Odious debt, Jubilee, and the cost of ignoring history

It seems like all commentary on the situation of America today is put into the context of post-WWII. That's like studying the history of Rome, but ignoring the 500 years of history that happened before Ceasar's armies crossed the Rubicon. If you intentionally limit your vision of the world then you will eventually be caught off-guard by larger trends.
This problem is especially true in the field of economics.

The fact is that the financial system, as it was structured in 1944, was an experiment. No one knew if it was sustainable, and it certainly wasn't intended to last forever.
That world has been slowly, and increasingly, breaking down for the last several decades, but because no one looks more than 65 years into the past no one can imagine a different world. Everyone is terrified of the "unknown", when in fact is isn't unknown at all. It's just different.

The Very Bad Year is Just the Beginning

Anyone in denial about the United States and the economy should now get over it.

The unemployment numbers for December came in and it ain't pretty.

The unemployment rate is now 7.2%. This is the largest unemployment jump since 1945, The massive job hemorrhage shows the economy is in free fall.


Also the Congressional Budget Office released it's Budget 2009 Outlook report and it ain't pretty either.

  • CBO projects that the deficit this year will total $1.2 trillion, or 8.3 percent of GDP
  • CBO expects federal revenues to decline by $166 billion, or 6.6 percent, from the amount in 2008
  • An unemployment rate that will exceed 9 percent early in 2010
  • CBO anticipates that the current recession, which started in December 2007, will last until the second half of 2009, making it the longest recession since World War II

Beyond Peak Credit

I was invited by Manfrommiddletown to stray from my usual Blog home at European Tribune and post on the subject of Credit Default Swaps.

I find it hard to post on CDS without reference to the wider context, and in fact the reference here yesterday to the proposed Gas OPEC gives me the perfect excuse, since I have in recent days had a direct and intimate exposure to that initiative.

I have just returned to Scotland from ten days in Teheran, and was asked - by the head of the Iranian Majlis (Parliament) Energy Commission among others, to propose my ideas as to a possible structure for such a global gas market initiative.

For those who don't know, I was once upon a time a Director of the International Petroleum Exchange (now ICE Futures Europe), and since then have been busy in the area where markets and the Internet converge.

Why Have the Markets Crashed?

The major US stock market averages have lost over 20% in two weeks alone, and over 10% just in the first four days of this week. Every single day, a major bank on some continent fails. We are in the midst of a full-fledged run on the financial system (I hasten to add: NOT your neighborhood savings bank) that by all definitions except the formal one of a 10% loss in a single day, should be called a crash.

I'll confess right here. I did not believe a crash would happen. In 1929 and again in 1987, crashes occurred less than 3 months after a fresh, exuberant high had been reached. It was exactly one year ago today that the DJIA reached its all time high of 14,165. Until 2 weeks ago, the decline was a slow grinding inexorable washing out much like 2000-2002 or 1973-1974. So much pessimism was already in the system that a crash seemed almost impossible. Then, after Lehman was allowed to fail, suddenly the emergency was upon us. Kudos to Lee Adler of the Wall Street Examiner who exactly cautioned a couple of weeks ago that his technical indicators were consistent with an imminent crash. He was right.

But that does not tell us WHY the market has crashed. This diary is somewhat stream of consciousness, and I'll add on graphs if I can later on, but for now, a narrative of why.

The Middle Class Squeeze - Redux

middle class squeeze
Today, personal incomes fell 0.7%, the largest single drop in 3 years. Consumer spending slowed also. What a surprise, Americans are tapped out, credit card debt is now estimated at $1 trillion, double from 1996 and unpaid debt has increased 22% from one year ago. Here are some statistics from EPI.




While the poor get poorer

real median income united states


Ah, but don't worry, the rich are getting richer: 

The boa constrictor economy

If you are wondering why the stock market has been soaring when we have a credit crunch, job layoffs, a housing crisis among other negative factors, you are not alone.

But...maybe there is an explanation. I call it the boa constrictor economy.

Trade Matters: The U.S. Borrows $2.14 Billion per Day(net)

Trade matters: the US is forced to borrow $2.14 billion per day (net) from abroad even in the middle of the worst financial crisis since at least the 1930s


Today’s Dept. of Commerce report on US losses in global business during February again provides a window into the remarkable power of the debt industry, their “expert” retainers and a largely clueless and/or extremely cynical media.

The US is in a financial crisis that is finally being admitted to be the worst since at least the 1930s.

Today’s report confirms that in the 29 days of February, the US spent $62.3 billion more on foreign-made goods and services than it was able to earn from all exports of US-made goods and services. That is, even with the US in financial crisis, it was forced to borrow – net -- another $2,145,000,000 every single day in February. This represents an accelerated pace of daily net borrowing (or asset sales) from January.

Consumer Expectations Worse

Consumer expectations are the worst since Dec. 1973 -- in the midst of Watergate and first OPEC oil price hikes

The Conference Board reported today that the expectations component of its closely-watched Index of Consumer Confidence plunged further in March to the lowest levels in 35 years – to December 1973. The overall index which measures both expectations and views on current conditions also plunged again in March to the lowest levels in five years, the eve of the invasion of Iraq in March 2003. (see attached graphic of overall index)

Today’s report shows almost four times as many consumers now expect fewer jobs over the next six months as expect more jobs. More than three times as many expect business conditions to worsen rather than to improve and only 14.9% expect their incomes to rise in the next six months.