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Shockonomics 02-10-09

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  • Robert Sterling
    Please send as far and wide as possible. Thanks, Robert Sterling Editor, The Konformist http://www.konformist.com http://robalini.blogspot.com
    Message 1 of 1 , Feb 10, 2009
      Please send as far and wide as possible.

      Robert Sterling
      Editor, The Konformist


      Is it time to bail out of the US?
      By Paul Craig Roberts
      Online Journal Contributing Writer
      Jan 30, 2009

      California State Controller John Chiang announced on January 26 that
      California's bills exceed its tax revenues and credit line and that
      the state is going to print its own money known as IOUs. The template
      is already designed.

      Instead of receiving their state tax refunds in dollars, California
      residents will receive IOUs. Student aid and payments to the disabled
      and needy will also come in the form of IOUs. California is
      negotiating with banks to get them to accept the IOUs as deposits.

      California is often identified as the world's eighth largest economy,
      and it is broke.

      A person might think that California's plight would introduce some
      realism into Washington, DC, but it has not. President Obama is
      taking steps to intensify the war in Afghanistan and, perhaps, to
      expand it to Pakistan.

      Obama has retained the Republican warmongers in the Pentagon, and the
      US continues to illegally bomb Pakistan and to murder its civilians.
      At the World Economic Forum in Davos this week, Pakistan's prime
      minister, Y. R. Gilani, said that the American attacks on Pakistan
      are counterproductive and done without Pakistan's permission. In an
      interview with CNN, Gilani said, "I want to put on record that we do
      not have any agreement between the government of the United States
      and the government of Pakistan."

      How long before Washington will be printing money?

      On January 28, Obama announced his $825 billion bailout plan. This
      comes on top of President Bush's $700 billion bailout of just a few
      months ago.

      Obama says his plan will be more transparent than Bush's and will do
      more good for the economy.

      As large as the bailouts are -- a total of $1.5 trillion in four
      months -- the amount is small in relation to the reported size of
      troubled assets that are in the tens of trillions of dollars. How do
      we know that by June there won't be another bailout, say $950 billion?

      Where will the money come from?

      Obama's bailout plan, added to the FY 2009 budget deficit he has
      inherited from Bush, opens a gaping expenditure hole of about $3

      Who is going to purchase $3 trillion of US Treasury bonds?

      Not the US consumer. The consumer is out of work and out of money.
      Private sector credit market debt is 174 percent of GDP. The personal
      savings rate is 2 percent. Ten percent of households are in
      foreclosure or arrears. Household debt-service ratio is at an all-
      time high. Household net worth has declined at a record rate. Housing
      inventories are at record highs.

      Not America's foreign creditors. At best, the Chinese, Japanese, and
      Saudis can recycle their trade surpluses with the US into Treasury
      bonds, but the combined surplus does not approach the size of the US
      budget deficit.

      Perhaps another drop in the stock market will drive Americans'
      remaining wealth into "safe" US Treasury bonds.

      If not, there's only the printing press.

      The printing press would turn a deflationary depression into an
      inflationary depression.

      Unemployment combined with rising prices would be a killer.

      Inflation would kill the dollar as well, leaving the US unable to pay
      for its imports.

      All the Obama regime sees is a "credit problem." But the crisis goes
      far beyond banks' bad investments. The United States is busted. Many
      of the state governments are busted. Homeowners are busted. Consumers
      are busted. Jobs are busted. Companies are busted.

      And Obama thinks he has the money to fight wars in Afghanistan and

      Except for the superrich and those banksters and CEOs who stole
      wealth from investors and shareholders, Americans have suffered
      enormous losses in wealth and income.

      The stock market decline has destroyed about 45 percent of their
      IRAs, 401Ks, and other equity investments. On top of this comes the
      decline in home prices, lost jobs and health care, lost customers.
      The realized gains in mutual funds and investment partnerships, on
      which Americans paid taxes, have been wiped out.

      The government should give those taxes back.

      Americans who have seen their retirement savings devastated by
      complicity of government regulators and lawmakers with financial
      gangsters should not have to pay any income tax when they draw on
      their pensions.

