Decline of the Empire

Tax Breaks For The Oil Industry? Who Cares?

I received two comments on yesterday's Saturday Oil Report which deserve a response. Both comments pertained to the tax breaks the oil industry receives. For as long as I can remember, Democrats—liberals, those on the left, progressives—have complained about the massive profits the majors (e.g. ExxonMobil, Chevron, etc.) accrue when oil prices are high. There's little doubt that high oil prices constitute a gift to these producers. Bloomberg reported on the lastest failed attempt to repeal the tax breaks.

The U.S. oil and gas industry survived an effort to repeal $21 billion in tax breaks over 10 years as three Democrats broke with Senate leaders who said the revenue should go to reduce the federal deficit...

Democrats said the oil companies can afford to give up the tax benefits after their combined first-quarter profits exceeded $30 billion. Senate Majority Leader Harry Reid said he would work to revive the measure in budget talks with Republicans, who are trying to cut more than $6 trillion in spending.

“Instead of defending oil companies, Republicans should be defending the American taxpayer,” Reid of Nevada said before the vote.

The Republicans—conservatives, those on the right, regressives—always assume there is a relationship between tax breaks and oil production. They had a different idea.

A Republican-backed measure that would increase offshore production and expedite permits faces a vote today in the Senate. The legislation mirrors bills passed by the Republican- led U.S. House this month to speed Interior Department rulings on oil-drilling permits. Without action after 60 days, the application would be deemed approved.

A provision also would require lease sales in the Gulf of Mexico and off the coasts of Virginia and Alaska.

OK, let's get back to basics. What is the relationship between either of these proposals, and domestic oil production over the next 10 years? There is no relationship. None. Zero, zip, nada. What is the relationship between either of these proposals and current high oil prices, or future high oil prices? There is no relationship. None. Zero, zip, nada.

Taking $2.1 billion a year from the oil industry over the next 10 years will certainly not raise our oil production, nor will it decrease it. And in the grand scheme of things, $21 billion (21,000,000,000) amounts to nothing, it's pocket change for a government that runs annual deficits in the $1.5 trillion range (1,500,000,000,000). 

Opening up additional offshore areas for drilling, even if some operators strike commercial oil, will not put any additional oil on the market until 2021, at least according to every EIA report I've ever read. See my posts Talking About Oil — Complaceny, Panic And Ignorance, and Where Is U.S Oil Production Going?

Imposing heavier taxes on the oil industry is a distraction, a sideshow in the Big Energy War we are losing. In the 6 years I've been analyzing and commenting on the oil markets, the "debate" between Democrats and Republicans has not changed one iota. Our politics is a circus, a sorry spectacle. It is not an energy policy. Consider this nonsense—

Senator Claire McCaskill, a Missouri Democrat, said oil companies shouldn’t get tax breaks given their profits and the size of the federal deficit.

“Maybe we shouldn’t pick on big oil, but what a great place to start,” she said during debate...

The Senate was “right to reject this bill,” which would hurt consumers, said Bruce Josten, executive vice president for government affairs at the U.S. Chamber of Commerce, the nation’s largest business lobby.

Yes, it's a great place to start if you want to score political points, but it's wholly irrelevant to the inexorable economic forces destroying our standards of living, including future oil scarcity. The bill is wholly irrelevant to the ultimate fate of American "consumers".

Caveat emptor—partisan politics makes you stupid. You can start thinking outside the box, or you can continue to live inside the illusion created by our politicians, our media and the corporate special interests who own them. The choice is yours.

Remedy du Jour -- May 21, 2011

Just jazz today, good music made by real people living outside The Matrix. Definitely not Lady Gaga, Justin Bieber or Katy Perry.

Robert Glasper — FTB
Diana Krall — Cry Me A River
Hendrik Meurkins — Bolero Para Paquito
Pat Metheny and Lyle Mays (used on the Fandango soundtrack) — It's For You

 

 

 

 

Saturday Oil Report -- May 21, 2011

The Nymex oil price has calmed down a bit in the last week, and now stands at $100.10/barrel.  Mysteriously, that's about 3 bucks higher than it was 2 weeks ago. After flirting with $4/gallon, the national average for regular unleaded is $3.867 according to AAA Fuel Gauge. I'm leaving the alarm level where it was.

Oil Alarm Level — Orange

Let's focus on demand prospects going forward. U.S. gasoline demand had been above the 2010 level, but high prices have disrupted the normal rise in May. Demand is now well below its 2010 level according to the EIA's most recent This Week In Petroleum report. U.S crude stocks are above their 5-year average as we move toward the Memorial Day weekend, which kicks off the summer "driving season." I expect this year's summer travel will be more subdued than in previous years.

