Monday, June 16, 2008

Signs of the Economic Apocalypse, 6-16-08


Gold closed at 873.10 dollars an ounce Friday, down 3.0% from $899.00 for the week. The dollar closed at 0.6502 euros Friday, up 2.6% from 0.6340 at the close of the previous Friday. That put the euro at 1.5381 dollars compared to 1.5774 the week before. Gold in euros would be 567.65 euros an ounce, down 0.4% from 569.93 at the close of the previous week. Oil closed at 134.86 dollars a barrel Friday, down 2.2% from 137.84 for the week. Oil in euros would be 87.68 euros a barrel, up 0.3% from 87.38 at the close of the Friday before. The gold/oil ratio closed at 6.47, down 0.8% from 6.52 for the week. In U.S. stocks, the Dow closed at 12,307.35 Friday, up 0.8% from 12,209.81 at the close of the previous Friday. The NASDAQ closed at 2,454.50 Friday, down 0.8% from 2,474.56 at the close of the week before. In U.S. interest rates, the yield on the ten-year U.S. Treasury note closed at 4.26%, up 35 basis points from 3.91 for the week.

The dollar rebounded last week, gaining 2.6% against the euro. The dollar’s rise was driven by the new higher interest rate policy signalled by the Federal Reserve Board. Traders responded by driving down 10-year T-Notes, raising the yield by 35 basis points. All this is bad news for the real economy in the United States. Rising interest rates will deepen the recession but the inflationary pressures driving the Fed to raise interest rates are stronger than they have been in decades. 1970s stagflation is back with a vengeance. Or, as the ghost of bubbles past, Alan Greenspan, puts it, now that the financial system has been rescued by cheap money, it’s time to turn off the faucet:
Greenspan sees Fed getting tough on inflation

Chris Aspin and Jason Lange

Fri Jun 13, 5:06 PM ET

MEXICO CITY (Reuters) - Former U.S. Federal Reserve Chairman Alan Greenspan said on Friday the Fed will have to tighten monetary policy to put a brake on inflation, adding that the worst of the credit crisis may have passed.

Growing price pressures have led the U.S. central bank to recently shift to more aggressive anti-inflation rhetoric, and expectations are rising that policymakers will raise benchmark U.S. interest rates within months.

"If you're going to keep inflation rates down ... the Federal Reserve is going to have to put increasing pressure on the money supply and reserves, and as a result we're going to see interest rates rising," Greenspan said via video link to an event in Mexico.

Soaring gasoline prices helped drive up the U.S. consumer price index in May at the fastest rate in six months, the government said on Friday, although "core" prices, excluding food and energy, remained tame.

Greenspan, who attained cult status for his insight into financial markets as head of the U.S. central bank, said weakness in financial markets probably peaked in March but that it was hard to say how long the crisis would last.

"It can struggle along for a while. It could get worse, it could get better," he said.

Federal Reserve officials have recently harshened their tone about inflation, marking an important shift away from an emphasis on the risk that financial turmoil, tighter credit, and a deep housing contraction could tip the U.S. economy into a deep recession.

Fed Chairman Ben Bernanke, together with other senior Fed officials, said this week the bank was watching for any sign that a self-feeding inflationary psychology could take hold. Past inflation spirals have been fueled by workers asking for big increases in pay.

While the Fed is expected to hold rates steady at its upcoming meeting on June 24-25, financial markets now expect policymakers to raise rates as early as their subsequent meeting on August 5. A signal of their intentions could come when they announce their next decision.

Credit Crisis

The credit crunch, which has infected markets globally, erupted last year when the U.S. subprime mortgage sector melted down.

Banks holding mortgage loans that were repackaged into so called "structured finance" securities have since said that those assets are worth billions of dollars less than previously thought.

Greenspan said the financial market problems could continue until the stated value of those assets fully reflect the fall in house prices in the United States.
"Until prices are clarified ... we will be dealing with a not fully functioning financial intermediary system," he said.

