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Monday, July 25, 2011

"Don't believe the Hype"

You've probably noticed we've not written as much in the past week or so as we once had.  This is not due to illness or summer vacation.  Rather its because quite honestly, the latest current economic "pretend event" sickens and disgusts us too much to waste a lot of time covering it like the mutts in mainstream news.

What is this "pretend event" of which we speak?

That would be the needless drama and theater which is the current US debt ceiling & debt reduction faux-crisis. All of what you are seeing and hearing and reading on TV, newspapers & internet is pretend.  It is illusion; smoke and mirrors.. it is all contrived like your favorite sitcom or drama.  We shall explain...

But where to begin?

Currently the national debt is at $14.3 trillion.  That's a lot of debt if it was for a city, a state or most nations.  Its not for the United States.  The debt is high, yes but it needs to be put into proper perspective.  If the US was to default on its obligations next week, it wouldn't be because the nation did not have the means to pay off its creditors.  It would be because we choose not to.  The nation takes in at minimum $200billion/month in revenue  ($2.4Trillion/yr)  As a nation we are not the equivalent of income-less 'bums' as some in media like to portray.

Every time the need for the debt ceiling to be raised came for a congressional vote, it was done with a straight  yes or no vote. The congressperson either agreed to raise or voted against.  There were no other issues or legislation attached to confuse the matter.  This time there is.   President Obama and Republicans want to combine a debt-reduction plan with a debt ceiling vote.

Why?  Because it provides political cover.

True dye-in-the-wool fiscal conservative Republicans want to slash and burn social security, medicare and every other FDR & LBJ created "entitlement" as much as humanly possible.  Normally this is a political killer but if you're using fear of increased debt suffocating the nation, you can get all the cuts you want without having to cut the military, increase taxes on wealthy or force corporations to start paying their fair share.

As for Obama, he's really a Democrat in name only.  Like President Clinton before him, Obama is pro-Wall St. fiscal conservative.   Wall St. donated 20% of the total of his 2008 campaign, and he desperately needs them to finance campaign 2012. His most recent acquisitions of former JP Morgan-ite William Daley and former GE CEO Jeff Immelt (who's former company paid Zero in income taxes this year)  were overt signals to calm and soothe Wall St that he wasn't as radical as some had first thought & could be trusted.

When an individual makes a campaign contribution, he/she is limited to a max donation of $2400.  A business or corporation is capped at $34,000.  It takes 14 personal max donations to equal one max corporate one.  And we're not including the expensive dinners and other 'events' that presidents of both parties Lower themselves into doing.

Obama wants to cut social security and medicare as much as the Republicans.  He was the one who put cuts of both programs on the table- voluntarily.  The Republicans were more than happy to accept the cuts and reconfigurement of how inflation was computed- they only balked when pushed to accept tax increases in addition to the volunteered entitlement cuts.

So where are we now?  A pretend line in the sand was created for Fri. July 22nd.  It has passed.  Everyone in the media and political world were expressing Non-Stop fear and paranoia that the Asian markets and eventually US markets would start dropping hard on Monday if a dead wasn't done by Sunday.  A deal wasn't done.  As for the markets?  Honestly-- Who cares?  They're fixed--manipulated.. rigged..  and few everyday people truly benefit from when they rise, so it shouldn't matter if it goes down.  Its simply a psychological trick to scare non-financial people to panic at their politicians.

Next- what now?  What is the 'end-game' of this Peter & the Wolf kabuki?

Expect this week into next to be A LOT of sensationalism and doomsday fear as it gets closer to the Aug 2nd 'deadline'   There are a lot of vested parties with a lot of money who run this nation's finances who want this situation settled specifically with a raise in the debt ceiling and vicious social cuts while giving no tax increases.  And they will not rest until they get their way.  Markets will drop.. media pundits will carry-on nonstop.. politicians will inflame the situation with hyperbole and bombast.

Eventually one of 3 things will happen:

1) A deal is struck in plenty of time before Aug 2
2) A deal is Magically struck right before Aug 2
3) A deal is struck very soon after Aug 2 when markets purposely tank

In All Three scenarios, the debt ceiling is raised and no one is affected.

Now because no one in Washington has the courage or cojones to simply vote a debt ceiling raise separate from a debt reduction bill, expect the longer it gets played out, the more the President will succumb.  This is more because the Tea Party element is approaching the fight over no taxes as a financial terrorist suicide bomber would- take no prisoners and destroy everything & everyone if need be for an ideology; to get their way.  The mainstream Reps who are mature and understand their actions have repercussions are not this way- they've just been held hostage by the 'terrorists'.

One last thing on this most annoying topic.  Let us say for argument that an agreement is met tomorrow that would result in a Trillion dollars in cuts to social services as a means to lower the National Debt.  It is important people understand it takes next to nothing to get that Trillion put back onto the debt ledgers.  For instance, every dollar Fed Chair Bernanke spends to boost the stock market via QE..that counts against the national debt.   So the $600 Billion for QE2 is part of the $14.3 Trillion.  So if he feels one day soon QE3 is needed and a full Trillion is required to jump-start Wall St., you're back at square one in terms of combating the debt.

This is the clearest way I can explain what the US government has been doing for the past 3 years:  A single woman is head of the family and has 3 children. She brings in $3k/month which normally would be enough to provide for her family.  But instead of using her $3k for home expenses, food, etc., instead she bought a $1500 diamond tennis bracelet, then told her family that they needed to figure how to live on $1500. And cuts would need to be made- no dance lessons or soccer registration for the kids, no cable TV... Everyone needed to make cuts Except the mother who bought the bracelet.  And if any one in the family mentioned it, the mother would change topics and "Control the debate".

This is what the US did by giving Trillions to those Damn banks and Wall St and expecting everyone But them to foot the bill.  This is what the UK did as well..and Germany..and Japan.. and every modern nation in a panic back in 2008 to save their precious banking system.

The best advice I can give people in the coming week or so is best expressed from a famous late 80's rap song from Public Enemy...

When it comes to the media, markets and Washington, "Don't believe the hype"

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