What about global demand for oil? Many prognosticators are calling for a slowdown or crash in the world economy in the late summer/early fall. What might cause downward pressure on demand and price?

• We continue to get bad reports out of China. Many of us think their economy is now a house of cards, and are waiting for the crash. If it occurs this year, oil demand and price would plummet, and perhaps not recover for years to come. But who knows? The Chinese have been able to keep this 4 pins-in-the-air juggling act going longer than many of us expected.
• "The world is headed for an economic slowdown, according to the Economic Cycle Research Institute's (ECRI) Long Leading Index of global industrial growth."
• Predictions of a 2008-like event in the fall of 2011 are now common. The supposed crash will follow the end of the Fed's QE2. I myself don't believe another crash is coming, as least this year, but who knows? There could be vulnerabilities in the world's financial markets I know nothing about. Nobody has been able to say exactly what these are, outside of asserting that the dollar will collapse, and there is no obvious trigger as there was in 2008 (the American housing market). But see China.
• It is hard to believe that the Eurozone's oil consumption (about 14-15 million barrels-per-day) has not been affected and will not be affected by the continuing debt crisis. Europe looks like another house of cards.
• Last but not least, continued high oil prices must surely be pushing down global oil demand. The IEA is now completely confused.

  The IEA, the energy monitoring and strategy arm of the developed economies, said higher oil prices were "affecting the economic recovery by widening global imbalances, reducing household and business income, and placing upward pressure on inflation and interest rates."

  The IEA governing board said: "As global demand for oil increases seasonally from May to August, there is a clear, urgent need for additional supplies ... to prevent a further tightening of the market."

  So which is it? How can high oil prices be affecting the recovery on the one hand, while demand is projected to increase on the other? I expect high oil prices to contribute to ECRI's "slowdown" in the latter part of the year, starting this summer.

Whether there is a global slowdown or recession, I believe oil prices have probably topped out in 2011, absent another supply shock. The Nymex price got up to $113, and I doubt we'll see that level again this year. What will the price be in 2 weeks? I think Nymex crude will be selling for about $97/barrel, but this forecast depends on a number of short-run factors (e.g. how the dollar fares) that are impossible to predict.

The People Versus Goldman Sachs

Apparently, Rolling Stone's Matt Taibbi will not rest until some Goldman Sachs executives are behind bars. He will not rest until the tarnished company's reputation lies in tatters on the floor. These goals are admirable. Give Taibbi an 'A' for effort. Unfortunately, these noble goals, as much as we might hope for their fulfillment, are unachievable.

Taibbi's latest indictment, The People Vs. Goldman Sachs, lays out the case for the prosecution, which comes from the 650-page report of Senator Carl Levin's Senate Subcomittee on Investigations.

The great and powerful Oz of Wall Street was not the only target of Wall Street and the Financial Crisis: Anatomy of a Financial Collapse, the 650-page report just released by the Senate Subcommittee on Investigations, chaired by Democrat Carl Levin of Michigan, alongside Republican Tom Coburn of Oklahoma. Their unusually scathing bipartisan report also includes case studies of Washington Mutual and Deutsche Bank, providing a panoramic portrait of a bubble era that produced the most destructive crime spree in our history — "a million fraud cases a year" is how one former regulator puts it.

But the mountain of evidence collected against Goldman by Levin's small, 15-desk office of investigators — details of gross, baldfaced fraud delivered up in such quantities as to almost serve as a kind of sarcastic challenge to the curiously impassive Justice Department — stands as the most important symbol of Wall Street's aristocratic impunity and prosecutorial immunity produced since the crash of 2008.

Goldman CEO Lloyd Blankfein testifies before the Senate. Unfortunately, it is unlikely that Lloyd will end up in jail, and even if through some cosmic accident he should see some jail-time, he would no doubt serve his time in a country club. Thus, tragically, it is unlikely that anyone will be butt-fucking Lloyd anytime soon.

... Goldman, as the Levin report makes clear, remains an ascendant company precisely because it used its canny perception of an upcoming disaster (one which it helped create, incidentally) as an opportunity to enrich itself, not only at the expense of clients but ultimately, through the bailouts and the collateral damage of the wrecked economy, at the expense of society. The bank seemed to count on the unwillingness or inability of federal regulators to stop them — and when called to Washington last year to explain their behavior, Goldman executives brazenly misled Congress, apparently confident that their perjury would carry no serious consequences.

Thus, while much of the Levin report describes past history, the Goldman section describes an ongoing? crime — a powerful, well-connected firm, with the ear of the president and the Treasury, that appears to have conquered the entire regulatory structure and stands now on the precipice of officially getting away with one of the biggest financial crimes in history.

