Monday, February 05, 2007

Signs of the Economic Apocalypse, 2-5-07

From Signs of the Times, 2-5-07:

Gold closed at 652.60 dollars an ounce Friday, up 0.1% from $651.80 at the close of the previous Friday. The dollar closed at 0.7713 euros Friday, down 0.4% from 0.7743 at the end of the week before. The euro closed at 1.2966 dollars compared to 1.2916 for the week. Gold in euros would be 503.32 an ounce, down 0.3% from 504.65 at the end of the previous week. Oil closed at 59.09 dollars a barrel Friday, up 6.3% from $55.57 at the close of the previous Friday. Oil in euros would be 45.57 euros a barrel, up 5.9% from 43.02 for the week. The gold/oil ratio closed at 11.04 Friday, down 6.3% from 11.73 at the end of the week before. In U.S. stocks, the Dow closed at 12,653.49 Friday, up 1.3% from 12,487.02 at the close of the previous Friday. The NASDAQ closed at 2,475.88, up 1.7% from 2,435.49 for the week. In U.S. interest rates, the yield on the ten-year U.S. Treasury note closed at 4.82%, down five basis points from 4.87 at the end of the week before.

Yesterday was Super Sunday in the United States, which means the Super Bowl was played. In the run-up to the game, each year we see a headline telling us that so many billions were “lost” to the economy because workers were talking about football. Each year Salon’s sports columnist, King Kaufman, skewers the idiocy of such headlines with a short lesson in stupid economic statistics:

The Super Bowl of bad math: Hundreds of millions in lost productivity!

Huge economic boost for the host city!

Jan. 30, 2007

Forget Bears-Colts. This is the week of the Super Bowl of Credulity.

We just need a better name for it. How about the Super Bowl of outlandish claims? Of facts and figures for people who are bad at math. Special bonus: Free lottery tickets for all participants! Only $1 each!

If it takes you five minutes to read this column, you've cost corporate America $81 million. That's the estimate this year from Challenger, Gray & Christmas, the Chicago outplacement firm that's very good at three things:

1) Making inane, outrageously inflated estimates of productivity lost by American businesses in advance of major sporting events.

2) Getting its name in the papers.

3) Getting spanked like a monkey for it by this column.

This column needs to get better at getting its name in the papers, apparently, because once again the
national media is pretty much swallowing hook, line and stinker Challenger Gray's latest estimate, which is that Super Bowl 41 is costing American business -- ready for it? Think of a crazy number. Double it.

Wrong! Too low. It's $810 million. That's $162 million a day.

And that's nationwide. You should see the estimates for Chicago and Indianapolis. I won't show them to you. You'd go blind. Suffice to say, if Challenger Gray is right, Chicago can't possibly survive the catastrophe. If there's such a thing as Chicago, Ill., a week from today, it'll be a damn miracle.

What Challenger Gray does is estimate that employees spend 10 company minutes a day on the big game during Super Bowl; then it figures that 57 million of the 90 million viewers are workers, multiplies by an average hourly wage of around $17 to get 28.4 cents per minute and, abracadabra, 10 times .284 times 57 million times five equals: $810 million.

Actually it equals $809.4 million, but what's $600,000 worth of baloney between gullible friends?

You're spending half of your daily allotment of Super Bowl wasted time on this column, so that's $405 million for the week, $81 million just today. I hope you're happy.

We've been over this before. Never mind that Challenger Gray pulls that 10 minutes estimate out of its Christmas. And never mind that what makes the Super Bowl such a huge television event is that it attracts millions of people, probably a majority of the audience, who spend not one second thinking about football before kickoff. A Super Bowl party at a neighbor's house this weekend is exactly the same to this great mass of people as if it were a midsummer Sunday barbecue. Just something fun to go do that day.

They're not spending 10 minutes a year thinking about the Super Bowl, never mind 10 minutes a day for a week.

Never mind all that. Just pay attention to how Challenger Gray bases its nutty, headline-friendly assumptions on the idea that workers who spend 10 minutes talking about the Super Bowl have carved those 10 minutes out of their productive work time.

So if you're talking with your cubicle-mate about Peyton Manning, discussing the differences in the cover 2 -- sorry, cover II -- defenses of the Bears and the Colts with the computer guy, pondering silently whether the Bears quarterback will be Super Rex or Bad Rex, that's time you would have spent working if this weren't Super Bowl Hype Week Deux.

