Signs of the Economic Apocalypse, 4-17-06

From Signs of the Times, 4-17-06:

Gold broke the $600 dollar mark for the week on Friday, closing at 602.10 dollars an ounce up 1.6% from $592.70 the week before. The dollar closed at 0.8258 euros on Friday, down 0.1% from 0.8269 at the previous week’s close. That put the euro at 1.2110 dollars, compared to 1.2093 the week before. Gold in euros would be 497.19 euros an ounce, up 1.4% compared to 490.12 at the end of the previous week. Oil closed at 69.45 dollars a barrel, up 3.1% from $67.38 for the week. Oil in euros would be 57.35 euros a barrel, up 2.9% from 55.72 at the end of the previous week. The gold/oil ratio closed at 8.67, down 1.5% from 8.80 the Friday before. U.S. stock markets were closed on Friday, but the Dow closed the week at 11,137.65, up 0.2% from 11,120.04 for the week. The NASDAQ closed at 2,326.11, down 0.6% from 2,339.02 at the end of the previous week. The yield on the ten-year U.S. Treasury note broke the 5% mark, closing at 5.04%, up six basis points from 4.98 the week before.

Gold, oil and U.S. interest rates continued rising last week, rises that do not bode well for the imperial economy. However, as we have been saying for the past year, the future of the economy has more to do with non-economic events than economic ones. Specifically, if the United States attacks Iran (as seems increasingly likely), it’s all over. Economic self-interest no longer explains the actions of those driving world events right now. The Neocons worship power, not money. In spite of the official economic ideology of the U.S. empire, they have little use for neoliberalism, except insofar as it advances their ambitions for power and control. Here is Kurt Nimmo in “The Neocon Plan to Wreck the Economy” quoting Shadia Drury, an astute academic observer of the Neoconservative movement:

Strauss borrowed a lot from the “Marxist of the right,” Alexandre Kojève (a student of the Nazi lover Martin Heidegger), and the Nazi jurist and advocate of totalitarianism, Carl Schmitt. “Kojève lamented the animalization of man and Schmitt worried about the trivialization of life,” explains Drury. “All three of them were convinced that liberal economics would turn life into entertainment and destroy politics; all three understood politics as a conflict between mutually hostile groups willing to fight each other to the death. In short, they all thought that man’s humanity depended on his willingness to rush naked into battle and headlong to his death. Only perpetual war can overturn the modern project, with its emphasis on self-preservation and ‘creature comforts.’ Life can be politicized once more, and man’s humanity can be restored…. The combination of religion and nationalism is the elixir that Strauss advocates as the way to turn natural, relaxed, hedonistic men into devout nationalists willing to fight and die for their God and country.”

Drury continues:

If America fails to achieve her “national destiny”, and is mired in perpetual war, then all is well. Man’s humanity, defined in terms of struggle to the death, is rescued from extinction. But men like Heidegger, Schmitt, Kojève, and Strauss expect the worst. They expect that the universal spread of the spirit of commerce would soften manners and emasculate man. To my mind, this fascistic glorification of death and violence springs from a profound inability to celebrate life, joy, and the sheer thrill of existence.

Our current crop of Straussians, well ensconced in the White House and the Pentagon, are in the process overturning the “modern project” and a not so modern project, the Constitution and the Bill of Rights. This will be accomplished through economic catastrophe and engineered war. Deprived of opportunity, income, and even food—and for those unable to provide for themselves, consider the Super Dome in New Orleans as a grim reminder—the masses will do whatever is required, especially if darksome devils and frightful Islamic enemies are unrelentingly portrayed at the ready with dirty nukes. In dire straits, with the prospect of wheelbarrows of money to buy loaves of bread as inflation shoots skyward by the hour, people will do almost anything asked of them.

We have also noted the bizarre disconnect between economic news and political news lately. Many people who, if you press them, would admit to a great deal of fear about political events of the near future, seem capable of economic optimism. Recent news in the United States about corporate profits, supposedly low unemployment rates and rises in stock prices have given the financial optimists the upper hand. How that can be squared with the news that the U.S. military already has special forces in Iran identifying targets for a bombing campaign, bombing that may well be nuclear, is beyond me. It must have something to do with the cheerful voices on our televisions. Most likely, that is to ensure that we keep our money in their markets until they decide to pull the plug. However, it must be noted that fear is seeping into the financial news with the belated coverage of the rise in gold prices:

Gold’s bull run could reach $850

By Chris Flood

April 12 2006
The current bull run for gold could push prices above the 1980 record high of $850 a troy ounce, according to the Gold Survey 2006 from GFMS, the precious metals consultancy.

