Economic Recovery, or Heading for Another Crash?

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I keep hearing we are in a recovery, but I keep getting a nagging feeling that something big is in the wind. The hair on the back of my neck went up when I saw Insiders Are Selling Like It's 1999 (NYT, 5/23/04). In my opinion, that was the run up to the dot com crash and the "profit taking" that brought on the last (current) depression (called by Bushites a recession). It is important that these "insiders" are corporate executives (and others) who are "locking in" recent gains. Those gains have been significant.

According to an economic snapshot released by the Economic Policy Institute on May 27, 2004, the "recovery" is expectedly unbalanced.

The imbalance is dramatic. Corporate profits for the last 8 recoveries was 13.9% with labor getting about 9.9%. Now three years into the "recovery," corporate profits are at 62.2%, labor at 2.8%, and private wages are negative .6 percent. Does the wave of recent insider trading reflect a concern on the part of insiders that a recovery without wage or employment growth is a bubble about to burst? Perhaps.

On 5/25, Paul Lim published Wall street of worry in U.S. News & World Report. He notes:

" But in recent weeks, sentiment on the Street has changed dramatically, and for the worse. Today, investors are acting less like contestants on Fear Factor and more like Tony Soprano, riddled with so many anxieties they've become paralyzed."

...

The big fear now is that the market is looking a lot like it did in the 1970s, when growing uncertainties in the Middle East and a combination of rising oil prices, inflation, and interest rates kept stock prices stuck in a rut that lasted more than a decade. Back then, it took the Dow about 15 years to work its way permanently past 1000. Could history be repeating itself as the index tries so hard to push past 10,000?"

He goes on to add to the list of "worries" with: "a US induced civil war in the Middle East", the possible "cooling" of China's economy. He quotes James Stack, editor of the InvesTech Market Analyst newsletter. "The geopolitical and economic environments are throwing almost every conceivable worry at the investor."

And then there is another thing these big profit takers may be aware of the relationship between black ops and the housing market. You see, according to Catherine Austin Fitts (who worked on Wall Street and then went on to be Assistant Secretary of Housing in 1989 and has gone on the expose the inner workings of finance) the government mortgage insurance and housing programs are used to finance black ops at the DoD. This is why the GAO keeps coming up with unaccounted for multi-trillions of dollars in the Pentagon budget ( America's Black Budget & the Manipulation of Mortgage & Financial Markets). So she sees the bubble busting and discusses it thusly:

I think there are two scenarios. One is the bust, which is this thing keeps going as long as it can be financed by the U.S. governmental apparatus, and at some point, you know, as the Japanese and everyone else says we’re not buying any more of this, we’re not taking more dollars, the thing busts. And when it busts, what you’re going to have is, it’s going to be 1929 but worse. Because in 1929, there was a lot of social capital in America. It was a much kinder, gentler place I think than it is now. And you had many more people that knew how to grow their own food, or knew how to function. So one scenario is the bust.

The other scenario though Jim is the Orwellian scenario, which is we’ve reached a point, and I’ve written many articles about this, where rather than let financial assets adjust, the powers that be now have the control of the economy through the banking system and through the governmental apparatus, they can simply steal more money, keep financial assets, you know whether it’s the stock market pumped up, the derivatives going, or the gold price manipulated down. And they simply liquidate all living things rather than let the economy go bust. In other words, you can adjust to your economy not by letting the value of the stock market or financial assets fall, but you can use warfare and organized crime to liquidate and steal whatever it is you need to keep the game going. And that’s the kind of Orwellian scenario whereby you can basically keep this thing going, but in a way that leads to a highly totalitarian government and economy … corporate feudalism.

I wrote a couple of articles that tie into this in an interesting way -Freddie Mac Scandal (11/22/03) and a follow-up article, Back to Government Sponsored Enterprizes (11/23/03). You see, the GSEs have been struggling with bad accounting and over-extension as well. That's the typical pattern according to Fitts. It also helps put the "scandal" into perspective.

In another related arena, and a different type of profit-taking, there is a new practice by the credit card companies. They are regularly running credit checks on their card holders. If you miss a payment to someone else - say the electric company - they can jump your rate up to their maximum (29% in most cases). This is a big deal in this time of low credit card rates and debt consolidation onto credit cards. According to a news report I heard the other night, the average credit card rate is around 12%. It is a big deal to have your rate more than doubled. Most card holders think they are safe if they pay their credit card bill on time, but the new practice (apparently perfectly legal) may hit many struggling to make ends meet very hard.

With a war and covert operations (like Copper Green that underlies the growing stories of detainee abuse) the demand for those secret dollars is higher than ever. Low mortgage interests rates have encouraged more people to borrow, but that is contracting as the rates edge upward. Since many went for variable rates, a dramatic increase could lead to massive defaults. All of that decreases the funds available for "diversion," and could move the housing "bubble" a might closer to bursting as well.

So where is the economy heading? From what I'm seeing, it doesn't look like a rosy future for the majority of us. If the big "boys" are cashing in then the rest of us better hold onto our wallets.

Posted by rowan at May 30, 2004 06:09 AM | TrackBack | Printable Version | [eMail this article!] |