      The financial damage inflicted on Americans by their own government
      is as great as would be expected from foreign conquest. While
      Washington "protected" us from terrorists by fighting pointless wars
      abroad, the US economy collapsed.

      How can President Obama even think about fighting wars half way
      around the world while California cannot pay its bills, while
      Americans are being turned out of their homes, while, as Business
      Week reports, retirees will work throughout their retirement (which
      assumes that there will be jobs), while careers are being destroyed
      and stores and factories shuttered?

      Americans are facing tremendous unemployment and hardship. Obama
      doesn't have another dollar to spend on Bush's wars.

      Taxpayers are busted. They cannot stand another day of being milked
      by the military-security complex. The US government is paying private
      mercenaries more by the day than the monthly checks it is providing
      to Social Security retirees.

      This is insanity.

      The banksters robbed us twice. First it was our home and stock
      values. Then the government rewarded the banksters for their misdeeds
      by bailing out the banksters not their victims, and putting the cost
      on the taxpayers' books.

      The government has also robbed the taxpayers of $3 trillion dollars
      to fight its wars. About $600 billion are out of pocket costs, and
      the rest is on the taxpayers' books.

      When foreign creditors look at the debt piled on the taxpayers'
      books, they don't see a good credit risk.

      Washington is so accustomed to ripping off the taxpayers for the
      benefit of special interests that the practice is now in the DNA.
      While bailouts are being piled upon bailouts, wars are being piled
      upon wars.

      Before Obama gets in any deeper, he must ask his economic team where
      the money is coming from. When he finds out, he needs to tell the
      rest of us.

      Paul Craig Roberts was Assistant Secretary of the Treasury during
      President Reagan's first term. He was Associate Editor of the Wall
      Street Journal. He has held numerous academic appointments, including
      the William E. Simon Chair, Center for Strategic and International
      Studies, Georgetown University, and Senior Research Fellow, Hoover
      Institution, Stanford University. He was awarded the Legion of Honor
      by French President Francois Mitterrand. He is the author of Supply-
      Side Revolution : An Insider's Account of Policymaking in Washington;
      Alienation and the Soviet Economy and Meltdown: Inside the Soviet
      Economy, and is the co-author with Lawrence M. Stratton of The
      Tyranny of Good Intentions : How Prosecutors and Bureaucrats Are
      Trampling the Constitution in the Name of Justice.



      Q4 GDP down 3.8 percent, biggest drop since 1982
      Friday January 30, 2009

      WASHINGTON (Reuters) - The economy shrank at its fastest pace in
      nearly 27 years in the fourth quarter, government data showed,
      sinking deeper into recession as consumers and business cut spending.

      The Commerce Department on Friday said gross domestic product, which
      measures total goods and services output within U.S. borders,
      plummeted at a 3.8 percent annual rate, the lowest pace since the
      first quarter of 1982, when output contracted 6.4 percent. GDP fell
      0.5 percent in the third quarter. These were the first consecutive
      declines in GDP since the fourth quarter of 1990 and the first three
      months of 1991.

      Analysts polled by Reuters had forecast GDP contracting 5.4 percent
      in the fourth quarter. The U.S. economy slipped into recession in
      December 2007, driven by the collapse of the housing market and
      resulting global credit crisis.

      For 2008, GDP rose 1.3 percent, the slowest pace of growth since
      2001, when the economy expanded 0.8 percent.

      The advance report from the Commerce Department showed consumer
      spending, which accounts for two-thirds of U.S. economic activity,
      fell 3.5 percent in the fourth quarter after declining 3.8 percent in
      the third quarter, also the first consecutive drops since the last
      quarter of 1990 and the first quarter of 1991.

      Spending on durable goods like cars and furniture plunged 22.4
      percent, the steepest decline since the first quarter of 1987.

      In response to the slump in demand, investment by business slumped
      19.1 percent for the sharpest pull-back since the first quarter of
      1975. Residential investment plummeted 23.6 percent.

      The sharp economic downturn is putting a lid on inflation pressures,
      with the personal consumption expenditures price index plunging a
      record 5.5 percent after rising 5 percent in the third quarter.
      Excluding volatile food and energy items, core prices grew at a muted
      0.6 percent, the slowest rate since the fourth quarter of 1962. Core
      PCE rose 2.4 percent in the third quarter.

