Consider what we're currently being told by those in charge of not only the 'economic recovery' but also the 'oil spill recovery:
Numerous politicians and oil industry officials have claimed the BP oil catastrophe growing in the Gulf of Mexico is “unprecedented.” From BP CEO Tony Hayward, who called his company’s environmental crime an “unprecedented accident,” to Admiral Thad Allen, U.S. Coast Guard, who called it an “unprecedented anomalous event,” officials and pundits have given the impression that the consequences of this catastrophe could not have been predicted. In a Congressional oversight hearing on the apocalyptic disaster on Thursday, Rep. Doc Hastings (R-WA) even argued the country should respond to this “unprecedented” event by making sure “that we continue to produce oil here in the states.”
But here is the reality: Back in 1979 there was the "largest accidental oil spill in history, Ixtoc I." Was the Deepwater Horizon catastrophe really unprecedented? See for yourself:
So if the people in charge are lying to us about the 'unprecendented' catastrophe then are they lying to us about the economic recovery?
Some of the characteristics of an economic deflationary period are:
- debt burden across all aspects of society
- reductions in lending
- reductions in spending
- debtors earn less money
- defaults rise
- increase in unemployment
Sandra Pianalto, President and CEO, Federal Reserve Bank of Cleveland, had the following to say about the current economy and its outlook:
And although we have weathered the worst of the financial crisis, we are still learning a lot about the effects of our policy tools on the economy as the recovery takes hold. I continue to bring a greater degree of judgment to the forecasting process than I ordinarily would in more certain times. And I am not alone in this regard. Since the onset of the crisis, most of my colleagues on the FOMC have reported greater uncertainty about their projections for economic growth and inflation compared with historical norms...
However, my outlook is that our journey out of this deep recession will be a slow one because we face two primary headwinds that I expect will temper growth for awhile. The first is the effect of prolonged unemployment, and the second is a heightened sense of caution on the part of consumers and businesspeople. Let me explain the power of these headwinds, beginning with prolonged unemployment...
The second powerful headwind in this recession is a heightened sense of caution, driven by a deep uncertainty about where the "new normal" or baseline might be. A whole generation of Americans who began their working careers in the mid-1980s had experienced only long periods of prosperity punctuated by just two very brief downturns. Those experiences encouraged an expectation for relatively smooth growth. Now everyone's expectations have shifted as a result of this long and deep recession...
People's attitudes about their own prospects have fundamentally changed. In a recent survey by Ohio's Xavier University, 60 percent of those polled believe attaining the American dream is harder for this generation than ones before. And nearly 70 percent think it will be even more difficult for their children. Many people are now just aiming for "financial security" as their American dream...
This has led many people to delay major purchases until their circumstances are clearer. While home sales have risen slightly as of late, overall sales have fallen by more than two million since 2006. Car sales are also still down to an annualized rate of under 12 million instead of the 16 million or more seen in the years before the downturn...
Businesses are also cautious. Business leaders base many decisions on forecasts, and they tell me that they are attaching the same high degree of uncertainty around their projections as I am. Most business leaders say that they're not planning significant hiring until there's more clarity about how the recovery is going to progress and about policies relating to health care, energy, the environment, and taxes. This caution translates into fewer job opportunities, fewer equipment purchases, fewer building projects--and on and on...
Let's begin with current inflation. Recent evidence I am seeing puts momentum on the side of disinflation, at least in the short run. Measures of core inflation have been falling during the past year. Core inflation measures are fairly good predictors of near-term inflation because inflation itself tends to move sluggishly. At the Federal Reserve Bank of Cleveland, we track two measures of inflation--what we call the "trimmed mean" and the median CPI series. Both of these series have been on a disinflationary path since the middle of 2008, and the prices of roughly 50 percent of the items we track in our market basket of consumer expenditures have been declining over the past three months. In this economy, companies are really holding the line on prices to boost their sales, and they can do that profitably in part because labor costs are so restrained...
In fact, the data show that labor costs have fallen by nearly 5 percent since the fourth quarter of 2008, and many of my business contacts continue to talk about wage and price reductions, not increases...
Let me bring all the elements of my outlook together. For the next couple of years, I expect employment levels to remain well below what I would consider full employment. Similarly, I expect inflation to only gradually drift up from its currently low level but nonetheless remain subdued. In my view, this outlook warrants exceptionally low levels of the federal funds rate for an extended period of time.
Read Pianalto's full remarks here.
