Ignore all this supercommittee talk

Today’s ad-hoc explanation of market action seems to be the failure of the US Congress’ “supercommittee” to come up with a deal to slightly shrink the 2nd derivative of budget growth over 10 years. What a joke! Europe was down over 3.5% today – does anyone there know or care about the supercommittee? What about the Russians (-5%) or traders in Hong Kong last night (-1.5%)? There is a deficit of over a trillion dollars a year, and this committe was talking about spending a trillion less over 10 years than they would at the current pace of growth, as if Congress ever sticks to previous budget plans anyway.

Nobody but journalists has cared about this noise, since it is clear that Congress and the executive will do nothing to meaningfully address the budget gap until the bond market forces their action. If we are in another strong wave down in the secular (post-2000) bear market, this will buy the government (and probably those of Japan, Germany, France and the UK) another year or more before interest rates start to creep higher and force defaults and spending cuts. This outcome is inevitable, since the welfare state Ponzi schemes must collapse and screw the later generations of entrants, as in all Ponzis.

So why is the market down today? Because we’re in a bear market, and Oct-early Nov relieved the oversold condition that had built up by the end of September (lowest, longest-sustained DSI bullishness since 2009). Since before it started, I have viewed this rally aspossibly similar to what we experienced from mid-March to late-May 2008. If the corollary holds, we will be back under SPX 1100 by the New Year.

Journalists are lazy and make up explanations for market action without any empirical evidence, always assuming that correlation equals causation. If every day you magically had the next day’s news headlines, I doubt it would offer much if any trading advantage.

Ron Paul: Return to 2004 budget would eliminate deficit right now.

From his Texas Straight Talk column on his Congressional site:

This week marks the deadline for the so-called congressional Super Committee to meet its goal of cutting a laughably small amount of federal spending over the next decade.  In fact the Committee merely needs to cut about $120 billion annually from the federal budget over the next 10 years to meet its modest goals, but even this paltry amount has produced hand-wringing and hysteria on Capitol Hill.  This is only cutting proposed increases.  It has nothing to do with actually cutting anything.  This shows how unserious politicians are about our very serious debt problems.

To be fair, however, in one sense members of the Super Committee face an impossible task.  They must, in effect, cut government spending without first addressing the role of government in our society.  They must continue to insist the federal government can provide Social Security, Medicare, and Medicaid benefits in the future as promised, while maintaining our wildly interventionist foreign policy.  Yet everyone knows this is a lie.

Keep in mind that the 2011 federal deficit alone was about $1.3 trillion, which means the Super Committee needs to cut that much PER YEAR rather than over a 10 year period.  If Congress ever hopes to address its debt problem, it must first stop accumulating any new debt immediately, in 2012.

Federal revenue likely will be about $2.3 trillion in fiscal 2012.  The 2004 federal budget was about $2.3 trillion.  So Congress simply needs to adopt the 2004 budget next year and the federal government will balance outlays and revenue.  That’s all it would take to produce a balanced budget right now.  Was the federal government really too small just 7 years ago, in 2004?  Of course not.  Only Washington hysteria would have us believe otherwise.

Read the whole thing here: http://paul.house.gov/index.php?option=com_content&task=view&id=1928&Itemid=69

Congressman says debt = wealth, threatens to defenestrate reporter

Here’s a little glimpse into the attitude of our elected representatives.  In this video from the Clinton years, Congressman Pete Stark of California gets increasingly agitated, condescending and rude as a reporter challenges him on the wisdom of deficit spending:

Hat tip Zero Hedge.

I glanced at Mr. Stark’s wikipedia page, and he is an interesting congresscritter. He’s an MIT engineering grad, an atheist, and he voted against both Iraq wars and the Patriot Act — just knowing those facts, I wouldn’t have guessed he was such an arrogant, ignorant prick. Oh, and like so many Democrats, he spoke out against Bush’s deficits but has no problem with his own party’s spending, like the socialized health care he supports. Here’s a quote from the Bush years:

“Republicans sure don’t care about finding $200 billion to fight the illegal war in Iraq. Where are you going to get that money? Are you going to tell us lies like you’re telling us today? Is that how you’re going to fund the war? You don’t have money to fund the war or children. But you’re going to spend it to blow up innocent people if we can get enough kids to grow old enough for you to send to Iraq to get their heads blown off for the President’s amusement.”

That’s great — now if he’d just say the same about Obama’s Afghanistan efforts and deficits.

One more thing about this guy: he and Congressman Defazio were the geniuses behind the “Trader Tax” proposal to put a 0.25% tax on the notional value of all market transactions, as a way to “make Wall Street pay for Wall Street’s bailout.” He didn’t care that traders are not “Wall Street” and received no bailout.

