Corporatist Fascism: Government Paid For and Controlled By Wealthy Corporatist Interest

A Nation Exclusively Run for Corporate Interests

The welfare state rumbles on in corporate America, debts become more unpayable daily, pondering the metals correction, US Treasury near legal debt limit, governments extend the time lines of debt, legal actions in Madoff case, big fines to settle fraud case. Red flags all over Europe.

January 29, 2011

Bob Chapman - The US welfare state rumbles on, and in some sectors of business it is being encouraged. We have to assume this attitude is based on more and increasing profits. Needless to say, it is cloaked in language that refers to the poor suffering people.

The economy in the US and in many other countries is being run by and for major corporate interests. It is called corporatist fascism. Not many truthfully call it that, but that is what it is.

We have government paid for and controlled by wealthy corporatist interest. In America you have $14 trillion in short-term debt and $105 billion in long-term commitments. Then there is the off budget items, such as wars and occupations that adds considerably to this debt, all attuned to keep the welfare state running.

Both parties refuse to cut much of anything, although the Republicans say they will. We are skeptical after watching the tax bill become an $862 billion pork stimulus package. Discretionary spending is where the cuts will probably occur if there are any.

The cost of carrying this debt becomes more unpayable and onerous daily, and there is little attempt to stop it. The Fed may control the short end of the Treasury bond market, but it has minor influence on the 10-year notes and 30-year bonds. As a result, yields have risen and the spread in yields between short and long-term paper has grown to 32-year highs. Needless to say, holders of long-term notes and bonds want to be better compensated because they see more risk, as US debt grows uncontrollably higher. Short-term yields have stayed about the same because the Fed controls them.

The demand for capital in small and medium companies has been muted by lenders reluctance to lend for the past two years. Zero interest rates have not helped these potential borrowers that create 70% of the jobs.

Funds though are readily available to the major transnational conglomerates. Government and the Fed won’t talk about it, but they are manipulating all markets, and that is a long-term negative factor, because everything they do is for their own benefit — not for the people.

The state of political affairs could be worse, but they certainly are not good. We liken the US economy to a rudderless ship being pulled and jerked by one special interest group or another from side to side never gaining equilibrium. As long as this situation persists no headway will be made in solving budget deficits, nor in neutralizing the welfare state.

At the same time we see red flags all over Europe. It is pointed out that in Europe, Greece is uncompetitive and has a sodden public sector; that Ireland borrowed too much and was moving more to a welfare state; that Belgium was a house truly divided with financial problems; that Portugal’s economy lagged like that of Greece and has similar major budget deficits, and that Spain doesn’t have a diverse enough economy and was literally destroyed by one interest rate fits all.

What no one wants to contemplate is why did this all happen? That is because banks lent them all as much money as they wanted. The bankers, the professionals, should have never lent them such outrageous sums in the first place. Now the banks with their bad loans are demanding they be bailed out. It is ludicrous and the banks should be allowed to go bankrupt — they are the experts. They knew exactly what they were doing.

That is Europe’s solution, and the quicker they realize it, the better off the Continent will be.

As of this writing, gold has fallen about $100, and silver some $3.00. Support for gold lies anywhere between $1,280 and $1,340. Many are disappointed that both metals corrected, which is natural, but they are more upset that the correction was deliberately man-made.

Part of the corrective process was that Germany supposedly was going to save the euro, or at least that is what jawboning Chancellor Merkel seems to think. Germany is not about to bail out six insolvent countries. If they do or even participate in spending of more than the original solvent euro nation commitment of $1 trillion, they may become insolvent as well. The German people are well aware of this, and they won’t allow it to happen. As we reported in the last issue, contingency plans are already underway to reintroduce the Deutsche mark if necessary.

The euro zone countries are facing major funding all year, but the heavy end will be in the first quarter with lighter demands in the second quarter. Germany is not about to bail out sick members or the euro, especially with Irish elections coming in three weeks. Thus, we see no eminent moves by Germany.

Gold has spent the last two years moving up in price as it challenged the US dollar for supremacy as the world reserve currency. Now, inflation is again in investor’s sights, as companies are forced to raise prices 6% to 15%, after having raised prices over the past year mostly in the form of small packaging. We’d call that stealth inflation.