You wouldn't have been instant messaging with your friend in accounts receivable during those 10 minutes. Nope. No way you'd have been on the phone with your brother talking about the family reunion this summer. Not a chance you'd have been sneaking a peek at the stream of last night's episode of -- Nuh-UH! His dad's Farmer Hoggett?! -- "24."

…Challenger Gray's lost-productivity estimates are just silly publicity stunts. They're good ones, and I'm happy to participate. The Web site is at if you're interested in hiring an outplacement firm that doesn't mind playing fast and loose with the numbers if it can benefit.

A little more sinister are those estimates of how much money the Super Bowl brings in to the host city each year. This year's estimate for Miami: $350 million, according to the Web site (PDF) of the South Florida Super Bowl XLI Host Committee.

As Dave Barry put it in the Miami Herald: "What does that mean, in layperson's terms? It means the host committee has been smoking crack."

And since that press release came out in the fall, the estimate has been kicked up to $400 million. I mean, what's $50 million worth of baloney, right?

The trouble with figures like those is that the only people who ever argue for them are in the employ of either the NFL, a host city or some affiliated entity, like a private host committee, a tourism board, a stadium commission. Economists without a personal interest in inflating those numbers are something very like unanimous in saying they're vastly inflated.

The short version is that these rosy figures account only for the positives, the money actually spent on Super Bowl weekend. They don't take into account the business that already would have been conducted -- Miami is a place that has been known to draw a few tourists even in those Februaries when the Super Bowl is elsewhere, for example. They don't take into account the business that's lost when locals steer clear of the crowds by staying home, or skedaddle altogether, or when convention business stays away for two weeks because the weekend in the middle is jampacked.

Everyone agrees there's usually an economic benefit to hosting the Super Bowl, but the estimates of how much by people with no conflict of interest are much more modest than the estimates by interested parties. About a quarter of the publicly proclaimed benefit, on average, one study found. Move the decimal point one place to the left, one econ professor suggested this week.

The good news is the media's gotten pretty good at reporting on this skepticism. Just in the past few years, the "economists cast doubt on the economic boom hype" story has become a staple sidebar of Super Bowl Hype Week 2.

The bad news is these inflated figures are tossed around when the NFL is trying to strong-arm a city somewhere into building a new stadium for one of its teams. Build that stadium and we'll make sure you get a Super Bowl, the league says. That's a $400 million boon to your local economy.

Well, $400 million, $40 million. Minus the cost of the stadium -- the going rate's around half a billion these days. But hey, what's $360 million worth of baloney between friends?

The Super Bowl does give the general consumer economy a chance to sell a bunch of $1200 dollar televisions to people who in a year may wish they had spent that money on firewood or sacks of oats. But while many in the United States do see hard economic times coming, their behavior has yet to adjust. This week the personal savings data for 2006 were released and it turns out that personal savings hit a 74-year low. Let’s see, 2006 minus 74 is 1933. Hmm… what was the economy like then?

2006 personal savings drop to 74-yr. low

By Martin Crutsinger, AP Economics Writer
Thu Feb 1, 8:56 AM ET

People once again spent everything they made and then some last year, pushing the personal savings rate to the lowest level since the Great Depression more than seven decades ago.

The Commerce Department reported Thursday that the savings rate for all of 2006 was a negative 1 percent, meaning that not only did people spend all the money they earned but they also dipped into savings or increased borrowing to finance purchases. The 2006 figure was lower than a negative 0.4 percent in 2005 and was the poorest showing since a negative 1.5 percent savings rate in 1933 during the Great Depression.

For December, consumer spending rose a solid 0.7 percent, the best showing in five months, while incomes rose by 0.5 percent, both figures matching Wall Street expectations.

In other news, the Labor Department reported that the number of newly laid off workers filing claims for unemployment benefits dropped by 20,000 last week to 307,000. That improvement pushed the four-week average for claims to the lowest level in a year, indicating that the labor market remains healthy.

The savings rate has been negative for an entire year only four times in history — in 2005 and 2006 and in 1933 and 1932. However, the reasons for the decline in the savings rate were vastly different during the two periods.

During the Great Depression when one-fourth of the labor force was without a job, people dipped into savings in an effort to meet the basic necessities of shelter and clothing.

