When Will The Dam Break?

[Mike]

On Radio Free Wallstreet Russ Winter keeps asking when the teetering economy is acknowledged in stock prices.  He maintains that the only thing keeping the economy afloat is quantitative easing.  Quantitative easing has been scheduled to end on 6/30.  Russ Winter asks, incredulously, "Does that mean everything is hunky dory up until June thirtieth?"

Today a Rush Limbaugh devotee pulled me aside and told me that his optometrist told him that his stock broker said that it would be all over in July; that we would be back to barter...

I found this eerie; the fact that there are all kinds of people expecting a crash, or should I say, "Crash?". 

"All kinds" is only two people, but..... you get my drift.

[Atash Hagmahani]

One rumor I heard was that QE3 will be covert.

The alternative, overt QE3, might be preceded by some sort of crisis as a cover story for why we need it. But they're not going to want to scare investors especially the foreign kind out of dollar-denominated bonds.

We'll see, and guess, soon.

[offdalip]

One rumor I heard was that QE3 will be covert.

The alternative, overt QE3, might be preceded by some sort of crisis as a cover story for why we need it.

Ummmmmmmm........

we are ALREADY in the middle of QE3.5

QE1 the first
QE1.5 reinvesting all maturing QE1 back into more QE
QE2 $600 billion 2nd tranche
QE3 releasing 30M barrel of oil reserves

flooding the markets with either oil or money basically accomplishes the same thing

Maybe they will open up the strategic grain reserves next for QE4

[Dame]

Maybe they will open up the strategic grain reserves next for QE4

Or, I read this am that the US corn crop is projected to be a bumper crop; virtual QE4?

[Mike]

Or, I read this am that the US corn crop is projected to be a bumper crop; virtual QE4?

I heard this too and my first thought was, "Is this for real?"  Let's see? in the wake of flooding and lots-of / too-much rain / drought in Texas is this reality?

It reminds me of 2003 when the EIA & the IEA made nutty projections of future oil production.

********
Looking at releasing oil reserves as a form of QE took me by surprise, but you're right.
*******
Covert or Surreptitious monetization is the most worrisome form of monetization.
******

When I look back at the inflation/deflation question over the last year, and remembering that 'inflation' is the rise in the money supply and 'deflation' is a decline in the money supply, and that generally rising prices (or lowering) prices is the result, what happened?

Gas prices rose - partially the result of QE2 and partially the result of Peak Oil.
Grain prices rose- partially the result of QE2, and partially the result of bad weather.
Food prices rose - mostly the result of higher fuel prices and other input increases.
Housing prices? - Rose? Fell? Stabilized? All are reasonable.  I would argue, "Stabilized. QE2 didn't have much of an affecct.  Stabilization was the result of lien-holders backlog of houses increasing."

[darwinslair]

Maybe they will open up the strategic grain reserves next for QE4

Or, I read this am that the US corn crop is projected to be a bumper crop; virtual QE4?

Doubt it will be a bumper crop unless we have a summer and fall vastly different than this spring.

Tom

[Dame]

Very hard to have a bumper crop; even with ideal conditions for the balance of the growing season,  when huge acreage was not seeded.

Around here they (unspecified, the middlemen buyers do not disclose) are offering big dollars for cereals that were deemed, as of last fall, of too poor a quality even for animal feed .

[Atash Hagmahani]

Thanks Tom and Dame for the comments; I was suspicious about that one but didn't know for sure, being too far from corn country. I bet it's a short-term ploy to influence prices.

I'm making plans for shifting crops to those that stand colder and wetter. I'll still grow corn to hedge bets but only the really tough ones.

[Dame]

For me, hedging my bets is by expanding my recipe repertoire.  The more able I am to use a broader variety of items to provide balanced nutrition the better I am able to eat well on whatever there is ample of.

[Atash Hagmahani]

Just remember what Farida the Afghan girl told my wife:

"If you want to pretend you're a good cook, just add lots of black pepper, garlic, onions, and ginger to everything".

Works for me.    Actually I think between knowing lots of different techniques (searing, braising, roasting, frying (several variations on that), poaching, steaming, blanching etc), and adding seasonings with character, that's probably about true. I think Alton Brown is on record for saying that cooking is all about variations on heat, and salt.

[Mike]

More Lee Adler:

http://wallstreetexaminer.com/2011/07/08/behind-the-employment-numbers/

the jobs situation was deteriorating badly. Based on real time Federal withholding tax data, there have been virtually no job gains since last year.

Here’s an excerpt from the July 7 Professional Edition Treasury update:

Month to date withholding taxes as of the end of June were down 4.6% from last year. Some of that was due to a calendar anomaly of a payment date for a biweekly and semimonthly pay period last year coming on June 1. That resulted in June receipts last year being inflated, making this June look worse than it was. A 4.6% drop would imply an economic collapse. In actuality it’s more of a stall, although I expect it to spiral down from here.

As shown on the chart below,

 

[darwinslair]

I do think the dam already broke, but this is a long valley the water has to traverse before it hits everyone.

There are real breaks happening in infrastructure, and have been for a while.  Our economy is shrinking and rather quickly.  We can see real inflation, and GDP is not growing as fast as inflation is, which means negative growth in real numbers.  There is not a governmental entity in our country that can survive as structured without continual growth.  They are all heavily leveraged on producing more in the future (and near future) in order to be able to make debt payments on top of maintaining what they have.  Our federal and state governments are at a crossroads where they logically or illogically cannot borrow more and debt limits are really meaningless.  When you HAVE to get another loan just to make payments on interest on other loans, you are beyond screwed, as any private citizen who has dealt with that situation can tell you.  Everyone that depends (not just uses, but cannot live without) on infrastructure is screwed

The dam broke.  Just might take a while for the water to get to you and wash everything away.

Tom

[silverseeds]

    i have to agree wholeheartedly tom. 

    Water is already coming through the dam. Its past the point where one person might be able to stick a finger in the hole, possibly patch t up when help arrives. the structure of this dam has already weakened. there are a few holes now with water coming through. Its not water behind our dam so technically we could alter the outcome some if we changed course and stopped the spending as it is. but a large portion of it will come through no matter what we do.

[Atash Hagmahani]

Well, at one point I was worried about the possibility of a temporary false recovery followed by more hard times.

At least the situation has been consistent enough that most people can see that something is different this time, although the happy-talk in the media might still be confusing some people, especially people who still have jobs and "credit".

I guess the bottom line is that:

* the financial system is broken. It is impossible to reorganize resources on a system-wide scale as long as they keep patching a broken financial system with bailouts and other bad ideas. We need capital accumulation (and reallocation) but it is unclear what mechanism would do this for us. The banks and other aggregators are all broken.
* 2006 continues to be the best guess as to when peak oil already happened. For all intents and purposes, it would be impossible to continue the former bull market/bubble trajectory, because it would trigger a surge in demand for oil that would cause a price shock.
* agricultural production is pushed to the limits, and we probably have years of bad weather to contend with.

I think your best clues of broken dams are food prices that keep rising "despite" rising unemployment. The Keynesians and the Monetarists claim that this can not be happening, and to a certain extent simply deny that it is happening, but it is.

[darwinslair]

25# bags of bread flour are up 100% in the last 8 months (since I started buying it in that size bag)

I have only seen a 25% rise in rice prices for 25# bags.

Both are a bit scary.  Sales on butter are at prices twice what regular prices were a year ago.  It has gone from $1.20 a pound wholesale to $2.80 a pound wholesale.  Milk was sold by the two pack of gallon jugs, whole milk, for under $4 last summer.  Now it is $3 a gallon.

None of it is good.

Tom