Pianalto does not accept that we're in a deflationary spiral but she does portray a forecast that is deflationary in nature.
Consider the following from the The Elliott Wave Theorist, Oct 2003:
The Rich will be vilified, and their property will be increasingly taxed and seized.
The following videos are good examples of vilification at work: community leaders shouted "Bank of America: bad for America!" outside the front door of Gregory Baer, general counsel for Bank of America.
An ex-senior official at the Treasury department, Baer is now a lawyer for the bank's regulator and public policy legal group.
And it appears that taxpayers bought Goldman Sachs' CEO a new home: Lloyd Blankfein dropped $26 million -- in cash -- on his new 15 Central Park West duplex. He may have community leaders on his front door soon shouting 'Goldman Sachs is bad for America' too.
May 14, 2010
By Editorial Staff, Elliott Wave International
The following market analysis is courtesy of Bob Prechter's Elliott Wave International. Elliott Wave International is currently offering Bob's recent Elliott Wave Theorist, free.
Continuing—and Looming—Deflationary Forces
The Fed and the government quite effectively advertise their efforts to inflate the supply of money and credit. But deflationary forces, to most eyes, are invisible. I thought I would point some of them out.
1. Banks Are about 95 Percent Invested in Mortgages
Figure 4, courtesy of Bianco Research, shows that U.S. banks used to be fairly conservative, holding 40 percent of their assets in Treasury securities. This large investment in federal government debt, the basis of our “monetary” “system”, served as a stop-gap against deflation. In 1950, even if mortgages had been wiped out by a factor of 80 percent, banks still would have been 50% solvent and 40% liquid. Today, banks hold federal agency securities (backed mostly by mortgages), mortgage-backed securities (meaning complicated packages of mortgages), plain old mortgages that they financed themselves, and a few business loan contracts. If these mortgages become wiped out by a factor of 80 percent, which in turn would cause many of the business loans to go into default, the banks will be only about 22% solvent and 1% liquid. I believe the coming wipeout will be bigger than that, but let’s be conservative for now. The point is that, unlike Treasuries, IOUs with homes as collateral can fall in dollar value, and such IOUs are pretty much the only paper backing U.S. bank deposits. The potential for deflation here is tremendous.
2. More Mortgages Are Going Under
It has been well publicized recently that commercial real estate has been plunging in value as business tenants walk away from their leases, leaving properties empty. Zisler Capital Partners reports, “Returns were negative for the past five quarters, the longest streak since 1992. Property prices have fallen by 30 percent to 50 percent from their peaks. Much of the debt is likely worth about 50 percent of par, or less.” (Bloomberg, 11/11) Needless to say, the fact that commercial mortgages are plunging in value is stressing banks even further, which in turn restricts their lending. This trend is deflationary.
3. People Are Walking away from Their Homes and Mortgages
Great numbers of people are ceasing to pay their mortgages, even if they have the money to pay them. When people walk away from their mortgages, they are reneging on a promise to pay the interest on the loan. … Refusal to pay interest is deflationary. When banks can’t collect fully on their loan principal, as is the case by law in the above-named states, it is deflationary. Even in states where banks can go after other assets held by borrowers, default is still deflationary if the borrowers are broke. The reason is that, in all these cases, the value of the loan contract falls to the marketable value of the collateral, and a contraction in the value of debt is deflation.
Some people who walk away from their mortgages purposely damage the homes when they leave. New businesses have sprung up to take on the job of cleaning up the houses that former occupants trashed as they left. Angry defaulters are stripping coils out of stoves, pulling electrical wiring out of walls, ripping fixtures out of bathrooms, yanking seats off of toilets, punching holes in walls and leaving rotting food in the fridge. (AP, 8/9) Such actions, and the threat of more such actions, lower the value of the collateral behind mortgage debts, thereby lowering the value of mortgages, which is deflationary.
4. Bank Lending Standards Have Stayed Restrictive
As people default on mortgages, banks are tightening lending standards. Figure 7 shows that banks loosened credit standards from late 2003 through the summer of 2007. By the end of that time, you could borrow money if you were breathing and could operate a ball-point pen. Banks have been tightening credit standards ever since. The rate of tightening peaked in October 2008, but the graph shows that over the past year various banks have either left their new, tighter standards in place or continued to tighten their standards further. Across the board, it is harder to get a loan, and it’s staying that way. Lending restrictions reduce the credit supply. This condition is deflationary.
