Commentary for the Week of March 8

[Like your editor, Rick’s Picks forum regular Wayne Razzi (aka “Red Will”) is a veteran floor-trader who grew up in South Jersey.  When I asked him if he would like to contribute a guest commentary, I was not expecting the provocative tour de force that unfolds, step by step, below. In the essay, Will asserts nothing less that that the impending collapse of our economic system was meticulously engineered by financial and political sociopaths. Let me attest that his is not some whack-o conspiracy theory; rather, it is the closely-reasoned argument of a highly intelligent person who values truth sufficiently to have searched for it, in the form of an answer to a profoundly disturbing question, for many years. Judge for yourself whether his conclusions tally with your own thoughts as to why the American Dream is about to go bust. RA] As a regular reader of Rick’s Picks and occasional commentator within the forum, I was happy to accept Rick’s offer to contribute a guest commentary.  Unfortunately, my happiness faded rather quickly as each day of the week passed and with each, more and more commentary appeared within the forum.  Normally I am pleased to read through the robust collection of viewpoints and argumentation.  However, and quite regrettably, these are not normal times!  With each day, and each comment, and each reply, I witnessed a slow motion, apathetic paraphrasing of much of my prepared commentary by faceless strangers! So with my best-written plans bested by many of you bloviators. ;- ) , I elected to go with something entirely different instead of offering my all-too-similar take on many of the economic issues that were covered and subsequently expanded upon within the forum. I have a few things in common with Rick, one of which is having been born and

[One of my oldest and closest friends, Glenn Klotz, is also one of the most politically liberal.  Although I usually assume that many, if not most, of those on the left are factually impaired, that is surely not the case with Glenn. He is up on his facts, well read, and can hold his own in any argument.  Following is a letter he wrote me when I challenged his heavy skepticism toward New Jersey’s new Governor, Chris Christie. I think the guy will be great for New Jersey, and that he may even prove to be presidential material. Glenn thinks he is just another Jersey pol who ultimately will favor the interests of Big Business over the little guy. RA] The long and the short of my position politically these days is this: I'm not an ideologue of either the left or the right. I am however anti-Corporatist. As I see it, the problem in this country today, and in particular in New Jersey, is that BIG is everything. Big Business. Big Government.  Together, the two dominate the landscape to the exclusion of anything or anyone else. With their overwhelming political power, economic clout and their sheer size, these dinosaur-sized Enterprises and Orgs, both public and private, are squeezing out smaller public and private businesses and institutions. On the private side, you could call it the “Wal-Mart-ization of America” if you like; and on the public side, the tyranny of Big Government over all that is small. Now, why do I say the tyranny over the small and not the large?  Simply because I believe statistics and facts show that in America today, size counts when it comes to how you are treated by public-sector regulators, law enforcement and, especially, politicians. In New Jersey today, and nationally, there is a

[From reader and paid-up subscriber Oliver Fuchs of Munich, we have a very interesting metaphor to explain the seemingly anomalous economic boom now going on in Germany. Is it merely the final, spectacular tipping of a ship about to slide into the deep? Oliver explains why this may be so. RA] If the global economy is the Titanic, then what is happening in Germany might be the stern rising as the USA “bow” begins to sink. When we read about the grim predictions of Austrian School economists in particular, a Titanic-style crack-up seems like the sort of thing anyone would notice. But the seemingly anomalous business boom in Germany that everyone seems so happy about (and the bankers say -- what else? – “Be merry!”), might just be that: a boom/bust cycle bearing down on us like a juggernaut. Whatever the case, few are voicing concern over troubling signals in this German boom: German sovereign-debt interest rates are falling as if a Fed were causing it, but on free-market action; the Euro is much stronger than anyone had anticipated, considering the PIIGS dilemma and Eastern Europe’s deep economic wallow. German wages haven’t risen at all, even though booms usually translate quickly into higher wages. And the consumer boom, such as it is, is geared toward safe investments and matters around the house (such as installing those solar panels, etc.). The savings rate keeps climbing although there is hardly any interest being paid, and gold-buying is beginning to explode. Inflation is creeping through the holes via costs for utilities and government services. The employment situation is bright, but that has been going on for a while due to the emerging markets and the famous “Kurzarbeit,” a government-sponsored reduction of working hours to avoid layoffs in a crisis. Construction is also suddenly