      Analysts polled by Reuters had forecast the PCE index falling 5.4

      (Reporting by Lucia Mutikani; Editing by Neil Stempleman)



      Sarkozy Faces His Biggest Protest Yet on French Economic Plan
      By Helene Fouquet

      Jan. 29 (Bloomberg) -- President Nicolas Sarkozy faced the biggest
      public protest since his election in 2007 as more than a million
      people marched across France complaining about his government's
      economic policies.

      The police said 1.1 million people demonstrated, while Confederation
      Generale du Travail, the second-biggest French labor union, put the
      total at 2.5 million. This is the biggest protest since the 2006
      marches against a disputed youth-work law that forced the government
      to scrap it.

      The nation's eight largest unions joined forces in the strike, saying
      Sarkozy's 26 billion-euro ($34.4 billion) economic-stimulus package
      is inadequate. They want the government do more to counter rising
      unemployment and weakening purchasing power as the French economy
      enters its first recession in 16 years.

      "The target is won, thanks to the massive presence of private sector
      workers," Francois Chereque, head of Confederation Francaise
      Democratique du Travail, France's biggest union, said at the end of
      the Paris demonstration, adding that today "is the biggest workers'
      action day in about 20 years," according to his press office.

      The strike resulted in train delays, closed schools and jammed roads
      as more than a million public sector workers and thousands of others
      from companies including France Telecom SA and Renault SA took part
      in the work stoppage.

      Bank of France

      Participation in the strike today ranged from 25 percent at the Bank
      of France to more than 60 percent in primary schools. The Public
      Service Ministry reported that 26 percent of its staff walked out, or
      about 900,000 people. That's more than the 20 percent strikers in
      November 2007.

      "This crisis imposes on the government a duty to listen, to engage in
      dialogue," Sarkozy said in an e-mailed statement in response to the
      day's events. "The concern is legitimate" as citizens "are losing
      their jobs" he said, adding that he plans to meet with labor unions
      and employers next month to discuss reforms planned for 2009.

      The Paris march ended with violence at the Garnier opera square. Riot
      police fired tear gas as protesters burned trash bins. CGT said
      300,000 walked in the capital city and authorities reported 65,000

      While France has a history of street protests, the global financial
      crisis has sparked similar demonstrations and unrest in countries
      from China and Greece to Iceland. France's most disruptive transport
      strike in over a decade in November 2007 cost as much as 400 million
      euros a day, according to finance ministry estimates.

      Popular Support

      About 69 percent of the French people backed the strike, according to
      a poll by CSA-Opinion for newspaper Le Parisien on Jan. 25. Forty-six
      percent support the strike, while 23 percent "sympathize," with the
      union call, Le Parisien said. Of those interviewed, 12 percent were
      opposed or hostile to the strike.

      It's the first time in Sarkozy's presidency that a "social movement"
      has had such public approval, Stephane Rozes, head of CSA-Opinion
      told the daily.

      Ten percent of the flights at Paris's Charles-de-Gaulle airport were
      canceled and third of those at the city's second airport Orly were
      scrapped. In Marseille, Lyon and Toulouse, most public transport was
      canceled. The aviation authority said flight operation will return to
      normal tomorrow.

      Output at French power plants operated by Electricite de France,
      Europe's biggest electricity producer, fell by 14,000 megawatts
      because of strikes, a "record amount," according to the CGT union.

      To contact the reporter on this story: Helene Fouquet in Paris at



      Exxon Mobil sets record with $45.2 billion profit
      Exxon Mobil shatters US record with $45.2 billion annual profit
      despite year-end oil plunge
      John Porretto, AP Energy Writer
      Friday January 30, 2009

      HOUSTON (AP) -- Exxon Mobil Corp. on Friday reported a profit of
      $45.2 billion for 2008, breaking its own record for a U.S. company,
      even as its fourth-quarter earnings fell 33 percent from a year ago.