He said that convergence could happen "perhaps by the end of this year but maybe not. It may require some going into next year."

Greenspan said market watchers would know the crisis was coming to an end when the gap between three-month London interbank offered rates, or Libor rates, and Overnight Index Swap rates narrowed to about 50 basis points.

The closely-watched spread -- a key gauge of money market stress -- was around 74 basis points on Friday, its lowest since mid-April. It has been consistently above 70 basis points since mid-March.

"The worst is over (for the U.S. economy) if the financial crisis is over," Greenspan said.

No surprise that Greenspan says that the worst is over if the financial crisis is over. For the rest of us, though, the worst is yet to come. Foreclosures are accelerating in the United States:
US foreclosure filings surge 48 percent in May

Alan Zibel

June 13, 2008

Soaring foreclosures are continuing to raise questions about the mortgage industry's claims that lenders are making a dent in the housing crisis.

Foreclosure filings last month were up nearly 50 percent compared with a year earlier. Nationwide, 261,255 homes received at least one foreclosure-related filing in May, up 48 percent from 176,137 in the same month last year and up 7 percent from April, foreclosure listing service RealtyTrac Inc. said Friday.

The latest grim foreclosure news comes as criticism mounts that efforts by government and the mortgage industry to stem the tide of foreclosures aren't keeping up with the rising number of troubled homeowners. Critics say a Bush administration-backed mortgage industry coalition, dubbed Hope Now, is falling far short.

"It's clear that these voluntary efforts in and of themselves cannot really make a dent," said Allen Fishbein, director of credit and housing policy at the Consumer Federation of America. "Government intervention is going to be necessary."

Mark Zandi, chief economist of Moody's and an adviser to Republican John McCain's presidential campaign, wrote earlier this week that "the Bush administration's efforts to encourage loan modifications and delay foreclosures are being completely overwhelmed."

A Credit Suisse report from this spring predicted that 6.5 million loans will fall into foreclosure over the next five years, reaching more than 8 percent of all U.S. homes…

The combination of weak housing sales, falling home values, tighter mortgage lending criteria and a slowing U.S. economy has left financially strapped homeowners with few options to avoid foreclosure. Many can't find buyers or owe more than their home is worth and can't get refinanced into an affordable loan.

Making matters worse, mortgage rates have been rising, reflecting increased concerns about what the Federal Reserve might do to battle inflation. Freddie Mac, the mortgage company, reported Thursday that 30-year fixed-rate mortgages averaged 6.32 percent this week, the highest level in nearly eight months and up sharply from 6.09 percent last week.

According to the RealtyTrac report, one in every 483 U.S. households received a foreclosure filing in May, the highest number since RealtyTrac started the report in 2005 and the second-straight monthly record.

Foreclosure filings increased from a year earlier in all but 10 states. Nevada, California, Arizona, Florida and Michigan had the highest statewide foreclosure rates.

Metropolitan areas in California and Florida accounted for nine of the top 10 areas with the highest rate of foreclosure. That list was led by Stockton, Calif. and the Cape Coral-Fort Myers area in Florida.

Irvine, Calif.-based RealtyTrac monitors default notices, auction sale notices and bank repossessions. Nearly 74,000 properties were repossessed by lenders nationwide in May, while more than 58,000 received default notices, the company said.

In Nevada, one in every 118 households received a foreclosure-related notice last month, more than four times the national rate. In California, one in every 183 households faced foreclosure.

Rick Sharga, RealtyTrac's vice president of marketing, said foreclosures are unlikely to peak until sometime this fall, as more loans made to borrowers with poor credit records reset at higher levels. "I don't think we've seen the high point," he said.

About 50 to 60 percent of borrowers who receive foreclosure filings are likely to lose their homes, Sharga said. The rest are likely to be able to sell or refinance.