Manufacturers and producers think they are fooling the American public, but they are not. They are just demonstrating how deceitful they are. Raw materials costs are rising, and they will continue to rise and so will real inflation, and that makes gold and silver move higher to reflect the loss in purchasing power of the public and the loss of value of all currencies versus gold and silver.

In our previous report this week we pointed out the massive short covering by commercials in the gold pits. Unprecedented net short reduction, which can only portent a major upward move in gold and silver. The percentage of silver short covering was not nearly as successful for JPM, HSBC, GS and Citi. That is still yet to come. It will expedite the upside as it has done recently.

All the elitists have done is ended their short bias and now will join you on the long side of the market. Their tactics have given you another opportunity to buy at cheaper prices.

The bond market yields will move slowly higher on the long end for the remainder of the year and thus, bonds should move slightly lower.

Stocks, which are way overpriced, will eventually fall probably back to 10,000 on the Dow.

Conservative economists seem to think the economy will have a few years of stable to moderately deflating prices. We find that ludicrous with another $2.5 trillion being jammed into the economy. Even another deflationary down leg in real estate would not offset such spending, which follows $2.5 trillion spent under QE1 plus stimulus. That last attempt to increase employment was a failure. This time it will be the same unless there could be giant productivity gains, which is an unknown.

Recovery is difficult as savings persist at a 4% level. Wages are contracting as inflation increases, sapping consumer purchasing power. Many countries are involved in currency wars and growth should slow sharply as tax breaks end.

Small business, which saw lending fall 25% over the past two years, are in no mood to borrow unless absolutely necessary, even if funds are available. There will be no aid from inventory buildup that was accomplished last year.

Topping off resistance is an again falling real estate market, which does not tend to instill confidence.

Then there is the possibility of $60 billion in budget cuts, which won’t be helpful to consumption.

We cannot leave out forced austerity measures by municipalities and states. Perhaps including hundreds of bankruptcies. We also must consider illiquidity and major losses on the horizon for those holding municipal bonds as a drag on the economy. State budget shortfalls are more than $125 billion. Then consumers have to deal with tax increases that will curtail buying. We see political and social upheaval worldwide.

The question is will it come to America? When we were in the brokerage business we always said when in doubt don’t. That is what is in process in America today. Chances are the market will correct and real interest rates will rise. All these factors mean it is going to be very difficult for GDP growth to exceed 2-1/4%, at a real cost again of $2.5 trillion.

The US Treasury Department announced on Thursday that it will shrink the amount of money it has on deposit at the Federal Reserve to fund emergency lending facilities because it is nearing the legal debt limit. Beginning Feb. 3, Treasury will gradually decrease the balance in the Supplementary Financing Program to $5 billion from $200 billion. It can do so by letting short-term bills that finance it mature and not issue new ones.

A Treasury official, speaking to reporters on background, said the action was being taken because Treasury was running near the $14.294 trillion debt limit. As of Jan. 25, it had $14.015 trillion of debt outstanding so only about $279 billion of legal borrowing authority was left.

The Fed’s weekly H.8 report of banks’ assets & liabilities clearly shows that big banks are more hedge fund that lending institution and bank speculation is running amok.

For December, ‘bank credit’ is down 5.4% y/y with ‘consumer loans’ contracting 4.9% y/y. ‘Interbank loans’ collapsed 41.6%! ‘Total assets’ declined 3.5%. But ‘trading assets’ bubbled up 86.2%!!!! What is even worse is ‘deposits’ have declined 4.3%, with ‘large time deposits’ tanking 19.7%; but ‘trading liabilities’ have surged a criminal 157.3%!!!

The surge in trading assets and liabilities, and leverage, commenced in Q2, which suggests that the necessity to generate profits was acute…This is the prime proof that Ben’s QE is a thinly veiled scheme to keep the big zombie banks afloat on the back of taxpayers.

Easy Al used the ‘carry trade’ to surreptitiously bailout the money center banks in the early nineties. Bennie Mae is using QE to surreptitiously bail out the big banks now. And Ben, B-Dud and others in the Fed cabal have the temerity to say that QE is for the unemployed!

Goldman Sachs collected $2.9 billion from the American International Group as payout on a speculative trade it placed for the benefit of its own account, receiving the bulk of those funds after AIG received an enormous taxpayer rescue, according to the final report of an investigative panel appointed by Congress.

