[Arktwo] Tuesday the Terrible

[Bruce Beach]

Monday being a US Holiday -
(Martin Luther King Day)
the time table therefore targets terrible Tuesday.

Nothing is for sure -
but I feel sure
Tuesday will come -
(although perhaps not
for you or I specifically).

Whether or not Tuesday will be terrible
is less certain -
but the event itself
is one of those
many situations in life
that are certain
even if the timing of the event is not.

I am of course talking about
the eventual collapse of the Dow.

In October,
the Dow closed
at an all time high of
14164.

On Christmas Eve,
it closed at 13550,
just 614 points below that high.

On Friday
the Dow closed at 12099,
2065 points or 14.6 percent
below the high.

All  other major stock markets
in the world also have fallen.
I think we could almost say -
followed and fell,
usually between 8 - 12 percent.

The world watches the Dow.
The world watches the Dollar.
Whither go the dollar and the Dow -
so goes the world.

The Dow is determined
by the US economy.
The Dollar is determined
by the world economy.

The reason for the latter
is that the US has positioned
the US dollar
as the world 'reserve' currency.

By that it is meant that
all countries kept US dollars
in reserve
to settle their international debts.

Since the US printed the US dollar -
it was able to print as many as it liked
to settle its debts.
Mainly debts for conducting wars
in other countries.

This did not please some of the other countries -
that they were paying for the US wars -
so they started to diversify
into other major currencies
and the US dollar has fallen
to HALF its value
against an average
of those main currencies.

(At one time the dollar
was valued at 140 against them
and today it is 76.)

The “bottom”
(the lowest point that the dollar has EVER reached)
was its close of 74.86
on November 26.

I pointed out in my previous newsletter -
the massive intervention
last week
to bring it back up
when it headed that way again.

These massive interventions by
the US Treasury,
the Federal Reserve,
the PPT (Plunge Protection Team)
other concerned central banks
and other concerned foreign holders
of massive US debt and investments
either in stock or currencies
will not continue to be successful -
as the requirements for intervention
become greater and greater.

So the dollar is desperate -
but so is the Dow,
because the US economy is dying.
One of my economic gurus
tells me that the US economy
is basically sound.
Those are also the almost exact words
of President Bush.

While there is not unanimity
about my position -
I can tell you
that I am not alone in it.

Why might I say that
the US economy is dying?
Well, for one thing -
in the past year,
US goods producing industries
lost 374,000 jobs.

US manufacturing employment
fell to 13.91 million in 2007.
The last time US manufacturing employment
was below 14 million
was in 1950!

There are a lot more people
in the US now
than there were in 1950 -
but fewer jobs.
Tell me that unemployment is
as low as reported.

I think that unemployment figures
are a pack of lies.
During WW2 everyone could get a job.
Even Rosie the Riveter.
Later in university I was told
that was 'over employment'.

I was unemployed in 1958.
As I watched the unemployment rate climb -
I hoped for it to go over 10%,
because I thought the government
would then do something.
It did.
And they did.

They redefined unemployment.
Before then -
the unemployed were those
able and willing to work.
Then the unemployed were those
able and willing and looking for work.
(That is to say they hadn't become discouraged.)
Next it became those who had gone on unemployment benefits -
and now it is those whose unemployment benefits haven't run out.

In some black ghettos
forty percent of the males
didn't have a job -
but that didn't count -
then or now.
Neither do the people that we institutionalize.
The US has the largest population percentage
in prison
in the world.

Lots of kids are in college -
because they can't find a job.
The gigantic military forces
are full of people
who couldn't find a civilian job.
And then there in underemployment.
People with college degrees
flipping hamburgers.

But -
I digress.
My source says that
Financial services have lost 7,000.
Now I wonder how that could be
when I hear of Citigroup alone -
laying off 20,000.
Maybe the numbers are running behind.

Construction also lost 49,000 jobs.
Again -
I could point out many ways
that is undercounting.

Where have the jobs gone?
Like where does the dark go -
when the sun rises.
Many people say -
overseas.
That need not be -
because there is never a shortage of work.
Oh, well -
I won't try to explain that.

But for those who worry about such things -
the imbalance in US trade
grew 9.3 percent in December alone
to $US 63.12 Billion.

While for 2007  household debt
achieved a record 133 percent
of disposable personal income.
In 2000, it was about 60 percent.
By that measure Americans doubled
their private debt
in seven years.

The theory is that debt,
like housing,
entertainment,
other categories of expenditures,
should generally not exceed
a certain percentage of income.
But -
Americans have been going into debt -
for their consumer lifestyle.