5. Banks Are Cashing Out of the Credit-Card Business
Articles have revealed that banks are doing everything they can to get credit-card debtors to pay off their cards. They are raising penalties and rates, lowering ceilings and otherwise bugging their clients to pay up, one way or another: Transfer your debt to another bank’s card; default; pay us off; we don’t care which. And it’s working. Through September, consumers have paid down credit card balances for 12 months in a row. Figure 8 shows the new trend. The credit-card business was another formerly humming engine of credit that is sputtering. You might call the new program “cash from clunkers,” and it is deflationary.
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The big picture, which is still being painted, still is deflationary. The period between March 2009 to April 2010 was one of a respite after the 2008 credit crisis. As 2010 continues rolling on and deflationary pressures return to the fore social mood (economic and cultural) changes will continue towards the negative side, where they left off back in March 2009.
Consider the following from the The European Elliott Wave Financial Forecast July, 2005:
The Wave Principle reveals, “Mass mood changes are natural, rhythmic, and precise.” (Pioneering Studies in Socionomics, page 4) Therefore, socionomics anticipates that the time will come when negative social mood will predominate in British society and drive increased discord, exclusion, anger, and fear. Moreover, we might not have long before these changes occur, because Elliott wave analysis views the current advance as a bear market rally in its latter stages. When the scales of mass mood have tipped to the negative side, the stock market will fall persistently. At that time, the behavior of politicians, the police, and the public is likely to be quite different from what it has been of late.
The recent credit crisis riots in Greece are an example of social mood changes to the negative side during deflationary times. What the EU and IMF are still fighting is deflation (a contraction of credit) and not inflation. The politicians' fruitless efforts will come to pass down the road because, as the following quote demonstrates, the issue is about mood:
“It's a trillion-dollar bet laid by the EU and IMF and looks in danger of failing in the short term,” said Dean Popplewell, chief currency strategist at Oanda. “The bigger issues people are concerned about are the potential social tensions and unrest that these austerity plans by governments will cause.”
People are concerned. The economy is the social fabric we live in and as it tears itself apart it is not only the 'austerity plans' that governments prepare and deploy that brings concern but the other plans governments have in the works. Consider the following proposed legislation Senators McCain and Lieberman introduced early March:
“Authoritarianism” in the United States?
Suppose the U.S. Senate passed a law which gives the Federal Government the power to do the following to American citizens who are suspected of a crime:
Forbid interrogators from telling the person of their right to remain silent.
Forbid interrogators from telling the person of their right to legal counsel.
Deny the person habeas corpus protection (the government cannot keep a person in custody without charge).
Do all the above not only to a person suspected of a crime, but also to a person who may know about a possible future crime.
You may think that the above "authoritarianism" is not possible but the author of the article confirmed that it is true; more importantly, he read the proposed legislation which is written broadly and therefore dangerous to all citizens. The author concludes that fear is what's driving the Senators to propose the new "Enemy Belligerent Interrogation, Detention, and Prosecution Act of 2010" legislation and another example of social mood moving towards the negative side. We could not agree more.
The police are also concerned. It appears that they are not immune to the discord, anger, exclusion and fear permeating throughout the global social fabric:
Since Troy Meade is a police officer and his victim was a mere Mundane, this question typifies what Edmund Burke described as the “mysteries of policy” — those special exemptions from the moral law claimed by the exalted beings controlling the state's apparatus of coercion.
Any other individual who killed a man under the circumstances recounted above would almost certainly be found guilty of criminal homicide. Because Meade was dressed in the sacerdotal vestments of the state's punitive priesthood, his lawless act of lethal violence was transmuted into an act of policy.
And as social mood continues to deteriorate the situation for everyone will do as well:
This is to say that the combination of timidity, ineptitude, and impulsive violence displayed by Howard and his comrades in this episode is what the public should expect when they seek “help” from the police. Under the “reasonable officer” standard, summary execution is a proportionate punishment for overtaxing a police officer's patience. And things will only get worse from here because most people prefer to take refuge in comforting illusions, rather than confronting grim and potentially lethal realities.
“People have a huge emotional investment in believing the police are on our side,”explains attorney Greg Kafoury, who has represented plaintiffs in law enforcement-related wrongful death lawsuits. “If somebody sits on a jury that concludes that the police have used unlawful violence against a citizen, that's a declaration that the world is a lot scarier place than they want it to be.”
Source: Idiocracy's Finest at Work
At all levels deflationary pressures continue to inflict friction upon the politicians, the police, and the public. At all levels the pressures create an environment where decisions are not rational, impulsive, and rash.