As foreclosed properties pile up, they add to the inventory of homes on the market and drag down home prices. The trend is most dramatic in many parts of California, Florida, Nevada and Arizona, where prices skyrocketed during the housing boom and are now falling precipitously.

Nationwide, one out of every four sales between January and March was a distressed sale, and that figure jumps to more than 50 percent in the hardest-hit areas like Las Vegas, Detroit and distant suburbs of Los Angeles, according to Moody's

In some neighborhoods, lenders are slashing prices dramatically to rid themselves of an unprecedented number of foreclosed properties, sparking bidding wars and multiple offers. While that's a positive for the real estate market, buyers in other parts of the country are still holding back.

"I think a lot of people are waiting to see if we really have hit the bottom," Sharga said.

Lehman Brothers economist Michelle Meyer said in a report Thursday that U.S. home sales are likely to hit bottom at the end of this summer, but said a recovery in sales is likely to be "feeble."

Consumer sentiment continues to plummet:
U.S. Economy: Consumer Prices Rise, Sentiment Slumps

Shobhana Chandra

June 13 (Bloomberg) -- U.S. consumer prices rose more than forecast in May as record oil prices reduced American confidence to the lowest level since Jimmy Carter was in the White House.

The consumer price index increased 0.6 percent, the most since November, after a 0.2 percent gain the prior month, the Labor Department said today in Washington. The Reuters/University of Michigan preliminary index of consumer sentiment fell to 56.7 in June, a reading unseen since 1980, from 59.8 in May.

The slump in confidence may prevent Federal Reserve officials from rushing to raise interest rates to stem the pick- up in inflation. Most economists anticipate Chairman Ben S. Bernanke and his colleagues will wait until next year to boost borrowing costs, according to a monthly Bloomberg News survey.

"The Fed is in a terrible situation here," Michael Darda, chief economist at MKM Partners LP in Greenwich, Connecticut, said in an interview with Bloomberg Television. "We are certainly in a slow period" and "the Fed is talking tough on inflation."

So-called core prices, which exclude food and energy, increased 0.2 percent in May from April, matching economists' forecasts…

With tough times beginning to hit, it may be a good time to step back a bit and look at the big picture. The following essay, written by Ran Prieur in 2002, offers a useful corrective to standard economic journalism.

The Coming Expansion

Ran Prieur

July 29, 2002

When you hear "the economy," think "corporate rule": A strong economy means strong corporate rule; economic collapse means the collapse of corporate rule. It's not exactly true, and it's false in times and places where corporations are not dominant, but right now it comes a lot closer to the truth than the usual background assumption that what's good for "the economy" is good for people.

I know: A good economy means you can get a job, and in a really good economy you can get such a good job that if you work 70 hours a week for years you can buy a nice house in a nice place where you never have to deal with those disturbing poor people who are too lazy to work 70 hours a week, who you never learned to relate to because you're so busy in the economy, and then you can die lonely and bewildered in your big empty secure house.

Doesn't it make you angry that you need "the economy" to have the alleged privilege of doing what someone tells you to do all day so you don't starve and freeze on the streets? Aren't you infuriated by your humiliating dependence on a system that gives you no participation in power? "Live free or die" is easy to say in an imaginary scenario of security agents kicking down your door, but whenever I suggest that economic collapse is a step in the right direction, I'm accused of being anti-human, of wishing for starvation and death, by people who are effectively saying "Please, please, let us live as frightened powerless dependents, anything to not die."

We are in an ugly, awful situation. Better avert your eyes. Here's a nice parable: For countless thousands of years the people of Earthor lived in happy villages, getting everything they needed through small, consent-based communities where everyone was a friend and everything was out in the open. Then they were conquered by evil giants!

Now, everything the people made, every house and every bit of food, was given to the giants, and the giants allocated it to keep themselves in power: the people who obeyed the giants the best, and did their most evil work, got the most stuff; and the people who refused to labor for the giants at all were harassed and isolated and sometimes outright killed; and most people in the middle were kept always wanting more than they got to keep them always busy.

