The most important change happening lately is invisible. Have you noticed it? The dismal "new normal" is becoming "normal". Even as things get crazier, complacency is setting in, at least in the obedient media. Only a few bloggers still talk about the millions of long-term unemployed. You won't hear about them on National Public Radio anymore. Do you remember the 99ers?
More bad news on the economic front? Who cares? We already know the "recovery" will take years to achieve. Housing still looking for the bottom? No surprise there. Food and energy inflation out of control? $4 gasoline? Nothing to see there folks, move on. Now we see more stories about Obama's poll numbers, as if they matter. Or Donald Trump. For an entire week, the only thing people talked about was the killing of Osama bin Laden. The change is subtle, but it's definitely there.
This shift is just the latest manifestation of The Empire And The Boiling Frog.
Why does the boiling frog story apply to people if not to actual frogs? The answer is simple. Human beings are built to adapt to new conditions. Generally speaking, they don't notice gradual change, they simply get used to it. People were designed by Nature to react quickly to sudden changes. They were not designed to notice that this year, and for many years before that, conditions got a little worse than they were the year before. Humans live in an eternal present. This observation is well-known to those who study such things...
About the only thing we can do now is to point out that conditions continue to worsen, even if the media messages we receive take the "new normal" for granted. I chose some recent stories to illustrate our decay.
1. Perfect Trading Quarters
Bloomberg reported that JPMorgan Joined Bank of America in Perfect Record for First-Quarter Trading.
JPMorgan Chase & Co. (JPM), the second- largest U.S. bank by assets, joined Bank of America Corp. (BAC) in reporting a perfect trading period in the first quarter.
JPMorgan’s revenue linked to market risk was higher than $160 million on seven of the period’s 64 trading days, the New York-based lender said today in a filing with the U.S. Securities and Exchange Commission. The average daily revenue was $112 million, according to the filing.
The firm, led by Chairman and Chief Executive Officer Jaime Dimon, 55, had $6.64 billion in sales and trading revenue in the first quarter, second only to Goldman Sachs Group Inc. (GS) among the biggest U.S. banks. JPMorgan posted perfect trading periods in three of four quarters last year...
Last year, the bank had eight days of trading losses, a feat that Jes Staley, 54, CEO of the investment bank, said in February he didn’t expect to repeat. Including other market- related risks, the bank had 13 days of losses in 2010, according to its annual report...
Bank of America’s trading-related revenue was positive every day and exceeded $25 million on 98 percent of days during the year’s first three months, according to a filing yesterday by the Charlotte, North Carolina-based firm. In 2010, it had gains on 90 percent of trading days, with perfect records in that year’s first and third quarters, according to previous filings.
Ho-hum. It's been 11 years since Glass-Steagall was repealed, so banking and trading activities are no longer separated in commercial banks. (All banks are commercial banks now, including those which are too-big-to-fail, because they had to be to get TARP funds.) Thus the banks have become gambling houses, and let's face it, the markets are rigged in their favor. If you were (or are) in the stock market or trading commodities, did you ever have a perfect trading quarter? Of course, not! The markets weren't rigged in a way that would allow you to make $112 million every day, day after day, month after month. It's a wonder they ever have a losing day.
How do we know the market is rigged? Well, JPMorgan posted perfect trading records in three of the four quarters in 2010. If the playing field were level, what do you think the odds against this happening would be? Millions to one against? Billions to one against? Bloomberg treated this story as if it were perfectly normal. And it is! The banks have a license to steal. Everybody knows this, everybody just shrugs. What can be done?
2. Oil Bounces Back
After the phony oil price fell over $10/barrel in a single trading day, which proved beyond any doubt that the price of oil is indeed phony, Americans hoped they might see some respite at the gas station. Their hopes were dashed on Monday, when traders re-inflated the price by $5.37/barrel. The Wall Street Journal reported on the development.
NEW YORK (Dow Jones)--Oil futures clawed back some of the ground lost last week, pulled higher after heavy flooding and problems at a Mississippi refinery triggered a surge in gasoline prices. The rally erases a sizable portion of last week's decline and raises the likelihood that U.S. drivers will soon be paying an average $4 a gallon at the pump.
"Is $4 a gallon still out of the question? I don't know, but not if we have a couple more days like this," said Brian Milne, refined fuels editor for Telvent DTN.
Light, sweet crude for June delivery settled up $5.37, or 5.5%, to $102.55 a barrel on the New York Mercantile Exchange. Brent crude on the ICE futures exchange settled up $6.77, or 6.2%, to $115.90 a barrel.
It didn't take much to lure buyers back into the oil market, after prices had plunged 15% last week to their lowest point since mid-March. Traders were convinced the worst of the declines were over, believing enough demand still exists for oil priced above $100 a barrel. Gasoline futures saw an even bigger jump. Front-month reformulated gasoline blendstock, or RBOB, soared 18.83 cents, or 6.1%, to settle at $3.2784 a gallon.
The contract was lifted by concerns about reduced refinery production along the Mississippi River, where severe flooding is slowing barge traffic and sending the price of gasoline for delivery in the Midwest soaring.
