Non-foolish Grab Bag April 1 2012.

Things have been busy at work and relatively slow moving on the global economic front so I’ve refrained from posting for a while.   Here are a few of the stories that I think are worth watching even though they will come as nothing new to anyone following my blog.  Despite the fact that today is April fools day, none of the following are in the least bit funny:

- Spain is the next Greece.  The collapse in Greek sovereign debt was preceded by civil unrest, riots, firebombs etc.  The same thing is now happening in Spain.  The formula is simple: governments get in power and corporations make outsized profits by gaming the fractional reserve credit system so that anyone with a pulse gets credit to buy things they don’t really need.  A lot of this easy money gets pissed away and people get used to having a lot more than they deserve based on the output of their own labor.  Sooner or later the debt Ponzi goes bust and governments try to cut back on the credit excesses in order to save their corrupt system.  But they don’t cut back on themselves, they only cut back on the trickle-down to the people.  As a result the people get angry and threaten the lives of the con men in charge.  Sooner or later the government either has to turn fascist and force the people to back down using military and force or the con men in the corrupt government are run out of town.  The local currency collapses and everyone reverts to an economic state that is supported by their economic contribution.

Spain will default on its debt because it lacks the ability to pay.  All future value comes from the labor of man and general unemployment is about as bad there as it was in the US during the Great Depression (22%).  It’s hard to repay debts without a job.  Unemployment among the younger generation is over 50% now leading some people to declare them “Spain’s lost generation”.  Expect years and years of dissent, rising crime, rising domestic terrorism, etc. from these people.  The culprit is con men and their game of fiat currency and fractional reserve banking.  Every other explanation coming from PhD economen © and academics is just cover fire for the establishment.  There is nothing good about funny money and crony credit.

- China is going to roll over hard.  It’s recently reported that China’s growth for 2012 will only be 3.5%.  China is used to 8 or 9% and so 3.5% is going to feel like a recession to its people.   IMO this is just the tip of the ice berg.  China has been selling its products at cut rate prices to the rest of the world and it has been doing this on credit.  As Euroland (China’s biggest customer) rolls over, how can China not follow?  China also has to unwind a massive housing bubble that makes the US housing bubble pale in comparison.  There is no way to unwind this gracefully.  It’s a catastrophe waiting to unfold.  China will have zero or even negative “growth” in the coming years and its people will take to the streets.

- Mish reports what we already all know: Gasoline prices are hitting record prices in the US.  That oil prices should be skyrocketing in a US recession (and in many places around the globe, a clear depression) is counterintuitive.  Oil usage has collapsed (charts can be found here) yet the price of gasoline has continued to rise.  Money Morning reports that Saudis see the collapse in demand and know that it is happening because of the high prices.  As the old saying goes, the cure for high prices is high prices.  Oil exporters care more about the total revenues they receive each year more than they do about the price per bbl.  Why?  Because the bureaucrats running their show have made all sorts of ridiculous promises to their people based on set revenue levels.  The main purpose of the promises is to buy loyalty so that the elite can stay in power and be wildly rich and important without having done anything special to deserve it.  The fact the oil is a limited resource that they should get best price per bbl for while it lasts is not the current focus.

Mish correctly points out that the reason for high gas prices is simple: gas prices really haven’t gone up; The dollar has gotten diluted with massive money printing by the fed.   This graph from the federal reserve's web site tells the story: an explosion in money was created in order to stop the market from driving the excesses from the credit markets (primarily the housing credit market):

The fed needs to prop up the price of houses so that its corrupt banking system (which, believe it or not, we do NOT need) doesn’t collapse.  Housing is the largest component of their balance sheets.  If housing prices collapse even more then banks will eventually have to mark to market and a whole lotta friends of the fed will be out on the street looking for real work.  The fed is saving itself, not you.  The fed is the cause of high gas prices.  Banks don’t want to loan more money into an already overpriced housing market and so the new money printed by Bernanke has to go elsewhere.  This causes buying pressure in commodities like oil which leads to higher prices.

Of course, the real culprit for high fuel prices is we the people.  We are sitting on our collective a$$es or even applauding jerks like Bernanke out of ignorance and apathy.  As long as we continue to play the part of the willing patsy, expect Bernanke and the fed to make pastsies of us.  Bottom line: if you don’t educate yourself and push back on the federal reserve in every way possible then don’t complain about higher cost of living because this is the policy of the fed in order to pay for the banker bail out.  You didn’t get the bill all at once for that.  Instead, you will be paying for the rest of your life each time you consume anything.  In short, I have seen the enemy and it is We The People.  By the way, this is not “America Hating”.  It is simply the plain truth without any fake political correctness or sugar coating.  Get used to it.

- The Atlantic magazine jumps the shark by proclaiming Bernanke a “Hero”.  Of course, the truth is that Bernanke is either a con man or a child: he either knows that money-printing is a short term stop gap that will bail out banks and moneymen at the expense of the working class or he actually believes his own bull$hit.  I personally think he knows better but he gets paid a lot of money to act like he doesn’t.  I guarantee you that some day he will hang his head, having failed miserably just like Greenspan did, to turn massive debt into growth.  This age old desire to obtain something from nothing didn’t work for alchemists of old and it won’t work now, no matter how many patsies must get fleeced learning the lesson.

I predict that the Eurozone will eventually collapse and that Bernanke will need to print even more money in order to bail them out because we are all in this economic con game together.  Just like Germany is throwing money at Greece, Spain and the rest of the PIIGS in order to keep their debts from defaulting, the US will keep throwing money at the rest of the world in order to save our monopoly on printing monopoly money.  If (when) the world finally turns away from the US dollar as the global reserve currency, the negative effects on US prosperity will be severe.  The lifestyle which we all take for granted here will have to change.  There will be smaller cars, smaller roads, less choices in the market place and frequent shortages of everything.  Americans find this impossible to grasp right now but it is coming.  The math and the nature of the currency con both demand it.