      The previous record for annual profit was $40.6 billion, which the
      world's largest publicly traded oil company set in 2007.

      The extraordinary full-year profit wasn't a surprise given crude's
      triple-digit price for much of 2008, peaking near an unheard of $150
      a barrel in July. Since then, however, prices have fallen roughly 70
      percent amid a deepening global economic crisis.

      In the fourth quarter alone crude tumbled 60 percent, prompting
      spending and job cuts in an industry that was reporting robust, often
      record, profits as recently as last summer.

      With piles of cash and diversified operations, the majors like Exxon
      Mobil have fared better than many smaller oil and gas companies, but
      Friday's results show no one is completely insulated from the ongoing

      Irving, Texas-based Exxon said net income slid sharply to $7.8
      billion, or $1.55 a share, in the October-December period. That
      compared to $11.7 billion, or $2.13 a share, in the same period a
      year ago, when Exxon set a U.S. record for quarterly profit. It has
      since topped that mark twice, first in last year's second quarter and
      then with earnings of $14.83 billion in the third quarter.

      Revenue in the most-recent quarter fell 27 percent to $84.7 billion.

      On average, analysts expected the company to earn $1.45 per share in
      the latest quarter on revenue of $69.1 billion.

      Shares rose $1.14 to $78.14 in premarket trading.



      Roubini Sees Global Gloom After Davos Vindication
      By Simon Kennedy

      Jan. 30 (Bloomberg) -- At the World Economic Forum two years ago,
      Nouriel Roubini warned that record profits and bonuses were obscuring
      a "hard landing" to come. "I really disagree," countered Jacob
      Frenkel, the American International Group Inc. vice chairman and
      former Israeli central banker.

      No more. "Roubini was intellectually courageous, and he called the
      shots correctly," says Frenkel, whose AIG survives only on the basis
      of more than $100 billion of government loans. "He gained
      credibility, and he deserves it."

      This week, New York University's Roubini returned to the WEF and the
      Swiss ski resort of Davos as the prophet of the worst economic and
      financial crisis since the Great Depression - - joining the ranks of
      previous "Dr. Dooms" who made their names through contrarian calls
      that proved correct.

      Even as he wins plaudits for his prescience, Roubini, 50, says worse
      lies ahead. Banks face bigger credit losses than they realize, more
      financial companies will require state takeovers and the world
      economy will keep shrinking throughout 2009, he says.

      "The consensus is catching up with me, but it's still behind,"
      Roubini said in an interview in Davos. "I don't know what some people
      are smoking."


      As long ago as February 2007, Roubini was writing on his blog
      that "the party will soon be over," and warning of "painful
      consequences for the U.S. and the global economy." By last February,
      his tone had become apocalyptic, raising the specter of
      a "catastrophic" meltdown that central banks would fail to prevent,
      triggering the bankruptcy of large banks with mortgage holdings and
      a "sharp drop" in equities.

      The next month, Bear Stearns Cos. failed, to be taken over by
      JPMorgan Chase & Co. in a government-backed deal. Then, in September,
      Lehman Brothers Holdings Inc. went bankrupt, prompting banks to hoard
      cash and depriving businesses and households of access to capital.
      The U.S. took over AIG, Fannie Mae and Freddie Mac, and the Standard
      & Poor's 500 Index suffered its worst year since 1937.

      "I was intellectually vindicated," Roubini says. "But I was
      vindicated by having an economic disaster which has political and
      social consequences."


      Roubini's predecessors in the role of economic nay-sayer include some
      well-known names: Joseph Granville, publisher of the Granville Market
      Letter, who forecast the stock-market declines of 1976 and 2000;
      Henry Kaufman, who as a managing director at Salomon Brothers
      projected rising interest rates that led to a U.S. recession in the
      early 1980s; Marc Faber, publisher of the Gloom, Boom & Doom Report,
      who predicted the 1987 stock crash; and Yale University's Robert
      Shiller, a former colleague of Roubini's, who forecast the end of the
      dot-com bubble in his 2000 book "Irrational Exuberance" and said in a
      second edition in 2005 that the U.S. housing market had undergone the
      biggest speculative boom in U.S. history.