Unfortunately, Taibbi must admit that lack of past prosecutions does not bode well for the future.

To date, there has been only one successful prosecution of a financial big fish from the mortgage bubble, and that was Lee Farkas, a Florida lender who was just convicted on a smorgasbord of fraud charges and now faces life in prison. But Farkas, sadly, is just an exception proving the rule...

And then Matt goes on to explain that Lee Farkas is not a Big Fish, he is a Small Fish. But the more fundamental problem was described by Michael Lewis, whom I quoted a long time ago in Why I stopped Reading Baseline Scenario. There is a good reason why the bank seemed to count on the unwillingness or inability of federal regulators to stop them. This next quote is from Lewis' Bloomberg commentary Bashing Goldman Sachs Is Simply a Game for Fools, which is written from the point of view of a Goldman insider.

Today, the sheer volume of irresponsible media commentary has forced us [at Goldman] to reconsider our public-relations strategy. With every uptick in our share price it’s grown clearer that we who are inside Goldman Sachs must open a dialogue with you who are not. Not for our benefit, but for yours.

America stands at a crossroads, and Goldman Sachs now owns both of them. In choosing which road to take, ordinary Americans must not be distracted by unproductive resentment toward the toll-takers. To that end we at Goldman Sachs would like to dispel several false and insidious rumors.

Rumor No. 1: “Goldman Sachs controls the U.S. government

Every time we hear the phrase “the United States of Goldman Sachs” we shake our heads in wonder. Every ninth-grader knows that the U.S. government consists of three branches. Goldman owns just one of these outright; the second we simply rent, and the third we have no interest in at all. (Note there isn’t a single former Goldman employee on the Supreme Court.)

Here's a video of the Daily Ticker's Henry Blodget and Aaron Task interviewing Taibbi about his latest effort to kill the Giant Vampire Squid.

Good luck, Matt!

 

So, How's That College Degree Working Out For You?

I have documented how our corrupt society eats its own young, most recently in The College Degree Scam Goes Ballistic. I'm not going to rehash that material today, but the New York Times just added fuel to the fire in Many With New College Degree Find the Job Market Humbling.

The individual stories are familiar. The chemistry major tending bar. The classics major answering phones. The Italian studies major sweeping aisles at Wal-Mart...

Employment rates for new college graduates have fallen sharply in the last two years, as have starting salaries for those who can find work.

What’s more, only half of the jobs landed by these new graduates even require a college degree, reviving debates about whether higher education is “worth it” after all.

“I have friends with the same degree as me, from a worse school, but because of who they knew or when they happened to graduate, they’re in much better jobs,” said Kyle Bishop, 23, a 2009 graduate of the University of Pittsburgh who has spent the last two years waiting tables, delivering beer, working at a bookstore and entering data. “It’s more about luck than anything else.”

The median starting salary for students graduating from four-year colleges in 2009 and 2010 was $27,000, down from $30,000 for those who entered the work force in 2006 to 2008, according to a study released on Wednesday by the John J. Heldrich Center for Workforce Development at Rutgers University. That is a decline of 10 percent, even before taking inflation into account.

Of course, these are the lucky ones — the graduates who found a job. Among the members of the class of 2010, just 56 percent had held at least one job by this spring, when the survey was conducted. That compares with 90 percent of graduates from the classes of 2006 and 2007. (Some have gone for further education or opted out of the labor force, while many are still pounding the pavement.)

Ah, Kyle Bishop has used the magic word—Luck. Whether it's your personal connections, birth circumstances, the advantages (or not) of your upbringing, the workings of blind, dumb chance, it's now luck that makes the magic happen (or not) for young college graduates trying to make their way in the world. And the reason is simple: good jobs are scarce, not just for the young, but for everybody.

It doesn't help that the 19th century Horatio Alger mythology—upward mobility for everybody and for the lucky few, rags to riches!—has less to do with reality than ever before. Mobility mostly comes in two flavors now—downward or none at all.

The data (left) is compelling, but the real-life stories tell the tragic tale. The Times tells us that Pitt graduate Kyle Bishop, who has been working every part-time job he can find to make ends meet, also has some student debt to worry about. "Mr. Bishop, the Pittsburgh graduate, said he is 'terrified' of the effects his starter jobs might have on his ultimate career, which he hopes to be in publishing or writing. 'It looks bad to have all these short-term jobs on your résumé, but you do have to pay the bills,' he said, adding that right now his student loan debt was over $70,000."