[Alan Geik, whose razor-edged essays on our sordid political culture have gained him a loyal following at Seeking Alpha and other popular web sites, has been a lifelong student of frauds and scams, and so writing about this Era of Bailouts comes naturally to him.  In the essay below (which contains some great links that we would encourage you to follow, including a video punch line at the end), he explains not only why the global financial crisis is not going away any time soon, but why it is likely to get much worse before it gets better.  To bolster his conclusions, Alan draws a bead on some of the bigger-than-life buffoons and greedy political hacks who have helped to amuse and entertain us even as they have unwittingly contributed to the collapse of the global economy. An egregious example of the breed is Fed. Governor Mishkin, who in 2006, with amazingly bad timing and lack of prescience, presented a paper entitled “Iceland’s Financial Stability.”  There are also some piquant notes on the recent misdoings of a world-class buffoon who needs no introduction, Sen. Christopher Dodd. Enjoy! RA] Beginning with this somewhat worn animated video, Worst Slide Story, will hopefully lend a light, amused tone to my few observations about the iCorrosion of the Empire. Also, a bit of light comedy might lessen the appearance that this is just another frustrated Financial Collapse to Come rant. I have written several articles outlining the two major Wall Street conceived scams of the 1980s; the Latin American Debt Crisis and the S&L bailout. Back then lobbyists gave Congress hooks on which to support massive Wall Street loans to Latin American dictators (“we need to help third world economic development”) and also, to their own S&L campaign contributors (“we need to support small

[Today’s guest commentary, by Ben Rositas, takes an elliptical path in arguing that dumb little laws and legalistic thinking have helped undermine the sort of  self-determination that alone can make real and lasting prosperity possible. RA] This is probably going to seem off-topic for a Rick's Picks commentary, but I hope that it becomes clearer at the conclusion.  First, a brief history. Most summers, I take on a writing project, usually fiction of one sort or another. I've done this for the past 20+ years, and my current project is based on a computer game called Arcanum that was released in the late 90s. I feel kind of silly, being that I'm 34, but when I came across that game recently, I was so intrigued that I bought a copy and spent some time playing it. No wonder the country's in trouble! But if I could create a rich world and story, I figured it wouldn't be a total waste. Anyway, as I scanned for material that would help me capture the feel of such an era and setting, I came across a Wikipedia definition for “gentrification”. Gentrification. You may not have thought about this before, but the process of gentrification is driven as much by lawyers as anyone else.  When newly-minted lawyers buy a fixer-upper and move into the neighborhood, at the same time they are plying their trade, dividing families through divorce, some of the ones I have known would happily take credit for driving up the demand for land and housing – having a “successful impact” on property values, that is. Perhaps I am being too harsh on the legal profession, but it is surely legalistic thinking that drives so many rules that degrade the quality of life. Consider a seemingly innocuous ordinance against, say, clotheslines. I

[Many readers have pointed out that our long-running discussion of deflation has tended to overlook the impact of price increases, or at least price stability, on essential goods and services. In the essay below, Robert Moore, a frequent contributor to the Rick’s Picks forum, explains how both type of “flations” can co-exist. That he has done so without using the words “inflation” or “deflation” is not merely clever, but persuasive. Read on to sharpen your understanding of how supply and demand interact in an economy where some debtors are being liquidated while others continue to pay their bills and debts. We will mention up-front that although Robert is no “deflationist,” the economic outcome he predicts is exactly what we have long predicted – i.e., a drawn-out drop in the standard of living until all debts have been paid – either by creditors, or debtors. RA] Ok, I’m going to try to make it through this entire essay only uttering the words “inflation” and “deflation” in just this one sentence. Why, you ask? Because these terms are just too ambiguous for a productive economic discussion. Each word has two unique, and distinct (some might say polar opposite) definitions when used in the context of money supply versus the context of general price levels. This degree of ambiguity makes both terms completely worthless in an analysis of cause and effect. There must, by necessity, be a dedicated term to describe the cause, and another term to describe the effect; otherwise you find yourself drawn into an analogous discussion where explosions are causing explosions, and the end effect is simultaneously identified as the root cause -- a rational impossibility. So, before we go much further, let’s settle in on some fundamental ideologies that I hope we can all agree on: 1) As demand