      Granville, 85, says the key to being an outlier is not to doubt your

      "I don't have anything to do with emotion," says Granville, who's
      based in Kansas City. "Keep your head, follow the numbers and ignore
      the rest."

      Roubini was born in Istanbul, the son of an importer- exporter of
      carpets, and spent his childhood in Israel, Iran and Italy. It was
      while living in Milan from 1962 to 1982, he says, that he became
      attracted to economics: "Economics had the tools to understand the
      world, and not just understand it but also change it for the better."

      International Economics

      After a year at the Hebrew University of Jerusalem, he earned an
      economics degree at Milan's Universita' L. Bocconi and then his Ph.D.
      at Harvard University in 1988, where he specialized in international

      Jeffrey Sachs, he says, became his "role model" at Harvard by
      demonstrating that economists could shape public policy -- as Sachs
      did by lobbying for poor countries to have their debts relieved by
      richer governments. Sachs is now a professor at Columbia University.

      "You sensed there was something beyond academia, that you have to
      figure out the big issues of the global economy," says Roubini. "You
      have to be engaged, and can't just be in an ivory tower."

      For much of the 1990s, Roubini combined academic research and policy-
      making by teaching at Yale and then in New York, while also spending
      time at the International Monetary Fund, the Federal Reserve, World
      Bank and Bank of Israel.

      Joining Clinton

      By 1998 he had attracted the attention of President Bill Clinton's
      administration, joining it first as a senior economist in the White
      House Council of Economic Advisers and then moving to the Treasury
      department as a senior adviser to Timothy Geithner, then the
      undersecretary for international affairs and now Treasury secretary
      in the Obama administration.

      Roubini returned to the IMF in 2001 as a visiting scholar while it
      battled a financial meltdown in Argentina. He co-wrote a book on
      saving bankrupt economies entitled "Bailouts or Bail- ins?" and
      opened his own global consulting firm, which now employs two dozen
      economists and publishes a popular Web site and blog.

      "Nouriel has a rare combination of economics and the real world, and
      so has great insight because of that," says Shiller. "He looks into
      the details and rolls up his sleeves."

      Roubini says working on emerging-market blowouts in Asia and Latin
      America allowed him to spot the looming disaster in the U.S. "I've
      been studying emerging markets for 20 years, and saw the same signs
      in the U.S. that I saw in them, which was that we were in a massive
      credit bubble," he says.

      Still a Pessimist

      With that bubble now popped, Roubini remains more pessimistic than
      economists elsewhere. The IMF forecasts global growth of 0.5 percent
      this year and bank losses from toxic U.S.- originated assets of $2.2
      trillion. By contrast, Roubini sees the global economy shrinking this
      year, and banks writing down at least $3.6 trillion -- compared to
      the $1.1 trillion disclosed so far.

      While the U.S. government is resisting nationalizing its biggest
      banks, Roubini says it will have no choice because they are
      now "effectively insolvent." And the outcome may be even worse than
      even he anticipates if governments fail to take aggressive steps to
      recapitalize banks and revive their economies, he says: "The risk of
      a near-depression shouldn't be underestimated."

      Roubini, who's now working on a book about the crisis, says he takes
      no particular pleasure in his role as Dr. Doom or the attention it
      brings him.

      "I'm not a permanent bear," he says. "I'll be the first to call a
      recovery, but I just don't see it yet, and it's getting uglier."



      Charts Predict: Oil May Whip Back up to $100
      02 Feb 2009

      Oil prices could bounce back toward $100 a barrel as the huge decline
      over the past twelve months looks set to give back up to half of its
      fall, Robin Griffiths, technical strategist at Cazenove Capital, told

      "After a major fall like that you would expect it to retrace a
      quarter, a third or a half of the previous fall and as that was an
      enormous fall, quite a decent bounce is likely to come," he said.

      Oil has fallen well over $100 a barrel since the high of above $147
      hit in July. If prices were to regain half of their declines, oil
      could be back up in the $90-$100 range, according to Griffiths'

      The "downtrend has now come to an end," he said. "There is in fact a
      well-established seasonality to the oil price and the lows tend to
      form around now," he added.
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