Terrified. We've got our second magic word of the day. Kinda goes together with Luck, doesn't it? Making your way in America does not usually depend on merit. This is not a meritocracy. Still, there are all sorts of ways to get lucky. Surely some of our young people are sociopaths. A fortunate few can take the fast track to "success" by majoring in business & finance, and getting an entry level position doing trades at Goldman Sachs or Bank of America ... but I digress.

Of course, if you don't have that very expensive college degree, and you're not up-to-your-eyeballs in debt, and you couldn't get that job in "food service" or behind the counter at 7-Eleven because they gave it to some college kid, there are plenty of other reasons to be terrified.

An analysis by The New York Times of Labor Department data about college graduates aged 25 to 34 found that the number of these workers employed in food service, restaurants and bars had risen 17 percent in 2009 from 2008, though the sample size was small. There were similar or bigger employment increases at gas stations and fuel dealers, food and alcohol stores, and taxi and limousine services.

This may be a waste of a college degree, but it also displaces the less-educated workers who would normally take these jobs.

“The less schooling you had, the more likely you were to get thrown out of the labor market altogether,” said Mr. Sum, noting that unemployment rates for high school graduates and dropouts are always much higher than those for college graduates. “There is complete displacement all the way down.”

Is there any hope here? Any hope at all? I doubt it, but then again, nobody calls me Mr. Sunshine. I'm not renowned for my upbeat, cheerful, encouraging view of the possibilities inherent in American life. So if you're an Old Gal or Guy like me, the next time you see a young person, fresh out of college, bright-eyed and bushy-tailed—you know, the one who just served you that beer—look them square in the eye and ask them

So, how's that college degree workin' out for ya?

America! God shed His grace on thee, and crown thy good with brotherhood, from sea to shining sea.

Michael Spence — Clueless Economist Of The Year?

You can not win a Nobel Prize in economics unless you are deeply deluded about humankind's future on the Planet Earth. Michael Spence of NYU's Stern School is no exception. Spence has a new book out, and is selling it on the obligatory promotional tour. Thus the Daily Ticker's Dan Gross and Aaron Task interviewed Spence yesterday in Why Globalization Is Good for America.

The rise of emerging markets, most notably the 'BRICs', is seen by most as a relatively recent phenomenon dating back only two decades or so. In reality, rapid growth in the developing world is part of a 100-year process that is only halfway done, says Nobel Prize winner Michael Spence, author of The Next Convergence: The Future of Economic Growth in a Multispeed World...

Starting with post-war Japan, continuing with South Korea and then moving onto Singapore, Hong Kong, etc. Asian countries have been steadily modernizing and raising their standard of living for the last 50 years, says Spence, a professor at NYU Stern School of Business...

Fostering the human capital in these countries has allowed them to create the infrastructure, technology and education systems needed for economic expansion. Spence says these principles which started with Japan and are now catching on in more Asian nations, most notably in India, South America and even Africa and will continue to do so for the next 50 years or so.

What does this mean for America?

In its simplest form, "We're looking at people joining us in the advanced country world," which Spence believes translates into a different but positive economic future for America. "We have to get used to not being dominate anymore" but overall the globalization tide will lift all boats and perhaps lift America's the most.

What has made America dominant — a "flexible, innovative" economy — will continue to benefit it in the future, he says.

Some views of the world that are so nonsensical, so divorced from reality, that I can not easily refute them. The task seems too large. Where does one start? If you're dealing with a schizophrenic in a psych ward, and this guy believes he is Jesus, do you start re-assembling reality brick by brick, all the while explaining to this poor nut case what the world looks like? No! You shoot him up with thorazine and check back on him later. That's how I view Michael Spence's learned opinion that the globalization tide will lift all boats, and perhaps lift America's the most.

What makes this all the more poignant is that Gross and Task did two interviews with Spence, and in the second one he explains why globalization is not good for America, although he does not put it that way. This second interview was called Nobel Laureate Spence: U.S. May Have to Live with Slow Employment Growth.

"Major employment problems in the near future are a near certainty."

That's one of the conclusions of a March report co-authored by Nobel-Prize winning economist Michael Spence...

A study [Spence] conducted for the Council on Foreign Relations with co-author Sandile Hlatshwayo, entitled "The Evolving Structure of the American Economy and the Employment Challenge", paints a pretty bleak picture. It broke down jobs in the U.S. into two very large sectors: tradable and non-tradable.

Tradable jobs are ones that can be done by anyone around the world: manufacturing, back-office operations, pharmaceuticals, engineering, finance, consulting. Non-tradable jobs are those that really can only be done by people in the U.S., such as retail, health care, food service, government, and construction.

