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Weekly Audit: The Battle for Wall Street Begins

by Zach Carter, Media Consortium MediaWire Blogger

"I'm not talking about a budget deficit. I'm not talking about a trade deficit. I'm not talking about a deficit of good ideas or new plans. I'm talking about a moral deficit . . . . We have a deficit when CEOs are making more in ten minutes than some workers make in ten months; when families lose their homes so that lenders make a profit; when mothers can't afford a doctor when their children get sick."

-Sen. Barack Obama, Ebenezer Baptist Church, Atlanta, Jan. 20, 2008

Why the Deflationary Recession of 2009 isn't just about Oil

When I diaried last week that we were in the midst of the biggest deflation since the Great Depression, I was met by a number of naysayers (at another blog) who criticized the diary on the grounds that the deflation was just the artifact of the bursting of the Oil bubble, nothing more.
That is not the case. We are undergoing a real deflation for the first time in over 50 years because consumers are full of debt and tapped out of cash, their assets (homes and stocks) are going down in price, and they are unable or unwilling to spend the money they have begun to save at the gas pump. With consumers not buying, demand for manufactured goods has cratered as well. I'll show why below the fold.

The -In- DEflation Outlook for 2009

Here is a screen shot of the monthly readings of CPI for the last 3 years:

I include this because if you keep in mind what has been happening with Oil prices over that same time, a pretty decent picture of what is likely to happen to prices in 2009 takes shape. Remember that from August 2006 through January 2007, Oil prices decreased over 35% from $80 to under $55. Then Oil took off on a tear, hitting $147.50 in July 2008, before collapsing to under $35 by the end of the year. Oil prices are seasonal, rising in the first half of the year, and dropping in the later part of the year, and this is reflected in the "seasonal adjustment" of consumer prices.

Banks Using TARP Funds to Speculate in Oil Markets

Prepare to be deeply offended. Banks to who the US government has given billions of dollars of loans are using this money in order to speculate in global oil markets. First, let's start off with the news brought up yesterday on Daily Kos by Scout Finch. Around 80 million barrels of oil are being stored at sea.

Norway's Frontline (FRO.OL: Quote, Profile, Research), one of the world's biggest oil tanker owners, said on Friday oil firms were storing "about" 80 million barrels of crude oil at sea, possibly the highest in a quarter of a century....

30 to 35 Very Large Crude Carriers (Very Large Crude Carriers) capable of carrying two million barrels each and 10 Suezmaxes with a capacity of a million barrels each were being used by oil firms for floating storage in the last few months.

Radio, Radio & Best Comments

Submitted by on

Johnny Venom, Bonddad and New Deal Democrat are on the radio today, on the Johnny Wendell show, 4:30pm, PST. You can listen live here and here is the web page for Johnny Wendell on KTLK.

Sometimes comments can be better than the blog posts and with that in mind, we start a new series:

Best Comments

From Iams712 is the sentiment I am seeing across the blogs, often from people who worked hard on political campaigns:

I agree with you for the most part....

The Deflationary Bust deepens

Consumer prices in December fell ( -1.0 %) non-seasonally adjusted. Inflation for the entire year 2008 was 0,1%! (meaning I have officially won my bet wtih Bonddad). In the first seven months of the year, driven by soaring gas prices, inflation surged 4.6%. And then the deflationary bust hit. In the last 5 months, prices have fallen ( - 4.4 %), or at an annual rate of ( - 11.0%). Here is how our Deflationary Recession compares with others from the past 100 years, as of year end 2008:

Recession dates/ YoY, monthly deflation/greatest +/- change

Recession Time Period -1.5% Deflation Largest Change
1/13 - 12/14 2 - 4/14 (-3.0%)
8/18 - 3/19 n/a (inflationary) +23.7%
1/20 - 7/21 8/20 - 9/22 (-15.8%)
5/23 - 7/24 4/24 (-1.8%)
10/26 - 11/27 1 - 5, 8/27 (-3.4%)
n/a 6/28 (-2.8%)
8/29 - 3/33 4/29, 3/30 - 8/33 (-10.7%)
5/37 - 6/38 1 - 12/38 (-3.4%)
2/45 - 10/45 n/a (inflationary) +2.8%
1/49 - 10/49 1/49 - 1/50 (-3.2%)
7/53 - 5/54 n/a (-.8%)
12/07 - ???? 10/08 - ???? (- 4.4 %)

Research & Development Being Offshore Outsourced

Submitted by on

Research and Development is moving out of the United States and offshore. In a new Economic Policy Institute study titled The Offshoring of Innovation, Dr. Ron Hira made the acceleration clear.

The economic and national security outcomes of increased resource input into the innovation process are going to be different than they have been in the past. We need fresh thinking about policies that will re-shape the new national innovation system to achieve desired outcomes

The End of Bretton Woods II

Submitted by on

The world of economics is every moving, ever changing. What was true 65 years ago, or even 38 years ago, is no longer true today. The world has moved on.

The Bretton Woods system of monetary management established the rules for commercial and financial relations among the world's major industrial states in the mid 20th century.
...
The chief features of the Bretton Woods system were an obligation for each country to adopt a monetary policy that maintained the exchange rate of its currency within a fixed value—plus or minus one percent—in terms of gold and the ability of the IMF to bridge temporary imbalances of payments.

The Bretton Woods system was created during the final days of WWII and we still live with its legacy today. However, it has morphed into something very different since then.

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