Economists have put forward various reasons to explain the current lack of savings. These range from a feeling on the part of some people that they do not need to save because of the run-up in their investments such as homes and stock portfolios to an effort by many middle-class wage earners to maintain their current lifestyles even though their wage gains have been depressed by the effects of global competition.

Whatever the reason for the low savings, economists warn that it the phenomenon exists at a particularly bad time with 78 million baby boomers approaching retirement age. Instead of building up savings to use during retirement, baby boomers are continuing to spend all their earnings.

The savings rate is computed by taking the amount of personal income left after taxes are paid, an amount known as disposable income and subtracting the amount of spending. Since the figure has dipped into negative territory, it means consumers are spending all of disposable income and then some.

For December, the savings rate edged down to a negative 1.2 percent, compared to a negative 1 percent in November. The savings rate has been in negative territory for 21 consecutive months.

The 0.7 percent rise in personal spending was the best showing since a similar gain in July. It followed increases of 0.5 percent in November and 0.3 percent in October and reflected solid spending by consumers during the Christmas shopping season.
Consumer spending posted a solid rebound in the final three months of the year, helping to lift overall economic growth to a rate of 3.5 percent during that period, up significantly after lackluster growth rates in the spring and fall.

Incomes were up 0.5 percent in December, the best showing since a similar increase in September.

On the inflation front, a gauge tied to consumer spending that is preferred by the Federal Reserve edged up by 0.1 percent in December. This gauge, which excludes volatile food and energy prices, was up 2.2 percent over the past 12 months ending in December, still above the Fed's comfort zone of 1 percent to 2 percent.

Europe is becoming more and more like the United States lately, and I mean that in a bad way. Corporate lobbyists have come to German politics, and the UK is building casinos in depressed urban areas. More on the casinos in a bit, but first this on German politics:

Who runs Germany?
The intersection of politics and business interests

By Dietmar Henning

1 February 2007

“Money rules the world” is a well-known saying. However the exact role of the major companies and banks in political life is often hidden behind a veritable torrent of references to the “independence of the people’s representatives” who are responsible “solely to their consciences,” and “the people” who are, after all, the “supreme sovereign power in politics.”

Recent reports and studies by journalists now demonstrate, very concretely, how financial interests govern Germany and what interests are at stake. The fact that there exists a measure of corruption and nepotism in politics and business is not exactly new, but the new material gives a revealing picture of the extent to which business interests determine political policy.

In the German capital of Berlin, for example, many of the leading politicians have numerous additional jobs with which they are quite legally able to earn large sums of money, but are nevertheless reluctant to discuss. In addition, politicians frequently shift from their parliamentary activities into leading positions in business.

Former chancellor Gerhard Schröder (Social Democratic Party-SPD) is a prime example. After standing down as chancellor in 2005 he immediately took over the chairmanship of the German-Russian Baltic Sea gas pipeline on the payroll of the Russian energy company Gazprom. In addition, Schröder took up well-paid posts as an advisor to the Swiss publisher Ringier and the Ruhr Coal Company—alongside his former economics minister, Werner Müller.

Schröder’s state secretary in the Treasury, Caio Koch Weser, switched to the executive of Germany’s biggest bank, Deutsche Bank. During his period as treasury secretary in the SPD-Green Party government (1998-2005) Koch Weser was responsible for the sales of Russian debts to credit and finance institutes, including, predictably, the Deutsche Bank. Former economics minister Wolfgang Clement (SPD) has assumed posts on the executives of the RWE power group and the Dussmann group. Hans Martin Bury (SPD), state minister in the chancellery, took over as managing director of the banking house Lehmann Brothers.

The Green Party Bundestag (parliament) deputy and chair of the party group in the state of Hesse, Matthias Berninger, resigned his posts in February in order to take up a leading position with the animal fodder and chocolate manufacturer Masterfood (makers of Mars, Ballisto and Snickers bars). The list could be extended virtually without end.

The fusion of business and political interests in Germany has been considerably expanded in recent years through a worked-out system of lobbying, which provides big business direct access to the centers of political power. The number of such lobbyists has literally exploded within the past few years. According to broadcaster Joachim Wagner, writing in Die Zeit in 2003, these lobbyists have more influence “than ever before in the history of the Federal Republic.” Virtually all of Germany’s 30 biggest companies represented on the German share index DAX have lobbying offices in Berlin.

