on a par with that of the Bush administration when faced with the hurricane.

No doubt that response will also include Blackwell mercenaries patrolling the streets and a “cleansing” of a chunk of the population for the benefit of the oligarchy.

An article by Kenneth Rogoff, former chief economist at the International Monetary Fund (IMF), published on January 3, began as follows: “Let me first acknowledge that we are indeed living in boom times. The central scenario for 2006 is continued strong global growth. Rising global investment combined with higher demand by oil and commodity exporters should keep overall global demand growing briskly in 2006, even as US consumption and Chinese investment growth slacken.”

There were, he continued, numerous positive developments underpinning this happy scenario, including the rise of Asia, and especially China, the reduction of inflation and the decline in long-term interest rates. But this was not the end of the story.

“As good as the economic fundamentals are, it is easy to find more down-to-earth vulnerabilities. Top of the list has to be global housing prices—which are not actually that close to earth any more. With US prices up 60 percent since 2000 and even higher price inflation in many other countries it is not hard to imagine a collapse ...”

The Economist magazine drew a similar conclusion in a survey published on June 16, 2005, in which it described the global housing price boom as possibly “the biggest bubble in history.”

According to Rogoff: “[The] global financial system, while fundamentally a source of strength, is also a source of weakness. The explosion of unregulated hedge funds and the widespread use of derivatives such as credit default swaps pose risks that are simply impossible to calibrate until the system is stress-tested. This could come, for example, in the wake of a dollar collapse, still a considerable risk as global interest rates equalise and investors turn their attention to the US’s unsustainable trade deficit” (Financial Times January 3, 2006).

In a comment published the following day, Financial Times economics correspondent Martin Wolf noted that the fact that the dangers to world economy were not being recognised in financial markets was itself a factor in potential instability.

“For the world economy, a happy new year is now expected. But forecasters usually assume that recent trends will continue, modified where appropriate by reversion to a longer term mean. It is more useful, however, to ask what might change. When everything is going quite well, as now, that mostly means asking what could go wrong and, more important, whether the risks of its doing so are adequately priced. The answer is: they are not.”

The sources of these concerns were clear. For the present course to continue, Wolf noted, finance had to keep flowing into the US to meet its widening balance of payments gap, interest rates had to remain low, and debtors, especially in the US, must be willing and able to go on borrowing to finance consumption spending.

There were “many risks” of disruption arising from the “imbalances” in the world economy. The financial deficit of US households, he pointed out, was running at more than 7 percent of GDP. Indebtedness of the household sector had risen from 92 percent of disposable income in the first quarter of 1998 to 126 percent in the third quarter of last year. Household debt service payments had been pushed to an all-time high of 14 percent of disposable income. “What would happen if house prices ceased to rise or interest rates increased?”

“Large dangers of disruption exist. But markets are ignoring them. So we must recognise the danger not only that something will go wrong, but that markets will then multiply the needed corrections” (Financial Times January 4, 2006).

In other words, when a shift does take place, the consequences will be all the more severe because the possibility of such an event was ignored in the preceding period.