Now one day a hero rose among the people and said, "Let us kill the giants." But then some sensible-sounding voices said, "Without the giants, who will provide our food?" Actually these were people who worked closely with the giants, and knew that if the system changed they would lose all their stuff. But other people listened to the hero, so the giants had to come kill them all, and everything went back to normal, except the giants got even stronger and meaner.

But then another hero appeared, and by this time the people hated the giants so much that the giant-collaborators couldn't stop them, and they did it -- they killed all the giants! But they had been living under the giants for so long now that they didn't know how to live differently. Some people managed to start awkward consent-based villages with tedious "community meetings" ruined by everyone's emotional problems from living under the giants. But these groups fell apart or were taken over, and soon enough, strangely, they all found themselves once again ruled by evil giants. Except now the giants were subtle and persuasive, and the people loved them, or at least they thought a world without giants was grossly unrealistic, and they blamed their unhappiness on other people.

And so it went. But look! The giants cannot stay the same size and survive. To live they must constantly grow. They even have a saying: "Any evil giant that doesn't grow dies." But now they're getting so big that their bulk is all dead bones cracking under their unimaginable weight, so big that they can do nothing but blunder around clumsily, ravenously consuming everything in reach to grow still bigger. And their hunger has turned half the land of Earthor into gray smoky deserts. Anyone who looks can see it coming: The giants are going to run out of food, and die.

What then? Let's return now to the less deeply nested fantastic world of our own Earth. The giant patterns that command our labor under threat of death or prison, that manage and distribute the products of our labor to keep themselves in place, are breaking down. In the last two weeks the price of "stocks" -- tokens of collaboration with the ruling system -- has fallen hard, minus a few temporary half-recoveries caused by covert buying spikes. The "economy" is dying, and anyone who's been looking has seen it coming for years.

The propaganda industry will blame corporate greed, as if this could have been avoided if corporations weren't greedy and fish didn't swim. In fact, collapse is the only possible result of an economy that survives by taking more from its environment than it gives. In this case the environment is not only the Earth, which is running out of "resources," but the human species, which is running out of willingness to participate in a coercive and disempowering system.

I'm not calling for civilization to fall and kill billions of people in ways other than old age, any more than I'm calling for winter to come and kill a lot of plants. I'm just noticing it coming and declaring that it's perfectly natural. Liberals fantasize about a "soft landing," maybe involving a benevolently oppressive global government implementing a hundred years of strict forced contraception and strict forced resource frugality. What's soft about that? It sounds like going into a cold swimming pool slowly and painfully for 20 minutes instead of just jumping in. We're all going to be dead in a hundred years anyway. Let's some of us die young so all of us don't have to live in some eco-puritan dystopia.

I'm not joking -- I'm just refusing to fetishize dying. We're programmed to think of dying as the ultimate worst thing, as the negation of living, when really it's a normal friendly part of living, and what's negating our living is our fear of dying or physical damage. Our culture whips this fear into an insane frenzy, not just to keep us enslaved, but because our culture is an evil mass consciousness, a vampire that cultivates and feeds on our emotional contractiveness.

Our contractiveness is the same thing as our "progress," our descent on engines of disconnection into an artificial hell of computer spreadsheets and tax laws, pavement and cars that turn the grass under your feet into a mile-a-minute green blur, science that turns your view of the sky into mathematical formulas in windowless rooms. But everything that contracts must expand.

The contraction we call the Roman Empire cut down the forests of Europe. When it finally relaxed, the forests grew back, but the people of Europe only grew back a little before they shrank again -- self-sufficient rural communities devolved into feudal estates, which got sucked into larger and larger centralized nation-states, which are now falling into the vortex of the unprecedented power-sucking abilities of global corporations. We're as deep now as we've ever been, and I'm not sure, but I think we're out of room to go deeper, unless they figure out how to trap our consciousness inside computers.

