Monday, March 27, 2006

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?

1 Comments:

Blogger Postman said...

'm a week late reading this as oil reaches it's highest price ever in Pounds Sterling, Gold reaches 25 yr high and Copper is at a record high along with other base metals.

I read this weeks post nodding my head un til it nearly dropped off. Yet the market power upward. NASDAQ at a 5 yr high etc.,

Energy stocks zooming - eg Drax (DRX:LSE) power station IPOD at £5 and finished today at £7.75 over 50% rise in 3 months.

But,,, Vestas are selling a storm into the wind energy market which is booming with tax credits all round and losing money they report this week for 2005 yet Morgan Stanley says buy and the price goes up 5%.

Keep up the miserable work. I know you are right but the world does somehow seem to ignore us all.

8:36 AM  

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