Approximately 2,000 lobby federations are currently registered with the German Bundestag, and amongst other rights are permitted to participate in legislative procedures. Should a total of five deputies or a leader of the parliamentary group give guarantees for a lobbyist, then he or she is entitled to a so-called “parliamentary identification document” for admission to the Bundestag and the offices of deputies. Around 4,500 business representatives in Berlin possess such identification documents, amounting to seven lobbyists for every Bundestag deputy.

In his article for Die Zeit Wagner reports that a considerable proportion of the lobbyists are in fact former ministers, state secretaries, office managers, press spokesmen and journalists, who are using their established contacts in the service of their new masters.

Die Zeit reports on TUI (travel company) representative Wolf-Dieter Zumpfort, who proudly announced that he and his fellow lobbyists were able to reduce the taxes for the running of cost-free official cars—while in the same breath giving a nod to all of the prime ministers from German states where the automobile industry has large-scale interests: Edmund Stoiber (Bavaria), Erwin Teufel (Baden-Württemberg), Kurt Beck (SPD, Rhineland-Palatinate) and Sigmar Gabriel (SPD, Lower Saxony, and the current environment minister).

Not only do the lobbyists block laws, they also draft them. “Sometimes lobbyists receive the rough draft of proposed laws before the members of the Bundestag,” Wagner writes. “It is therefore not unusual for the Telekom representative, Maldaner, to draw up ‘alternative suggestions’ for draft laws on behalf of his company, which are then presented to the ministries and experts from parliamentary groups.” This is not the only case of such practices.

The barrister and independent lobbyist Anja Hollmann works in the “health sector.” For a price she will sell her list of the most important 50 or 100 partners in ministries, parliamentary groups and state parliaments to the main companies active in the German health sector. “When desired she also arranges lunch—for a price, naturally.”

Corporate lobbies are especially prevalent in the health sector. This is clear from other figures. Recently the Federal Audit Office criticized that ministries were not willing to reveal the names of their business sponsors. Between August 2003 and the end of 2004 German government ministries received more than €55 million in the form of sponsorship donations…

Business representatives active in German ministries

A program on German television devoted to political exposures recently dealt with a new variety of lobbyism, which, according to Monitor, can hardly to be bettered in terms of effectiveness for business enterprises: “Lobbyists try to influence policies in order to benefit their employers ... in order to do so they call by at the ministries. For some lobbyists, however, that is no longer necessary—they are already there.”

According to Monitor, “temporary workers” from the most important German enterprises are active in virtually all German government ministries. At least 100 of them are sitting in the same or neighboring offices as Bundestag officials, busy drafting laws, peering into secret documents, and even undertaking important state functions.

“Siemens or DaimlerChrysler, Lufthansa or the Deutsche Bank, nearly all the big players are there,” Monitor reports, and then gives details in a number of cases. An employee of DaimlerChrysler, for example, works in the German Transport Ministry. In 2002 he had his own desk in the ministry and evidently enjoyed access to internal documents, which he had “also evidently taken home.”

The man from DaimlerChrysler was director of his company’s department for corporate strategy and transport policy and sat in the German Transport Ministry between April and May 2002, a period when a tender was announced for a €1 billion contract for a new highway tracking system. DaimlerChrysler belonged to the consortium, which subsequently won the order. This could hardly be a coincidence.

The political scientist Nils Ehlers, who was working on a separate project at the ministry at the time, told Monitor: “I also got wind of how he telephoned and said things to the effect that we evidently cannot not get this or that measure through.” Ehlers is convinced that the representative from DaimlerChrysler passed information from the ministry to his bosses at the auto company.

Since then the German government has admitted that four company representatives were directly involved in drafting laws. Two other representatives were even employed as section chiefs, with senior executive powers.

…Susanne Vollrath has been sent to work in the German Ministry of Transport by her employer—the German Building Industry Federation. For four days a week her job consists in securing public orders for the building industry. She assigns these orders to private contractors on the remaining day of the week. At the ministry she is employed for the working group—Public-Private Partnership (PPP).

Her building industry boss is Heiko Stiepelmann. He openly admits: “Formerly we were involved in the hearings into the preparation of decisions. That was often too late. Today we are involved much earlier in the development of measures in connection with PPP. For us this is a much more efficient way of working. We have a contract with the ministry, our employee is working in the interests of the Federal Republic of Germany.”