Looking back on the period from 1990 to 2008, the co-authors found that 97 percent of the 27.3 million U.S. jobs created were in the non-tradable sector. (The five largest non-tradable sectors, mentioned above, contributed 65 percent of the 1990-2008 jobs growth.) "The employment creation occurred mostly in non-tradable sectors — where we don't have international competition," Spence said.

On the one hand, that's good news. It means the overwhelming majority of the new jobs created can't be offshored easily. But the report notes that powerful forces may inhibit further growth in these areas. The two leading employment sectors, after all, are government and health care, which accounted for 40 percent of the incremental jobs created between 1990 and 2008.

Due to high deficits and rising pressure on health care spending, those areas aren't likely to be huge sources of job growth going forward...

In other words, if a job was tradable, that job was created overseas, and not in in the United States! And an astonishing 40% of all new jobs created over those 18 years were in government or health care! For your convenience, I have included Mish's graph of total non-farm (private sector) jobs in the United States from January, 2000 to April, 2011.

Data from the Bureau Of Labor Statistics. We're still trying to get back to where we were in January, 2000.

What are we to conclude about Dr. Spence? I don't know about you, but I think the use of thorazine is not only warranted here, but absolutely necessary if he is to successfully get through the rest of his book tour. He definitely has my vote—clueless economist of the year!

And now here's the video in which this madman Nobel Laureate explains how we are only halfway through 100 years of astonishing economic growth on the Planet Earth.

 

Thinking Outside The Box — Part II

Our lives have been reduced to a mere marketing demographic... Television constitutes our reality in the same fashion that water constitutes the environment in a goldfish bowl. It's everywhere and affects everything, even when we are not watching it. Television regulates our national perceptions and our interior ideations of who we Americans are. It schedules our cultural illusions of choice. It pre-selects candidates in our elections... It is fair to say that television and the American culture are the same thing.
   —Joe Bageant

This is a follow-up to my post Thinking Outside The Box. That first effort featured Joe Bageant, and so does this one. A reader recently sent his Escape From The Zombie Food Court, which we'll look at below. After a 4-month bout with cancer, Bageant died on March 26, 2011 at the age of 64. Requiescat in pace.

Today we will start with a film clip instead of ending with one. Yes it's true, this classic scene from The Matrix has become trite, a cliché, it has become co-opted within Joe Bageant's self-referential, all-pervasive media hologram, as I will explain below. But first, you must decide whether you will take the Blue Pill, or the Red Pill. This is a serious question.

 
Let's face it: this country, as currently constituted, has no future. You can assume a dismissive attitude toward this now degraded movie scene from The Matrix, which, like everything else, has been commoditized and thus trivialized by a culture which seeks to control your consciousness and behavior. Despite the fact that there were three terrible sequels to this movie because, after all, there is money to be made, you must really decide which pill to take because the real-life Matrix we've lived in for so long—our corporate-run "consumer" culture—is falling apart. Bageant defines this culture as a self-referential media hologram, the theater state.

Last week when I got back to the States I took a shower in an American friend's new $30,000 gleaming remodeled bathroom. It felt like a surgical operating room experience, compared to wading into the Caribbean surf in the tropical dusk with a bar of soap. Like a parallel universe straight out of The Matrix.

So how is it that we Americans came to live in such a parallel universe? How is it that we prefer such things as Facebook (don't get me wrong, I'm on Facebook too), and riding around the suburbs with an iPod plugged into our brain looking for fried chicken in a Styrofoam box? Why prefer these expensive earth destroying things over love and laughter with real people, and making real human music together with other human beings — lifting our voices together, dancing and enjoying the world that was given to us? Absolutely for free.

And the answer is this: We suffer under a mass national hallucination. Americans, regardless of income or social position, we now live in a culture entirely perceived inside a self-referential media hologram of a nation and world that does not exist. Our national reality is staged and held together by media, chiefly movie and television images. We live in a "theater state."

You might say "I've heard all this before." Haven't there been people telling me for years now to kill my TV? Isn't it easier to live within the hologram, to go with the flow?

Capitalist society however, can only survive by defying the laws of thermodynamics, through endlessly expanding growth, buying and using more of everything, every year and forever. Thus the cult of radical consumerism. It has been the deadliest cult of all because, so far, it has always triumphed, and has now spread around the earth and its nations.

Why has it been so viral, so attractive to so many for so long? How did it come to grip the consciousness of so much of mankind, from Beijing to Bangladesh? Thuggish enforcement accounts for part of it, of course. But it has succeeded too because it requires no effort. No critical thinking. Not even literacy. Just passive consumption. The easy addiction to consumption is probably hard wired into us. Every one of us will go right out this door tonight and continue to play out our lives as contributors to ecocide and global warming, mainly because it's easier.