The fact that a significant slice of the proceeds secured by Goldman through the AIG bailout landed in its own account as opposed to those of its clients or business partners has not been previously disclosed. These details about the workings of the controversial AIG bailout, which eventually swelled to $182 billion, are among the more eye-catching revelations in the report to be released Thursday by the bipartisan Financial Crisis Inquiry Commission.

A deeply divided U.S. investigative panel issued a scathing critique of the culture of deregulation championed by Former Federal Reserve Chairman Alan Greenspan, saying the government had ample power to avert the financial crisis of 2007-2009 and chose not to use it.

The 10-member Financial Crisis Inquiry Commission's final report, released on Thursday, was endorsed only by its six Democratic members, undermining its impact as the post-crisis Dodd-Frank banking reforms are being implemented.

In the fight between pro-reform Democrats and anti-reform Republicans, the report and its accompanying dissents provide fodder for both sides, while highlighting partisan fault lines that today pervade political Washington, from financial regulation to health care to addressing the budget deficit.

A competing minority report from three Republican commission members, also released on Thursday, largely exonerates Greenspan, saying,

"U.S. monetary policy may have contributed to the credit bubble but did not cause it."

Another report, from the 10-member commission's fourth Republican, focuses mostly on U.S. housing policy in explaining the origins of the crisis that rocked global markets, dragged the economy into a deep recession and unleashed reforms.

The unveiling of the three reports produced by the commission's warring members was seen by financial markets as a non-event.

"The market is not really going to react -- the market already has a very good idea of what happened," said Matt McCormick, portfolio manager at Bahl & Gaynor Investment Counsel Inc in Cincinnati, which owns bank shares.

The mountain of interview notes and internal documents obtained by the panel, however, contained some revelations. For instance, Federal Reserve Chairman Ben Bernanke told the panel that the crisis put 12 of the 13 most important U.S. financial firms at risk of failure within a period of a week or two, and that it surpassed in severity even the Great Depression, a period in which he is a noted expert.

"As a scholar of the Great Depression, I honestly believe that September and October of 2008 was the worst financial crisis in global history, including the Great Depression," said Bernanke in a November 2009 interview with the commission.

"If you look at the firms that came under pressure in that period ... only one ... was not at serious risk of failure."

It was not disclosed which of the 13 top financial institutions Bernanke thought was not at risk of failure. Bernanke did say that Goldman Sachs was not immune.

"Even Goldman Sachs, we thought there was a real chance that they would go under," he said...

Labor: Lavish CEO Pay Still Rising

April 20, 2011

The Lookout - Remember the outrage over lavish Wall Street bonuses doled out in the wake of the financial crisis? The brouhaha supposedly put an end to the outrageous pay packages enjoyed by many American CEOs -- and not just in the financial sector.

But over two years later, very little has changed. A new website launched by the AFL-CIO, aimed at focusing public attention on excessive executive compensation, touts some shocking numbers. Among them:

• Last year, total compensation for CEOs averaged $11.4 million, up 23 percent from the previous year, according to data for 299 major companies.


• CEOs at those 299 companies raked in a total of $3.4 billion. That's enough to support over 100,000 jobs that pay the median wage of just over $33,000.


• Average CEO compensation is 343 times that median wage.


• Ray Irani (pictured), the outgoing CEO of Occidental Petroleum Corp., took in $76.1 million in compensation last year. Over the last decade, he received $857 million. "We're not in the business to employ people. We're in the business to make a profit," Irani has said, according to the AP.


• Evan at large financial services companies -- where the furor over bonuses was focused -- total compensation rose 5.7 percent in 2010, to a record $149 billion.

The numbers above include base salary, bonuses, stock awards, and any other form of compensation.

The site, Executive Paywatch, allows users to search for specific companies and find out how much their CEO was paid. For instance, it says that G.E. CEO Jeff Immelt, who also serves as President Obama's "jobs czar," took in $21,428,765 in total compensation last year.

The Dodd-Frank legislation passed by Congress last year included several provisions aimed at making it easier for shareholders to rein in excessive executive pay. For instance, it required companies to publicly disclose the ratio between CEO pay and the pay of their median worker.

The AFL-CIO's campaign comes at a time of increased concern over growing inequality. As we've noted, the income of the richest 1 percent of Americans has exploded over the last 30 years, while income growth for the bottom 90 percent has remained barely budged.