“Levels safely over $600 are now in our sights and further hefty gains over the next year or two are quite possible - in the right circumstances, the 1980 high of $850 could even be taken out,” said Philip Klapwijk of GFMS.

Gold is benefiting from a general rise in investor interest in commodities both for speculative purposes and as an alternative asset to equities, bonds and cash.
The success associated with investing in gold since 2001 is attracting new players, such as pension funds, and could bring a significant increase in new investment flows into a comparatively small market.

Investment flows are expected to be sustained by the the high probability of a sharp slowdown in US economic growth while greater global inflationary pressures and political tensions in the Middle East are also expected to be supportive factors.

The optimists, on the other hand, even spin the rise in U.S. interest rates positively. According to this view, the yield on the ten-year U.S. Treasury note broke the 5% level because bond traders were worried about too much economic growth! No mention that interest rates on the U.S. dollar will need to rise sharply if there is any hope at all of avoiding a dollar crash, due to the massive triple deficits in the United States. Nor is there any mention of the disastrous effects that rise will have on the housing market. Sure 5% is low by historical standards but the level of personal debt is way beyond any historical comparison. With the risky interest only and adjustable rate mortgages people have taken out recently, small increases in already low rates can have a catastrophic effect.

U.S. 10-Year Note’s Yield Rises to 5%, Highest Since June 2002

April 13 (Bloomberg) -- U.S. 10-year Treasury note yields rose to 5 percent for the first time since June 2002, a harbinger of higher borrowing costs for everything from home loans to corporate bonds.

Investors are pushing yields higher to compensate for the risk economic growth will cause inflation to accelerate, eroding the value of the notes’ fixed payments and leading the Federal Reserve to add to 15 interest-rate increases. Lenders use 10-year yields in setting the rates they charge consumers, while investors use them to determine yields on debt sold by companies.

“Growth expectations are improving around the world,” said Harry Harrison, global head of U.S. interest-rate products at Barclays Capital Inc. in New York, one of the 22 primary dealers of government securities that trade directly with the Fed. “There is further to go in this sell-off.”

Yields extended their climb after a government report showed retail sales increased last month more than analysts forecast. The 10-year note’s yield, which moves inversely to its price, rose 7 basis points, or 0.07 percentage point, to 5.05 percent at 4 p.m. in New York, according to Cantor Fitzgerald LP. The yield is up from 4.39 percent at the end of last year.

The price of the 4 1/2 percent note due February 2016 dropped more than 1/2, or $5 per $1,000 face amount, to 95 25/32.

“People are going to hear about it tonight on the TV, the highest yields in four years,” said William Hornbarger, chief fixed-income strategist at St. Louis-based brokerage firm A.G. Edwards Inc., which manages about $331 billion. The yield may climb to 5.38 percent by mid-year, he said.

Yields also are rising on speculation higher short-term interest rates and improving economic growth prospects in Japan and Europe will entice people in those regions to invest domestically rather than in U.S. Treasuries. Japan, the biggest foreign owner of U.S. government debt, may increase borrowing costs from zero percent as soon as July.

‘The Force’

“We underappreciated the force of foreign buying in anchoring down rates” for the past year, said John Ryding, chief economist at primary dealer Bear Stearns Cos. in New York. With Japanese and European yields rising, making them more appealing relative to U.S. Treasuries, “some of that foreign support is diminishing,” he said in an interview.

Ten-year yields are up 14 basis points since April 6, the day before a Labor Department report fanned concern that a strengthening labor market, in combination with rising commodity prices, will lead to more Fed rate increases.

Economists have been lifting their 10-year-yield forecasts. The median estimate of 78 analysts surveyed by Bloomberg News from April 3 to April 7 is for the yield to end this quarter at 5 percent, up from a 4.8 percent median forecast a month earlier.

…“Who’s really complaining about interest rates?” said Mark Ficke, head of Treasury trading at primary dealer BNP Paribas Securities Corp. in New York. “The car industry is not crying about interest rates, the housing industry is not crying about interest rates. Corporate America continues to roll their debt. Historically these are still relatively low yields.”

Before 1998, 10-year yields had not traded below 5 percent since 1967.
Traders since March 30 have been fully pricing in another rate increase to 5 percent at the Fed’s next meeting on May 10, interest-rate futures show. The odds of a 17th straight increase on June 29, to 5.25 percent, today is 58 percent, up from zero as recently as two weeks ago.