And besides, we are not offered any other real options, and we don't know any other way. Nor can we ever know any other way without making a great effort.

Passive consumption is no longer easier for the vast majority of Americans. What changed was that an ultimately unsustainable system of debt-based consumption finally blew-up. I could cite the usual statistics—1 in 6 Americans on food stamps, 77% of Americans living paycheck-to-paycheck—but just take my word for it today, our "consumer" culture is gone for good, despite the messages you receive daily on TV. There has always been a large disconnect between the media hologram and real life. But in 2011, the yawning chasm between staged scenes with actors playing imbeciles in TV commercials or sitcoms and our experience of everyday life has grown too large to ignore.

And although you have not been offered "any other real options," it's time to make the great effort to figure out what they might be. It's time to take the Red Pill. It's simply not an option to take the Blue Pill, to resume your comfortable pre-2008 lives, because those lives no longer exist. However, there is a deeper, more insidious way for Americans to maintain their complacency in the face of outrageous social and economic injustice.

The easiest way to resist the Red Pill is to read Paul Krugman, who merely happens to be the most popular of the many commentators telling you the corporate-run hologram just needs to be tweaked a little bit to get America's consumption machine running smoothly again. This message is seductive, and we can immediately see why: it requires no real effort on your part, no change in behavior. All we need do is find the right candidate with the right policies with the political will to follow-through. Never mind that so many Americans were duped into believing that Barack Obama was that man just 3 years ago.

And how were Americans seduced into thinking The Change was coming? By what they saw on television! The entire seemingly endless 2007-2008 presidential campaign existed within Bageant's hologram, within a parallel universe, within the corporate-created simulacrum presented by the media. The Audacity of Hope. Change We Can Believe In—you know, complete bullshit. We find ourselves at exactly the same juncture in 2011 as we did in 2007. Would-be saviors are announcing their candidacies—Newt Gingrich is in, Donald Trump is out. A new, sorry spectacle is kicking into gear. And because things are much worse in 2011 than they were in 2007, you can be sure that this campaign's connection with reality will be more tenuous than ever before.

Many Americans became more conscious about what is happening in this country after the financial meltdown in 2008. But that awareness is fading now. I can see the door closing. Although our living circumstances are worse now than they were even a few years ago, and our quality of life continues to deteriorate, America is getting back to its peculiar form of business-as-usual. There has never been a better time to take the Red Pill. There has never been a better time to start thinking outside the box.

What Will Happen When QE2 Ends?

After June, the Federal Reserve will end its latest money printing spree. This has been the cause of much speculation about what will happen in the financial markets. For example, Chris Martenson predicts a sizeable "correction" will take place by the end of October.

The end of the second round of quantitative easing (QE II) is going to be a complete disaster for the paper markets — specifically commodities, stocks, and then finally bonds, in that order, with losses of 20% to 50% by the end of October. The only thing that will arrest the plunge will be QE III, although we should remain alert to the likelihood that it will be named something else in an attempt to obscure what it really is.

Perhaps it will be known as the "Muni Asset Trust Term Liquidity Facility" or the "American Prime Purchase Program," but whatever it is called, it will involve hundreds of billions of thin-air dollars being printed and dumped into the financial system.

You may recall that doomer Michael Ruppert believes we will all be hunting squirrels for food as the world falls apart beginning in July, which coincides with the end of QE2. And then there's the always levelheaded Graham Summers of Phoenix Capital, who wants to know why the Fed is freaking out.

... consider that during QE 1, the Fed was putting roughly $50 billion into the system. After QE 1 ended, the Fed’s monthly liquidity pumps fell to roughly $30 billion or less.

That’s when this happened:

So it’s not surprising the Fed freaked out and started QE lite in August.

This kept things chugging along until QE 2 was announced in November at which point the Fed began putting $100 billion into the market. And the Fed is now pumping $200 BILLION into the system.

Small wonder then that the US Dollar is falling off a cliff. Indeed, the way things are going, the Fed will push into a full-scale inflationary collapse within three months.

So if you’re not preparing for mega-inflation already, you need to start doing so NOW. The Fed WILL continue to pump money into the system 24/7 and it’s going to result in the death of the US Dollar.

On that note, there are only a handful of my Inflationary Storm PT 2 reports left.  So if you want to get your hands on one, you NEED to order it now.

Martenson's prediction is not so catastrophic, but departs significantly from a Bloomberg poll of investors about what will happen.

Asked how financial markets will react when the Fed completes its purchases of Treasuries, 26 percent said 10-year yields will stay the same, and 17 percent said they will fall. Seventeen percent said the S&P index would gain, and 37 percent said it would stay the same. The U.S. Dollar Index is forecast to be unchanged by 26 percent, while another 26 percent foresee a drop.