For awhile many Americans thought
they were doing well
on a net basis
because the value of their homes
was going up.

But in the last three months
that value -
based on an annual rate -
has been tumbling
in many markets.

Las Vegas, 18.9 percent
San Diego, 20.3 percent
Miami, 22 percent
And so goes the house prices
and net worth of Americans
over much of the country.

Also so go the homes -
with a forest of 'for sale' signs
in some neighbourhoods.
And a new term called -
"Jingle Mail"
as they drop their keys in the mailbox -
and walk away.
Yesterday - a report from my son -
than some in anger -
are trashing the homes
before they leave.

Living high in recent years -
they have spent 130 percent
of their earned incomes.

In November
they raised their credit card debt
at an 11.3 percent annual rate
following an 8.5 percent rise
in October.

But now,
for many million Americans
much of their pay check is eaten up
by servicing charges on debt.

Millions of Americans
are in the position
where they cannot service
(let alone pay)
their existing debts
without running up even more debt
on their credit cards.
And many of those have maxed out
their credit cards.

Money, interest, taxes -
are all a chimera.
But never mind -
the government has a solution,
just as it does for unemployment.
Change the numbers.
Lower taxes for those who have none.
(Also lower taxes for the wealthy.)

It is not just an American problem.
Inflation, debt, unemployment,
are mounting around the world.

The US Government debt
is about to go over $10 Trillion Dollars.
You can say it.
But can you understand it?
I can't understand that number.

A billion is a thousand million.
Okay - I can maybe wrap around that.
But -
a million million.
Nope - no way.
During my days of economic training -
we maybe heard of a trillion stars -
or a trillion atoms -
but never of a trillion dollars.

In 1958 when I was unemployed -
and looking for a job -
with unemployment at 10% -
the US  population
was 175 million.
Now it is 300 million.

Back then US Treasury debt
was about $US 260 Billion
or $1,485 per person -
less than THREE PERCENT
of today’s total of $US 9,200 Billion
or $30,670 per person.

That means that you, your wife -
and each of the children in your home,
theoretically all owe over $30,000 each -
besides what you owe
on your credit cards,
loans,
mortgage -
and so forth.

Pay up!
Even if they cash out everything -
most people can't do it.

China's
(one fifth of the world population)
whole economy in 2006
was US 2.67 TRILLION,
less than one third of the money -
owed by the US Treasury.

So -
Down goes the US.
Down goes the dollar.
Down goes the Dow.

But why Tuesday?

Well, when the forest is dry -
lightening can strike anytime.
And lightening may have struck
last week.

The government / courts got after
rating companies
for doing phoney ratings
on stock companies and bonds.

So the rating companies
have started changing their ratings.
Some big banks
and other financial institutions
are in trouble.

One particular group
got the rug pulled out from under them -
last week.
The bond insurers.

There ratings of the insurers themselves
were changed
and in three days,
shares in Ambac plunged 71 percent.
In four days,
shares in MBIA Inc plunged 47 percent.
Since the start of this year,
Ambac and MBIA Inc shares are down
93 and 88 percent respectively.

These were the key companies
that insured the bonds
(of big companies,
States,
and cities).

When stocks were weak -
investors fled to bonds -
and now -
the bonds are gone -
and maybe also the Dow.

Oh, things are bad -
except for big government contractors,
like Brown and Root,
and Blackwater,
and the oil companies,
and the Arab Royalty
in its Golden Palaces.

But the men who built
the house of cards did okay.
They took the crown jewels with them -
as they left.

Dynegy's outgoing CEO,
Charles Watson,
walked away
with a $33 million exit payment --

Tyco's Dennis Kozlowski,
although indicted for tax evasion,
is slated to receive
a handsome exit package.
$135 million,
plus $3.4 million per year
for a 30-day-per-year consulting contract for the rest of his life.

K-Mart former CEO Charles Conaway
got more than $20 million
in salary bonuses
and severance payments
after less than two years.
(The company is closing 283 stores
and laying off 22,000 employees.
They won't be getting bonuses).

Loser Countrywide Financial's
chief executive,
Angelo R. Mozilo,
is getting $115M in severance bonus.

Merrill Lynch's Stan O'Neal,
after a string of billion dollar write-downs,
left with a $161 million payoff.

The list just goes on and on.
Citigroup is of course my favourite.
Still, never mind.

The house that greed built -
is falling down -
but the rats have left the ship.
I could continue,
but space does not permit.

Tuesday, Tomorrow,
sometime soon.
Very possibly it may drag on
for weeks.
Some think until never.
But not you -
and not I -
which is why
you read this newsletter.

Peace and love,
Bruce
DawnSayer@webpal.org