[To broaden the conversation, Rick’s Picks inaugurates a two-week series of commentaries today from guests who have contributed regularly to the daily forum.  I can promise that you’ll enjoy these essays, which cover topics ranging from the peculiar economic boom in Germany, to the failure of New Jersey’s casinos, to the possibility that the global economic breakdown has been meticulously engineered by financial and political sociopaths.  This morning we proffer the always-sunny thoughts of Mario Cavolo, an expatriate who lives in China. His very bullish outlook for the global economy contrasts with some of the gloomier think-pieces that have appeared in this space.  In the essay below, Mario extrapolates a very positive economic outcome from the $15 trillion of unencumbered equity that Chinese property owners currently have vested in their homes.  Will the eventual leveraging of this still debt-free sum, together with the irresistible power of China’s growing economy, be sufficient to pull the world out of its funk?  Read on for Mario’s optimistic answer. RA] Current United States home mortgage debt: $15 trillion. Current China home equity: $15 trillion. Mortgage debt on those homes? Zero.  It is easy to suggest that this insight, which reveals a $30 trillion spread between U.S. home mortgage debt and Chinese home equity, better enables us to grasp the underlying forces impacting the economic power shift we are seeing from West to East. While it might be in vogue these days to criticize the United States for being built on a mountain of debt, I’d rather not. Let's first take a moment to remember the positive effect the world over which the judicious and reasonable use of debt has had over the past 50 years. How’s that you ask? Because while it is in vogue to complain about America’s mountain of debt, that very

Amazing how far a really stupid idea can travel. Warren Buffett helped spread and legitimize one a couple of months ago, and now the Wall Street Journal has pitched in on the same topic with an op-ed piece written by one Eden Martin, a lawyer and Chicago muckety-muck.  Here is what Mr. Martin wrote:  “The next big issue on the national political horizon may be whether the federal government should bail out the many budget-strapped states and municipalities across the country, especially their overly generous and badly underfunded pension plans.”  And here’s Mr. Buffett on the same topic, testifying before Congress in June on the role the credit rating agencies played in nearly bringing the banking system down: “I mean, if the federal government will step in to help [states and major municipalities], they’re Triple-A. If the federal government won’t step in to help them, who knows what they are.” Buffett himself should know the answer to the question he has implicitly raised, since, no matter who is doing the bailing out, or what is used to pay for it, we – and not some entity called “the Government” -- will all pay heavily for it in one way or another. We’ll explain in a moment. But first, let us be clear that we are not holding our breath waiting for the Journal’s editors to provide responsible counterpoint to all of this bailout claptrap. Unfortunately, the business community's newspaper of record has always played an aggressive role in telling its readers not what is, but what they presumably want to hear. How else to explain why the Journal would continue to devote hundreds of column inches lately to the possibility that the economy just might be facing a double-dip recession? In plain fact, and as any of the paper’s two million

You’ve got to wonder what the banks have in mind now that they’ve raised credit card rates to an average 14.7 percent, up 160 basis points from a year ago. Are lenders perhaps trying to tell us that they are no longer interested in advancing cash to users of plastic? After all, what shopper or diner would borrow a dime with a credit card if it carried such an exorbitant interest charge? And even if there were borrowers at such usurious rates, how many of them could be counted on to service their loans indefinitely (which is how long it would take to pay off such loans)?  It’s not as though the banks can go after delinquent borrowers with such time-honored tools of the loan shark as baseball bats, brass-buckled belts and straight razors. Still, we have to assume the banks know their business and that they think they can make a profit by charging economically lethal rates on unsecured balances. But if you or I were making such loans, we’d probably be asking ourselves up-front, How desperate does someone have to be to run up credit-card debt at 14.7%?  The answer, obviously, is:  the kind of person we would not want to lend money to. So why are the banks doing it anyway? It’s possible that although they don’t actually know how things will play out, they believe they’ve pegged rates high enough to compensate for new regulations that will make it more difficult for them to lend as they traditionally have – i.e., with the same loving kindness and respect for their customers as Frankie the Camel and rent-to-own furniture stores. And who cares about high delinquency rates when there will always be a few customers willing and able to pay $6 for $5 (and presumably much more