Since the Fed approved the unprecedented $600 billion bond- buying program in November, yields on 10-year Treasuries have increased to 3.23 percent from 2.57 percent. The S&P 500 has gained 13 percent, while the dollar has weakened 1.7 percent against a basket of six currencies.

But these are the views of investors, or views that are targeted toward investors, like Martenson's. Forget about Wall Street. What will happen on Main Street when the Fed shuts the printing press down? And it is here that I see a glimmer—dare I say it?—of hope, or failing that, at least some temporary relief for ordinary Americans. Bloomberg says—

The U.S. unemployment rate dropped to 9 percent last month from 9.8 percent in November, and payroll growth topped 200,000 for three straight months for the first time in five years. Surging food and fuel prices boosted the year-on-year inflation rate to 2.7 percent on March, an increase Bernanke says will be temporary.

I doubt most Americans give a damn what happens to the S&P 500 or treasury bond yields, but a 10-20% "correction" to the downside in commodities would be a most welcome development. But what about jobs? Is QE2 responsible for the surge in hiring over the last 3 months? If so, withdrawing the monetary stimulus would not be a Good Thing. To influence the "real" economy, quantitative easing depends on a wealth-effect. In theory, when investors feel wealthier as a result of rising stock or bond prices, some of that wealth spills over into the "real" economy, where it is (ultimately) used to create jobs. In other words, quantitative easing is another version of Trickle-Down Economics.

While there is not a shred of evidence that QE2 is creating jobs, there is plenty of evidence, albeit indirect, that "excess liquidity" courtesy of the Fed has inflated food and energy prices. That's my story, as outlined in An Enemy Of The People, and I'm sticking to it. And that was before this latest round of phony oil price movements took the price from $113/barrel down to about $98. Given the demand destruction such prices have engendered, and throwing in the end of Fed money printing, we might hope to see a price in the $80-$90/barrel range, at least for the rest of this year.

Quoting Dave Rosenberg, John Mauldin tells us what happened the last time the Fed pulled back the quantitative easing throttle.

We have only one instance where the Fed cut back on quantitative easing, and that was last year. It is a data set of one, but it is all we have. So, let’s look at what happened. As noted by several sources (but I am looking at Rosie’s list right now), the Fed let its balance sheet contract by some 12% from late April to late August. Quoting:

“Now over that interval …

“The S&P 500 sagged from 1,217 to 1,064….

The S&P 600 small caps fell from 394 to 330….

The best performing equity sectors were telecom services, utilities, consumer staples, and health care. In other words — the defensives. The worst performers were financials, tech, energy, and consumer discretionary….

Baa spreads widened +56bps from 237bps to 296bps…

CRB futures dropped from 279 to 267….

Oil went from $84.30 a barrel to $75.20….

The VIX index jumped from 16.6 to 24.5….

The trade-weighted dollar index (major currencies) firmed to 76.5 from 75.5….

Gold was the commodity that bucked the trend as it acted as a refuge at a time of intensifying economic and financial uncertainty — to $1,235 an ounce from $1,140 and even with a more stable-to-strong U.S. dollar too….

The yield on the 10-year U.S. Treasury note plunged to 2.66% from 3.84%…”

There is a good chance the end of QE2 will be a non-event on Main Street, even if Wall Street gets hammered. But there is also a significant chance that the excessive pressure on your pocketbook will ease up.

Are you old enough to remember a time when the Main Street economy was the one and only economy, banks were utilities, the wizards of finance weren't considered geniuses because they aren't, and the world wasn't divided up into two increasingly separate parts, the Money World and everything else? Those times are only a distant memory now.

The days when the economy functioned on its own without extraordinary measures are long gone. Tear up the playbook. There are no rules anymore, it's a crap shoot. Who knows? Martenson and many others may be right about the inevitability of QE3, which the Fed may call the Completely Out Of Left Field Term (But Not Excessive) Liquidity Facility (the COLFTBNELF).

It's always interesting, and even entertaining in a dark kind of way, to watch the death throes of a once-great civilization.

This Week's Official Story

What is this week's Official Story on the economy? The Google news query "inflation + economy" brought it up immediately. As is often the case, what we are supposed to believe came from the Associated Press courtesy of the Washington Post.

Summary Box: Job gains should offset inflation and lead to better growth later this year

By Associated Press, Published: May 12

WASHINGTON — JOBS OUTWEIGH INFLATION: Rapid hiring by private companies should offset higher gas and food prices, setting up the economy for better growth in the second half of this year.