I think the next time we expand, we're going to follow through. I suspect that humans are smarter now than ever -- that intelligence is the default human condition, and stupidity has to be manufactured, and our intelligence has been growing stronger and stronger, invisibly staying a step behind advances in stupidity-manufacturing techniques, the same way weeds and bacteria have been growing resistant to high-tech poisons. The controlling interests seem to be winning, but the lid's about to blow off, and when it does, those of us who don't die of starvation or disease will see a blossoming of human power like nothing in history.

Here's what I mean by "human power": Right now if you need a place to live, you can't just find a place and live there, no matter how responsible you are. Places are all "owned," and not by people but by contractive patterns using people, by banks and businesses and money-grasping habits of individuals. You have to apply to these alleged "owners," submit to degrading rituals, accept permission to occupy a place, not change it in any important way, and pay a huge monthly sum of money -- a billion rivers of money running from the poor to the rich. And the only thing you get in return, what you're actually tricked into demanding, is to have your power/responsibility reduced even further by depending on the "owners" to make necessary repairs.

When we get our power back, you'll just pick an appropriate place and live there, and build or maintain shelter that fits the skills of you or your group. And in the transition to this, we'll survive by sleeping on each other's couches, by filling up our houses and learning to live in the same space with other people again instead of buying satanic isolation. We'll turn our lawns into vegetable gardens and feed ourselves with our own hands instead of depending on money and supermarkets. Our alleged poverty will lead us to rebuild community and autonomy that were destroyed by our alleged wealth.

Link by link, we will stop depending on and answering to higher powers and begin depending on and answering to the lower powers of our bodies and the Earth. The Earth is us too, and when we get our power back, monoculture farms will be set free to be grassland and forest again, in which humans will live in deep and enduring symbiosis. I'm not saying we'll all be hunter/gatherers, but some of us will, and at the very least that economy is the necessary safety net above which we will try other things.

When we get our power back, the homeless / jobless / moneyless will reach a critical mass where the police can no longer stop us and we know it. If an eagle wants more space, it fights a competitor, and typically neither bird is badly hurt, and both have the experience of engaging the world with their energy. This is not “violence” but a vigorous physical way of resolving conflict; it's not about control or extermination but balance. In all the known universe only civilized authorities do not work this way, do not tolerate physically fighting them or running from them, do not give any options but total submission or death. That's why all of us who have not been killed are full of suppressed rage. And if we channel this rage wisely, we will not exterminate the authorities so they can escape and come back in the form of us; we will hold them in the one position they cannot endure, of living as equals with other life, until they dissolve.

Totalitarian control structures are fascinating: The police not only deny us power -- they deny it to themselves, believing that they lack the authority to compromise because they're "just doing their job" for someone else. But if you look up the chain, no one has any power -- even the highest elite are powerlessly following a script written by a financial balance or a country or a warped sense of "order," a program taking control so it can take more control so it can...

This system is an anti-system, a multilevel negation, built of blocks of lack of power, lack of responsibility, lack of awareness. This raises mind-bending questions: How do you destroy a void? And if nobody has any real power, where does the power go?

I think the answer is that power isn't actually being taken but being blocked, in nonhumans by simply killing them and in humans by socialization that begins in infancy, punishing people for having a will of their own, for being aware, for channeling any bottom-up power, until by age 30 most of us are barely alive, almost as Philip K. Dick wrote: "Not a person but a sort of walking, hiding symptom of their way of life."

But blocked power just keeps building up. It wants to flow up through our cells, our muscles, our blood. If we keep holding it back it's going to explode! That's not good. We need to learn to focus it, like a rocket focuses an explosion to push it into orbit, like a plant focuses growth into the roots before the stalk. The famous biblical line is a mistranslation: The word was used to describe good horses, not their submissiveness but their ability to focus their attention and respond instantly to the slightest cues.The disciplined will inherit the Earth.

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