Ron Paul sums up the crisis in 3 minutes

(thanks again to zerohedge for finding this video)

I remember when I first discovered a speech by Ron Paul back in boom-time 2005, and was shocked that a Congressman was so eloquently warning of the dangers of fractional reserve lending, the Federal Reserve system, and welfare/warfare deficit spending. It was the first time that I could fully respect a standing politician.

Dr. Paul is still the nation’s strongest voice for an honest monetary and banking system, and he delivered a zinger in front of Bernanke and Frank yesterday. If, like me, you haven’t heard him speak in a while, have a listen and you’ll remember why his campaign was so exciting for so many of us.

Money quote: “I would suggest that the problems we have faced so far are nothing compared to what it will be like when the world not only rejects our debt, but our dollar as well. That’s when we’ll witness political turmoil that will be to no one’s benefit.”


Now wouldn’t it be great to have Peter Schiff to cause the same trouble in the Senate?

Did Congress really cause the stock market to fall?

Consider that the market dropped about 2.5% at the open, before the vote was on the floor, and that Europe had been trading down 4% before Wall Street even had breakfast. Stocks around the world were having an awful day this morning, even though almost everyone assumed the bill was a done deal.

It is unfortunate that the market hasn’t held up long enough for the bill to pass in one form or another, since today’s drop just gives the congress critters an even greater sense of their own importance.

This market is headed way down no matter what, due in large part to 100 years of stupidity and malfeasance from Congress (the Federal Reserve Act, FDIC insurance, Fannie and Freddie, etc.). Government enabled bankers to run bigger and bigger scams, until the whole debt-laden economy became a house of cards. So yes, Congress caused the market to crash.

That was quick: Bailout deal coming together.

We have another rumor and another rally (which we were due for today anyway). I’m scared of what happens after this thing becomes news.

The rumor is the head congresscritters are saying they think they have a deal:

WASHINGTON (AP) – Warned of a possible financial panic, key Republicans and Democrats reported agreement in principle Thursday on a $700 billion bailout of the financial industry and said they would present it to the Bush administration in hopes of a vote within days.

Emerging from a two-hour negotiating session, Sen. Chris Dodd, D-Conn., the Banking Committee chairman said, “We are very confident that we can act expeditiously.”

“I now expect that we will indeed have a plan that can pass the House, pass the Senate (and) be signed by the president,” said Sen. Bob Bennett, R-Utah….

Tony Fratto, the White House deputy press secretary said the announcement was “a good sign that progress is being made.”

“We’ll want to hear from (Treasury) Secretary (Henry) Paulson, and take a look at the details. We look forward to a good discussion at the meeting this afternoon,” he said….

“There really isn’t much of a deadlock to break,” said Rep. Barney Frank, D-Mass, chairman of the House Financial Services Committee.

But there were fresh signs of trouble in the House Republican Caucus. A group of GOP lawmakers circulated an alternative designed to attract private capital back into the credit markets with less government intrusion.

Really? Someone is defending the free market?

Under the proposal, the government would provide insurance to companies that agree to buy frozen assets, rather than purchase them directly as envisioned under the administration’s plan. The firms would have to pay insurance premiums to the Treasury Department for the coverage.

I really got my hopes up there for a minute. Not. This sounds like a phoney, roundabout way to offload the losses to the Treasury. There is no difference whether the Treasury buys the bad debt for more than it is worth or insures it for below market rates; the taxpayer takes the loss either way.

Want to fight the bailout? Check in with Mish.

Not all libertarians are as cynical* as I am. Like giving money to Ron Paul’s campaign (which I did, because it was always about the message, not winning), fighting the bailout may be futile in the end, but at least you can look back and say that you made the effort.

Mish is on top of a massive campaign to do the right thing, with resources and guidance for contacting congresscritters, many of whom are reporting that this is the biggest public response that they have ever seen. If you are of a mind to make some noise, head over there.

Mish has drawn up an open letter to Congress with suggestions for removing some of the road blocks that government has placed in way of the market, which would allow our financial system to right itself with no handouts. Passing such a bill would be the most sensible thing Congress has ever done.

Also consider pointing your Congressional ‘representatives’ to Fund manager John Hussman’s plan, which involves more government involvement (so it stands a better chance with Congress than Mish’s, since it gives them something to do, not undo), but is far more sensible than the Paulson plan.


*My own belief is that educating yourself and others about fractional reserve banking and other scams, while protecting your own assets or even making money on the short side, is good for everyone. It leaves more capital in sane hands and preserves knowledge that can be redeployed at home or elsewhere, whether in the coming years or many decades from now. That’s not cynicism, but realistic hope. Civilization will flourish again, sometime, somewhere, hopefully on earth, hopefully among humans, and hopefully in my lifetime.