PRICE PRESSURES EASE: Economists say the drag from higher inflation is temporary. Oil and other commodities have fallen in price in recent days, and gas is likely to follow. That should give consumers more money to spend and companies more confidence to hire.

STEADY HIRING AHEAD: Employers are expected to keep adding jobs at a pace of roughly 200,000 a month. That should slowly reduce unemployment.

And then there was the copyright on this week's propaganda, indicating that the AP owns all rights to it

Copyright 2011 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Well, I just did publish it. Sue me. The "short version" above summarized the long version Job gains should offset higher gas and food prices. Let's look at STEADY HIRING AHEAD.

WASHINGTON (AP) — The best hiring market in five years should limit the damage from inflation and position the economy to thrive in the second half of the year...

"We are going to see the economy picking up steam," said Joel Naroff of Naroff Economic Advisors, who is among many economists who think gas prices will taper off. "Lower energy prices will give consumers more confidence to spend, and higher consumer spending will give businesses more confidence to hire and invest."

We should see those lower energy and food prices any day, week month now. Lower prices will make "consumers" more confident, which will cause them to spend more money, which in turn will give businesses more confidence to hire and invest. Give Joel Naroff a Gold Star! He's on the winning team! The propaganda message you are supposed to believe is explained in the text below, which I will partially deconstruct for your convenience and edification. The AP starts off with a succinct statement of the current problem.

Economists have expressed concerns that those higher [energy & food] prices could leave consumers with less money to spend on discretionary goods and services, like cars and clothing, furniture and vacations. Those are the kinds of spending that help power the economy and embolden employers to hire.

But not to worry. Hiring is going gangbusters!

But businesses felt confident enough in April to add 268,000 net jobs. It was the biggest monthly hiring gain in five years. Over the past three months, companies have added an average of 250,000 jobs a month — the best hiring stretch since a year before the recession began.

Is there a monkey wrench in the works?

And the number of people seeking unemployment benefits dropped last week after a temporary spike in April, the Labor Department said Thursday.

This is the key passage. In fact, unemployment claims have been disturbingly high for several weeks now.

In the week ending May 7, the advance figure for seasonally adjusted initial claims was 434,000, a decrease of 44,000 from the previous week's revised figure of 478,000. The 4-week moving average was 436,750, an increase of 4,500 from the previous week's revised average of 432,250.

  From Calculated Risk, initial unemployment claims through April, 2011. Note the spike at the very end of the series.

Higher recent unemployment claims must be downplayed by the AP in order to make the propaganda story stick. And that's what they did in saying claims dropped last week after a temporary spike in April, despite an increase in the 4-week moving average. With that little glitch out of the way, the show can go on. Frankly, I not sure why the AP even mentioned high initial unemployment claims. What is this, some half-assed attempt at honest reporting?

The optimism is catching on with ordinary Americans. An Associated Press-GfK poll shows that more than two out of five people think the economy will improve. A third think it will stay the same. Nearly a fourth think it will worsen. The results mark a rebound from a more pessimistic attitude last month.

The optimism? What optimism? Well, businesses felt more confident, hiring 256,000 workers last month. And more than 40% of Americans think the economy will improve. Not is improving. Will improve. Nonetheless, now that the AP has firmly established the optimism, they can make rosy predictions about the future.

Businesses will keep adding roughly 200,000 jobs a month for the rest of the year, economists predict. That should slowly reduce the 9 percent unemployment rate and put more money in consumers' pockets, on top of a cut in workers' Social Security tax that took effect in January.

And there it is, this week's propaganda story from the Associated Press. If your thinking about current economic conditions departs from The Official Story in any way, your thinking is perverse, incorrect and un-American. You should be chastised, if not fined, jailed, or otherwise punished, for your deviant social views, and I for one have no sympathy for you. It's as easy as 1-2-3.

1. JOBS OUTWEIGH INFLATION

2. PRICE PRESSURES EASE

3. STEADY HIRING AHEAD

Don't you feel better now?

Bonus Video

 

Remedy du Jour -- May 14, 2011

Yo, Doomers! This one's for you.

The first three clips are merely a (more or less) random sampling of the thousands upon thousands of doomer clips that be found on youtube or elsewhere. It certainly is a popular subject anymore, what with the Empire declining and all the rest. Gee whiz, do you think that has anything to do with Human Nature and the "reptilian" lower brain, the amygdala, the hippocampus, and other parts of the limbic system?

The next-to-last clip is from The Day The Earth Stood Still (1951). Just press play. The last clip, from Blade Runner, is dedicated to those of you who love to live in fear, and want others to live in fear as well. I have a brief, simple message for you people—

Life sucks enough as it is. Please don't make it worse.

And now, sit back and enjoy!