Friday, December 19, 2008
"First" of the Day: Fall of the CPI
The U.S. consumer price index [CPI] fell by a seasonally adjusted 1.7%, the [Labor] department reported, the biggest drop since the government began adjusting the CPI for seasonal factors in 1947.
But on a non-seasonally adjusted basis, the CPI fell by 1.9%, the biggest decline since January 1932, at the nadir of the Great Depression.
—Robert Schroeder reporting in "Drop in consumer prices is most since 1932"
The fall in the CPI for October broke a record exceeded only by these new numbers for November.
Last month I noted the worry that we are on the verge of a deflationary spiral. In greatly simplified form it might look like this: Consumers stop buying, factories (the few that are left) stop producing, workers are laid off, laid-off workers stop buying, more factories stop producing, more workers are laid off—and so on, down and down. This forces prices to fall since no one is willing or able to buy. It's the sort of situation that normally only a good war can fix.
But you should know by now that if our pundits and politicians fear deflation, it is not for the sake of workers. It is the rise in the value of the dollar that threatens their constituents.
Investors in the form of private equity funds, hedge funds and the banks have borrowed a great deal of money in order to make more money (quite literally, I'm afraid)—all under the premise that the dollar will continue to lose value. Dollars borrowed today will be repaid tomorrow in dollars that will be more plentiful but worth less, which effectively reduces the rate of interest for those making money off money.
This of course does not apply to workers. Their dollars not only did not become more plentiful over time but lost their buying power as well. Under George Bush wage earners lived to see an expansion of the economy without a corresponding increase in wages—another "first."
All the money rose to the top. So with increasing costs of food, fuel, housing and health care, workers were left somewhat in a pickle. To keep the wheels of commerce greased it was necessary to loan them money—off of which our capitalists expected to make even more money. Whee! But you do not need to be an economist to see that this was a situation that could not continue indefinitely.
To put it another way, while the value of investments was inflating, the cost of labor was deflating. Strangely, deflation in this sector of the economy was not considered a problem at the time.
Of course if the wealth had been more fairly distributed, it would have hurt the upscale real estate market, the yacht market, the art market and the payday-loan market, which was providing a lovely new revenue stream for the banks. But the current economic disaster could have been postponed, if perhaps not totally avoided.
Since our national economy depends upon indefinite postponement of the bills coming due, a more worker-friendly policy over the years—such as a minimum wage tied to inflation—might have kept it going for awhile. Instead the government found itself handing out checks last year in an effort to "jump start" the economy.
By then everyone was too deeply in debt for such a pittance to matter, and here we are today. To the best of my knowledge, amazingly, at the time of the give-away not one politician, columnist, reporter or union leader asked, "But what if we had just paid them more?"
Now comes the news that the value of the worker's dollar rose again last month. Calculated against its purchasing power in 1982-84, the dollar's purchasing power increased from 47.1 cents to 48.2 cents (November CPI report [pdf], p. 18)—more than a 2% increase.
Two percent is a nice little raise in one month. Enjoy it while you can.
"First" of the Day: Fall in consumer prices (11/20/08)
Fraternity of the Day: The Palm Beach Country Club
Reports that certain acquaintances of Mr Madoff may have taken fees for bringing him new business has put the Palm Beach community up in arms.
“These guys were all members of the country club,” said Richard Rampell, a Palm Beach accountant with many friends and clients who invested with Mr Madoff. “It’s a very tight knit group, like a fraternity . . . You’re not supposed to take advantage of or make money off your fraternity brothers.”
—Julie Macintosh reporting in "Madoff scandal brings pain to Palm Beach"
Let's see. Tips on how to make an annual 10% off your millions or billions come free to the members of the Palm Beach Country Club set. It's one of the benefits of membership. And the touter offers the tip just because he likes you.
Of course if members aren't supposed to make money off each other, from whom does one make one's money? I leave it to you to work out the details.
Profiting from relationships is so ... well, déclassé. Unless of course you're a realtor—
Nadine House, a real estate agent, said she knows about 15 people who had money tied up with Mr Madoff, all of whom belonged to the Palm Beach Country Club and had “great wealth”, even as defined within such a rich enclave.
“They just feel so betrayed, and their lifestyles are going to change so dramatically,” she said.
“But we all started out poor once, and we can do this again.”
Fortunately the wealthy can count on the free market. Condo Vultures™ Realty, which represents only buyers, has offices in South Florida and other areas with distressed properties. They will help you downsize.
As an old bartender pal used to say, "Are we having a lifestyle yet?"
A note on understanding elites (9/03/07)
Wednesday, December 17, 2008
"First" of the Day: New housing starts
New [housing] starts dropped an eye-popping 18.9% to a seasonally adjusted annual rate of 625,000, the lowest since the Commerce Department began keeping records in 1959. According to similar records kept elsewhere, it's the slowest pace of construction in the post-World War II period.
"First" of the Day: Fall in consumer prices (11/20/08)
Tuesday, December 16, 2008
Headline of the Day: The Great Urine Heist
Deputies: Man flunks drug test, steals fridge full of urine
—headline in the Gainesville Sun
Of course that's the official version. But could there have been a leftover ham sandwich in the fridge?
No way to know for sure. The refrigerator's still missing.
Quote of the Day: The job ahead
... [O]ur task is not to encourage moral struggle or to build or demonstrate inner virtue. It is to make life less punishing....
There is a lot that could be said about this. But since this is my day off from encouraging moral struggle or demonstrating inner virtue, I won't.
Prison Procedure of the Day: Determining gang status
At a hearing last week, Marc Dreier’s attorney said that his client is being held in solitary confinement until federal prison officials determine whether the Park Avenue lawyer is a gang member.
What's taking them so long? Didn't they notice the rings and the business attire?
Gerald Shargel said officials at the Manhattan Correction Center told him Dreier could be held in lockdown for another three weeks, held in his cell for 24 hours a day without telephone calls, visitors, or reading materials.
“How ludicrous is that?” Shargel asked during Dreier’s bail hearing. “You could lose your mind in three weeks.”
So could anyone else.
But there could be reason to deny Dreier a telephone. Before his arrest in New York, Dreier was picked up in Canada for impersonating another attorney. Reporters from the NY Times tell us that—
Being jailed in Toronto did not curb Mr. Dreier’s interest in moving money, and he feverishly worked the phones, according to court papers.
At this point, the law firm’s comptroller refused his requests to move millions of dollars. He did agree, though, to Mr. Dreier’s request to be connected to the bank that handled the law firm’s accounts, an assistant United States attorney, Jonathan R. Streeter, said in a bail hearing on Thursday. “He successfully got $10 million transferred out of an escrow account into a personal account that he controlled,” Mr. Streeter said.
That money, like all the rest, remains unaccounted for.
The Cayman Islands are lovely this time of year.
Crime of the Day: Marc Stuart Dreier caught acting (12/09/08)