The logic of such an argument is that the interests of the Federal Republic of Germany are identical to the interests of big business. Stiepelmann has not the slightest doubt about the connection and thereby makes clear what modern German business leaders and company executives really think of the constitutional “independence of the people’s representatives.”

This all sounds very familiar to those of us in the United States. And, as in United States politics, the cozy arrangement between corporations and government allows the politicians to completely ignore the wishes of their constituents. In Germany, that means that in spite of the clear preference of the public for the continuance of the German welfare state, both major parties conspired together with the oligarchy to dismantle the welfare system. When the Social Democrats decided to form a unity government with the Christian Democrats against a clear preference by a majority of the voters for left-wing government, the die was cast. You get gated-community, neoliberal capitalism, with casinos and drugs (legal and illegal) to keep the money flowing upwards and the lower orders occupied.

We mentioned the English casino plan. The blogger Stef Zucconi, whose three part series (here, here and here) on money is well worth reading, writes:

I've never been much into gambling.

I get enough in the way of thrills and excitement simply from walking home at night.

Being a fan of tacky Americana I have, however, visited a fair few US casinos in my time.

All things considered they're a bit grim. Very grim actually.In spite of the bright lights and up tempo decor there's a whiff of desperation about the people who frequent them.

I remember passing one old woman feeding a slot machine in a riverboat casino on the Mississippi a few years back. She had a large cup of quarters held between her legs and was robotically pumping them into the machine. She was covered in cigarette ash and food crumbs and looked like she hadn't slept for days. She also smelled vaguely of piss. On the wall in front of her was a flashing illuminated sign. It read 'Fun! Fun! Fun!'.

I wasn't convinced.

Nor am I convinced by the claim that casino complexes are a powerful tool for urban regeneration. Based on what I've seen in the States, what you get when you build a large casino in the middle of a deprived urban s***hole is......

a deprived urban s***hole with a large casino in the middle of it.

Let's be honest, if huge casino complexes were so f****** great they'd be built in well-off districts and nobody would bother with tossing around pretending how beneficial they are.

I mention all this because, of course, we've just found out which of the many competing British s***holes (and there is a lot of competition) gets to be home to the UK's first super casino.

And it wasn't London.

Not yet anyway.

But there's no doubt we'll get a few sooner or later. After all, even though it was faced with overwhelming public apathy and antipathy, our government was hot to trot with forty of the damned things.

Forty of them...

Zucconi has a clear summary, in part one of the aforementioned three-part Money series, of the “Bankers Control the World Theory,” basic and advanced versions:

The basic version Bankers Control the WORLD!!! conspiracy theory goes something like this...

· Using fractional reserve banking techniques, Central Bankers flood a target economy with insane amounts of money that they whisk out of thin air. The result is a BOOM of massive inflation, excessive consumption, trade deficits and indebtedness...

Then, when the time is right…

· The Bankers move their own money into commodities or alternate currencies that retain inherent value.


· The Bankers BUST the bubble they created by sharply restricting the money supply, causing a major recession/ depression...


· The Bankers start foreclosing on everyone like a bastard, whilst bringing their own money back into the economy and picking up the resulting bargains on offer.
Those people who took out loans when prices were high and money was cheap and freely available who manage to avoid foreclosure will still be bollocksed by the effort of servicing those loans with money that is now neither cheap nor freely available.It’s a Grapes of Wrath thing...

· Repeat for centuries

The deluxe version of the Bankers CONTROL the World!!! model includes such optional extras as…

· Buying-off or in some other way controlling all major political parties and stifling political expression

· The establishment of restrictive security measures and databasing in advance of the bubble bursting and the social unrest that will go with it

· Invading oil-rich countries to stop rag heads popping the bubble early by selling their oil in a currency of their choosing

· Preparing the groundwork for excuses to distract people from what really is f****** their lives up. Stuff like, ooh I don’t know, an ill-defined, unwinnable global war, or targeting and demonising a particular social class or racial group, or maybe invoking the spectre of impending ecological catastrophe, something like that

How crap would living in a world like that be, eh?


Blogger The Fundamental analyst said...

Re: the new UK casino. I forget who said it, it may have been the Canadian philosopher John Raulston Saul that said you know when governments have run out of ideas to raise taxes,they start building casinos - which amounts to an indirect tax on the poor.

5:43 PM  

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