The rally likely scuttles hopes that consumers would get a reprieve from high gasoline prices ahead of the summer driving season. The average U.S. price of a gallon of regular gasoline Monday was $3.96, down from $3.98 Friday, according to the auto club AAA. Prices looked set to drop at the end of last week, once refiners passed along savings from cheaper oil prices to consumers. But Monday's rally likely means that $4 gasoline nationwide--a level already breached in many parts of the country--is just around the corner.
Last week's decline was ignited by a series of disappointing economic readings for the U.S., the world's largest crude consumer. Much of the selling snowballed after crude prices tumbled through a series of "support levels" Thursday, used by investors as triggers for automatic orders to sell.
Automatic orders to sell. Or buy. If you believe $4 gasoline is a certainty because of flooding on the Mississippi, I've got a bridge in Brooklyn you might be interested in purchasing. I've also got some swampland acreage in Florida which is very attractive... These outrageous movements in the oil price—down $10 one day, up $5 the next—are taken for granted now. These movements are completely disconnected from the actual amount of oil available for consumption. U.S. oil stocks are now at the top of their average 5-year range. But Americans have already reconciled themselves to $4 gasoline, so few will complain. Fewer still will call for raising margin requirements in the futures pits and imposing position limits on the big traders.
According to the Wall Street Journal's Class of 2011, Most Indebted Ever, the average college student is graduating with debt of almost $23,000.
The Class of 2011 will graduate this spring from America’s colleges and universities with a dubious distinction: the most indebted ever.
Even as the average U.S. household pares down its debts, the new degree-holders who represent the country’s best hope for future prosperity are headed in the opposite direction. With tuition rising at an annual rate of about 5% and cash-strapped parents less able to help, the mean student-debt burden at graduation will reach nearly $18,000 this year, estimates Mark Kantrowitz, publisher of student-aid websites Fastweb.com and FinAid.org. Together with loans parents take on to finance their children’s college educations — loans that the students often pay themselves – the estimate comes to about $22,900. That’s 8% more than last year and, in inflation-adjusted terms, 47% more than a decade ago.
I most recently wrote about this in The College Degree Scam Goes Ballistic. These college tuition and student debt levels are outrageous but does anyone call for investigations into why college has become unaffordable? Why tuitions are going up 5% per year? Of course, not! In fact, the New York Fed's 1st quarter report on Household Debt and Credit was just released, and it shows that the household debt mountain, including rising student debt, is no longer shrinking.
The Federal Reserve Bank of New York released the Quarterly Household Debt and Credit Report for the first quarter of 2011 today, which showed signs of healing in the consumer credit markets...
Non-housing related debt, including credit cards, student loans, and auto loans, declined slightly (less than 1%), driven by a noticeable 4.6% decline in credit card balances. Credit inquiries, an indicator of consumer demand for new credit, came off their recent peak in the fourth quarter of 2010.
“We are beginning to see signs of credit markets healing gradually and evidence of greater willingness of consumers to borrow and banks to lend,” said Andrew Haughwout, vice president and New York Fed research economist.
If non-housing related debt declined only slightly, with credit card debt declining 4.6% but student debt skyrocketing, is that a sign of healing in the consumer credit markets? Apparently so, at least according the New York Federal Reserve. I would have thought that healing would involve getting out of debt, not accumulating new debt. Apparently, many young people (and some not-so-young people) have decided it's a better bet to go into onerous debt trying to get a college degree than it is to continue their futile quest for a job. There's your greater willingness of "consumers" to borrow. Welcome to the "new normal".
4. Punishing Savers
Last month the New York Times ran a "debate" article The Sorry Lot of the Risk-Averse Saver. The text says it all.
The Federal Reserve's policy of keeping interest rates at rock bottom is meant to stimulate the economy and encourage people to invest and borrow. But as a recent Wall Street Journal article notes, it also means that people who simply want to save money -- especially those who are older or those who cannot manage the complexities of a financial portfolio -- continue to be caught in a bind.
They either lose ground, because interest rate returns are low while food and energy costs are going up, or they have to consider making investments that are relatively risky and require longer term commitment.
What does this mean for the financial security of cautious small savers? If they are going to lose ground, what incentive do they have to save in the first place?
What does this mean for the financial security of cautious small savers? As a cautious small saver, I can tell you what it means. It means I'm screwed! The Fed wants grandma to play the stock market. Or buy some commodities. The worst part is that the ZIRP (zero interest rate policy) is not only not stimulating the economy, it's making economic conditions worse through the phony oil price and other atrocities. See my post An Enemy Of The People. But this, too, is part of the "new normal".
There are signs of outrageous decay everywhere you look, but predictably, all of this decay is becoming accepted as necessary to get the economy humming again, or simply accepted as the new status quo. Thus does the Empire's now rapid decline become ingrained. Americans are becoming habituated to conditions that would have been considered outrageous only five years ago, or even two years ago. Unfortunately, this is the normal course of human events. What could stem this decay, especially if people don't notice it anymore?