Bob Chapman | February 5, 2007
The Bush administration has proposed ending former subsidies for an estimated 80,000 wealthy individuals, many of them elitists. That is because this legislation is needed to complete the Doha Round of talks by the WTO. This is part of the groundwork for One World Government. Centralized control of the world’s food supply, trade and the usurpation of individual countries’ sovereignty. It would close loopholes and cut traditional farm programs by $4.5 billion over the next ten years. Corn and wheat prices have moved higher. Drought has affected wheat production and drought and the production of ethanol is impacting corm production. Trading partners are threatening retaliation unless the US curbs crop subsidies that are sold to promote over production in the US and low prices for farmers abroad.
The latest revelation in the Plame-Libby saga is copies of hand written notes by V. P. Cheney, introduced by defense attorneys for Libby appears to implicate George W. Bush. Bush maintains he was unaware of any retributive attacks on Joe Wilson, but these note imply George was lying again. It also raises questions about potentially criminal actions by Bush if he was active in Cheney and Rove’s plan to get Libby to take the fall to protect Rove who really engineered the whole operation.
Employer’s costs to hire and retain workers rose in the final quarter of 2006 as wages and benefits rose by 0.8%, down from a 1% rise in the third quarter.
Inflation rose 0.4% in December, backed by a 0.9% gain in prices of non-durable goods. Disposable income rose 0.2%, the weakest growth since May.
After inspection we find that the 3.5% increase in GDP supposedly came from the sharp decline in oil prices, which added 1.6% to GDP. Thus, real GDP would have been 1.9% if oil had remained unchanged in price The price of oil is about $58.00 , up from a low of close to $50, so we believe if prices hold here or rise into the $60’s, that we will see a reversal in February.
Another component that boosted that 3.5% GDP was government spending, particularly on defense. Federal spending was up 4.5% versus 1.3% in the third quarter. Defense spending soared 11.9% versus a decline of 1.2% in the third quarter.
A fourth quarter decline in residential building shaved 1.16% off GDP.
John Williams says, “This Friday’s, February 3rd, release of January payroll employment faces three major unusual factors that could distort growth. First, the January payroll survey was early enough in the month to show continued benefit from the unusually mild weather; second, the monthly bias factor swings sharply to the downside in January from December; and third, the bias moved from a positive 63,000 in December 2005 to a minus 193,000, or a negative swing of 256,000 jobs.”
Finally, the pending release will adjust recent history for the annual benchmark revision, with a promised upward revision of 810,000 jobs to the seasonally unadjusted March 2006 payroll level. Such gives the BLS the ability to generate any level of jobs growth that it desires for January. Knowing government, the adjustment will be upward. The flipside is if they message the January figures upward, February will suffer.
As John Williams says our major concern, and the market’s, is wage inflation. It is here, it is now and it is in our future.
The number of job cuts announced by corporations in January were up 15.2% from the number reported in the prior month for a total of 62,975. This was 39.1% less yoy.
Early next month, the President has an historic opportunity to submit a federal budget to a democratically-controlled Congress, that will expand the middle class, reduce the enormous gap between the rich and the poor, and lower the poverty rate. But, don’t hold your breath. What he has and will continue to do is make tax cuts permanent to the wealthiest people in the country. You can expect no less when you have a V. P. who has infamously declared that, “deficits don’t matter.” It should also be noted that Mr. Bush has racked-up the three largest deficits in US history and has accumulated a record-breaking $8.6 trillion debt. Mr. Bush wants massive cutbacks in Medicare, Medicaid, education, veteran’s benefits and the environment. This while millions of Americans are struggling to make ends meet, George wants to make tax cuts to the rich permanent. Since George took over our country and ascended as emperor, 5.4 million middle class Americans have slipped into poverty, and 6.8 million Americans have lost their health insurance. Median income for working-age families has declined for five consecutive years and five million manufacturing jobs have left our country. They tell us inflation is 3.4% that the costs of education, prescription drugs, energy and housing have risen some 25%.
The richest 13,000 households earn nearly as much as the bottom 20 million and the top 1% own more wealth than the bottom 90%.
George might explain how the outgoing CEO of Home Depot receives a $210 million golden parachute and the CEO of Exxon Mobil gets a $300 million retirement package, when people are starving in our prosperous country. At least that is what George said at the NYSE the other day. As you can see we are getting screwed.
During the five years between 1995-2000, non-financial debt growth of 32.4% went together with 22% real GDP growth. From 2000-2005 it grew 47.3% and real GDP by 13.4%. This is a horrible deterioration in the relation of debt growth and economic growth.
The longer-term question for the economy is whether the housing downturn will severely hurt consumer spending and whether capital spending by corporate America will bailout the economy as the consumer cuts spending.
Of course, there will be a housing correction. It started 1-1/2 years ago and that driving motor is slowing. The psychology and the wealth effect are over. The equity to borrow against is fast disappearing. In fact the end of the borrowing and spending binge has started with a vengeance. It was $672.7 billion in the third quarter of 2006, down sharply from $1,223.6 trillion yoy. That is about a 50% drop and nobody in the financial world talks about it. The most important credit source for spending in the economy is drying up. Credit is available elsewhere, but the public is so far in debt and without savings they are not partaking of the credit opportunity.
In the third quarter of 2006 spending by the consumer on consumption and residential investment fell 11.1%.
In 2005 household total consumption accounted for 91.8% of GDP growth. Income growth was 1.2%. Less than one-third of the reserve consumer spending was funded by current income growth and two-thirds was from borrowing. Needless to say, that is unsustainable. Consumer debt will collapse over the next three years. That means the economy must find another way to grow. If someone knows how, let us know. In the first 9-months of 2006 the median price of a new single-family home fell 9.7% yoy, the largest percentage since 1970. The median price of an existing single-family home fell 2.5%. Mortgage debt soared 50% in six years to $9.5 trillion. The 30% of job growth this bubble created will vanish over the next three years, leaving lots of unhappy people.
Massive job cuts have begun in the residential construction industry. MDC, one of the largest homebuilders, is cutting 1/3rd of their workforce and the same is happening with Pulte Homes. In fact, all the builders are making big cuts. This will mark the first phase of layoffs and cuts in starts. There will be three phases. Phase two comes late this year and phase three next year, until 60% of home building has been cut. That may be a conservative figure.
We received two more reports that both China and South Korea are building stockpiles of strategically important commodities. They are laundering their dollar reserves and have been for three years.
The Senate approved 94-3 an increase in the minimum wage to $7.25 an hour, but not before they packed the big with tax breaks for businesses. The bill would also raise taxes on compensation over $1 million a year. The tax breaks were to offset the higher costs many small businesses would face. There will be a fight in the House over this, and the Senate bill may not be approved.
A Munich court has ordered the arrest of 13 US intelligence operatives in connection with the kidnapping, beating and torture of a German citizen. It is unlikely they will appear, or be extradited. They will be protected by the Bush administration.