Wednesday, May 21, 2008

They just don't make inflation - or much else - the way they used to

A couple of MarketWatchers are reminiscing about the good old days.

David Weidner is looking back only a year ago.
The issues facing Wall Street last spring would be petty annoyances today. Just a year ago, mergers and acquisitions were at an all-time record, brokerage profits had rocketed into uncharted territory, the Dow Jones Industrial Average was floating in the rarefied air above the 13,500 level and was soon to move above 14,000. The Nasdaq Composite Index was creeping above 2,600. So much was going right, it seemed we had to make up our problems. Little did we know that soon our creations would be wiped away with chief executives and fallen banks.

Oil was at $65 a barrel. Analysts explained the rise by talking about political tension overseas, greater demand and a lack of refinery capacity. Almost no one mentioned the influx of speculators, mostly from hedge funds, who have since made $80-a-barrel oil seem like a bargain.

Today we predict $200-a-barrel oil and another $100 billion in credit write-downs at major banks. Home prices have further to fall. The buyout boom has slowed. Wall Street will lay off another 30,000, including 9,000 combined from Bear Stearns and Lehman Brothers Holdings Inc.
Etc.


While Wiedner's recollections are almost wistful, the crotchety old Paul B. Farrell takes a broader view of history almost hysterically.
Be forewarned: No matter who's elected president, America will soon see a massive statistical curtain pulled back, exposing a con game of historic proportions. And when that happens, you and I will suffer another ear-splitting global meltdown, bigger than today's housing-credit crisis, dragging us deep into a recession and bear market for years.

[T]he lead character pulling back the curtain is none other than Kevin Phillips, a former Republican strategist for Nixon.... Phillips just published "Bad Money: Reckless Finance, Failed Politics & the Crisis of American Capitalism," everything you need to know about today's credit meltdown.

[T]he use of deceptive statistics has played its own vital role in convincing many Americans that the U.S. economy is stronger, fairer, more productive, more dominant, and richer with opportunity than it really is. The corruption has tainted the very measures that most shape public perception of the economy," especially three key numbers, CPI, GDP and monthly unemployment statistics.

"Based on the criteria in place a quarter century ago, today's U.S. unemployment rate is somewhere between 9% and 12%; the inflation rate is as high as 7% or even 10%; economics growth since the recession of 2001 has been mediocre, despite the surge in wealth and incomes of the superrich, and we are falling back into recession."

The same can be said of any government report, every speech made by today's leaders: All hype, lies and propaganda intended to deceive us. Treasury Secretary Henry Paulson's clearly playing the game: Remember what the former Goldman Sachs CEO told Fortune last July as our credit meltdown was metastasizing into a worldwide contagion: "This is far and away the strongest global economy I've seen in my business lifetime." He has no credibility. He knew the truth.

The biggest of all lies is with inflation. Understating inflation "hangs over our heads like a guillotine," says Phillips.

"The rising cost of pensions, benefits, and interest payments -- all indexed or related to inflation -- could join the cost of financial bailouts to overwhelm the federal budget," says Phillips. But it's a heads-we-lose-tails-we-can't-win bet. "As inflation and interest rates have been kept artificially suppressed, the United States has been indentured to its volatile financial sector, with its predilection for leverage and risky buccaneering"

So who really "profits from the low-growth U.S. economy hidden under statistical camouflage?" he asks rhetorically. Certainly not the masses: "Might it be Washington politicos and affluent elite, anxious to mislead voters, coddle the financial markets, and tamp down expensive cost-of-living increases for wages and pensions?" Yes, yes, yes...
Guambat reckons things are none too rosy, but, really, how woe can you go?

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