Japanese Buying

Investors in Japan, including the Ministry of Finance, reduced the amount of U.S. government debt they held last year for the first time since 2000 as the dollar rose about 14 percent against the yen. The $668 billion they owned at the end of January was the least since June 2004, down from a peak of $699.4 billion in August 2004, Treasury Department data show.

Economic growth may slow during the current quarter as a result of the rise in yields, said Ashok Varadhan, head of U.S. dollar interest rate products trading at primary dealer Goldman, Sachs & Co. in New York. “Since 2003, sharp moves up in higher long-term yields have preceded periods of soft data,” he said in an e-mailed response to a question.

The average rate on a 30-year fixed mortgage rose to 6.49 percent this week, the highest since 2002, according to McLean, Virginia-based Freddie Mac, the second-largest buyer of U.S. mortgages. The rate is up from last year’s low of 5.53 percent in July.

The increase means a consumer taking out a $250,000 fixed- rate mortgage for 30 years will pay about $154 a month more in principal and interest.

In the corporate bond market, investment-grade rated companies pay an average of 5.92 percent in yield to sell debt, the highest since August 2002, according to Merrill Lynch & Co.

Notice how the chief economist of Bear Stearns glides quietly over the worst news, floating on clouds of understatement and euphemism:

“We underappreciated the force of foreign buying in anchoring down rates” for the past year, said John Ryding, chief economist at primary dealer Bear Stearns Cos. in New York. With Japanese and European yields rising, making them more appealing relative to U.S. Treasuries, “some of that foreign support is diminishing,” he said in an interview.

That has been one of the great fears: that “foreigners” will not buy as much U.S. government debt. Who can blame them? Without that support, however, the dollar will plummet and interest rates will rise sharply.

This is the environment in which Bush, whose U.S. political support has completely collapsed, is planning to begin a third losing war in five years. Theories of behavior based on rational self-interest of well-meaning actors with souls and consciences cannot explain such madness. Luckily for us, at this crucial moment in history, a book many years in the making has appeared in print that can make sense of this madness, Political Ponerology by Andrew Lobaczewski. According to Lobaczewski, societies can be taken over by well-organized groups of psychopaths (people without consciences) who form a “pathocracy,” rule by psychopaths. These pathocrats act in much the same way as the Neocons described by Nimmo and Drury. Here is Lobaczewski:

Psychopaths are conscious of being different from normal people. That is why the “political system” inspired by their nature is able to conceal this awareness of being different. They wear a personal mask of sanity and know how to create a macrosocial mask of the same dissimulating nature. When we observe the role of ideology in this macrosocial phenomenon, quite conscious of the existence of this specific awareness of the psychopath, we can then understand why ideology is relegated to a tool-like role: something useful in dealing with those other naive people and nations. [...]

Pathocrats know that their real ideology is derived from their deviant natures, and treat the “other” – the masking ideology - with barely concealed contempt

The names and official contents are kept, but another, completely different content is insinuated underneath, thus giving rise to the well known double talk phenomenon within which the same names have two meanings: one for initiates, one for everyone else. The latter is derived from the original ideology; the former has a specifically pathocratic meaning, something which is known not only to the pathocrats themselves, but also is learned by those people living under long-term subjection to their rule.

We need to keep that doubletalk technique in mind when the neocons talk about “democracy,” “freedom,” or “free-markets.”

… This privileged class of deviants feels permanently threatened by the "others", i.e. by the majority of normal people. Neither do the pathocrats entertain any illusions about their personal fate should there be a return to the system of normal man. ...

If the laws of normal man were to be reinstated, they and theirs could be subjected to judgment, including a moralizing interpretation of their psychological deviations; they would be threatened by a loss of freedom and life, not merely a loss of position and privilege. Since they are incapable of this kind of sacrifice, the survival of a system which is the best for them becomes a moral imperative. Such a threat must be battled by means of any and all psychological and political cunning implemented with a lack of scruples with regard to those other "inferior-quality" people that can be shocking in its depravity. ...

Pathocracy survives thanks to the feeling of being threatened by the society of normal people, as well as by other countries wherein various forms of the system of normal man persist. For the rulers, staying on the top is therefore the classic problem of “to be or not to be”…

A ponerological perspective can help us understand the hostility of the Bush neocons to Hugo Chavez’s Venezuela. Much more than just oil is at stake. What Chavez has done is use oil wealth to try to setup a “society of normal people.” The pathocrats cannot let that stand. The pathocracy has sunk its claws so deeply into U.S. society that it is hard for us in the United States to even imagine what a society of normal people could be. That is no accident, but such imaginative impoverishment can only be maintained over the long run if no models (like France or Venezuela) exist.