Potemkin retail

Potemkin village: an impressive facade or show
designed to hide an undesirable fact or condition

In spite of the poor economy, the remaining stores in my area look about the same as they always have. True, there are fewer little shops in the strip malls, but the big chain stores seem unchanged. Until you pick something up, that is.

I used to buy casual clothes at Target. I got some jeans there last fall, only to discover that the pockets had been sewn shut. They weren't fake pockets-- after I got my little seam-ripper out and undid the damage, the pockets functioned as normal. It was just a goof. A pair of denim shorts bled blue dye for multiple washings and wound up a much different color by the time I would risk wearing them. And the socks seem to last through only 8 or 10 wearings before developing holes in the heels. As for T-shirts, forget it. The material has gotten very thin and chintzy, and half the time there are threads coming out of the seams.

I'm not trying to pick on a particular chain; it's like this at all the big box stores. I tried ordering shirts from Land's End instead, unaware that they too had cut their quality pretty drastically. The shirts that arrived were... well, okay, you couldn't literally read a newspaper through them, but close. Big headlines, maybe.

I bought some Hanes sweatpants for my son, who still crawls around much of the time. On the first day he wore them, they turned out to be not actually woven material but a sort of felt or other fuzzy stuff attached to a gauzy network of threads. The knees didn't exactly wear through, it was more like they rubbed off. Incidentally, I also once bought a blanket that I thought was microfleece but which turned out to be fuzz attached to a plasticky network in the middle. I washed it once and half the fluff came off. They don't even bother weaving cloth anymore, it appears. And yet the blanket had appeared to be of better quality, as seen through its plastic case (un-openable) on the store shelves.

As the story goes, it's all China's fault. They swindle us with their bad products. But actually, the crappy clothes I've unwittingly bought have come from Singapore and Guatemala, El Salvador and Malaysia as well. It's not all China's fault. Something else is going on here.

Food, as we all know, has been declining in quality steadily for decades, but is now also declining in quantity. The 32-oz jars are now 28 oz, the 7-oz tuna cans are down to 5 or 6 ounces, the 16-oz container of ricotta cheese is now 14 ounces. And yet, prices are up.

Loss of quality is happening across the board. I now prefer to spend money on all-stainless kitchen gadgets or to buy them from (say) a Swiss manufacturer like Kuhn-Rikon. It seems like more money, but it actually isn't, because at least that way you don't have to buy it again in 2 years. And quality kitchen items, like my pressure canner or my Squeez-o, can be found used.

I've replaced bathroom fixtures only to wish I'd kept the dated 1960's stuff because at least the old fixtures didn't constantly come unscrewed, rust in unexpected places, or turn out to contain plastic where you'd expected steel. Must everything be made with planned obsolescence?

But it isn't just intentional obsolescence, any more than it's "all China's fault." In truth, this is hidden inflation. American dollars used to buy steel instead of aluminum, glass instead of plastic, wood instead of particle board, goosedown instead of fiber-fill, silk instead of rayon. Today American dollars buy you stuff that looks good in the store, but which falls apart once you begin using it.

Inflation, on paper, has been bad enough. We all just accept that prices go up every year, and that our wages and salaries don't quite keep pace. But meanwhile the things in our houses, and the houses themselves (think toxic drywall or disintegrating faux-wood siding) have gone to hell, quality-wise. That, too, is inflation, but not the sort that shows up on price tags.

Ironically, the government looks at quality, but only when quality is improving. If you spent $1500 on a computer a few years ago, and this year you bought another computer for $1500, they'll claim that you actually got it cheaper. The new computer, you see, has a bigger hard drive and more memory and a faster processor, so you actually got more computer for the money. They adjust for that; it's called a "hedonic adjustment." They're telling us that we're not actually paying the same prices... not if you measure it per gigabyte or per gigahertz.

But -- get this -- they never adjust for declines in quality. If you had to spend $10 for a T-shirt made with 50% fewer threads than the $10 T-shirt you bought last year, tough luck. The government doesn't "adjust" to indicate that you're paying more per thread.

That lets the government hide inflation, as long as almost everything we're buying gets crappier with every passing year. Which it most certainly does.

And again, it isn't wholly China's fault. We can't pay the Chinese good money for good quality, because we haven't got good money... we have slowly failing currency. The price tag may look the same, but the dollars themselves have lost value. As the dollar has fallen, it's squeezed Chinese companies. Wal-Mart has demanded the same stuff for less real money, and naturally the Chinese have cut every corner they could. What we get from them today is largely what our currency is worth.

And thus, America's well-stocked, cheery retail stores are in fact full of junk. It's all just Potemkin retail.

Pillaging Haiti

Let me start with the blatant propaganda:

Jan. 26 (Bloomberg) -- The earthquake that killed more than 150,000 people in Haiti this month may have left clues to petroleum reservoirs that could aid economic recovery in the Western Hemisphere’s poorest nation, a geologist said.

The Jan. 12 earthquake was on a fault line that passes near potential gas reserves, said Stephen Pierce, a geologist.... The quake may have cracked rock formations along the fault, allowing gas or oil to temporarily seep toward the surface....

Haitian Prime Minister Jean-Max Bellerive met yesterday in Montreal with diplomats, including U.S. Secretary of State Hillary Clinton, to discuss redevelopment initiatives.

Oh puh-leeze. Are we going to claim we just discovered oil there, just at the moment when we happened to be invading the country? The Pentagon comes and takes over the ports and airports of a tiny nation and-- hey! What do you know, there's oil there! What a surprise.

As I've recently been learning, we've known there was oil in Haiti for years. Check it out:

There is evidence that the United States found oil in Haiti decades ago and due to the geopolitical circumstances and big business interests of that era made the decision to keep Haitian oil in reserve for when Middle Eastern oil had dried up. This is detailed by Dr. Georges Michel in an article dated March 27, 2004 outlining the history of oil explorations and oil reserves in Haiti and in the research of Dr. Ginette and Daniel Mathurin.

There is also good evidence that these very same big US oil companies and their inter-related monopolies of engineering and defense contractors made plans, decades ago, to use Haiti's deep water ports either for oil refineries or to develop oil tank farm sites or depots where crude oil could be stored and later transferred to small tankers to serve U.S. and Caribbean ports. This is detailed in a paper about the Dunn Plantation at Fort Liberte in Haiti.

[These are] the economic and strategic reasons the US has constructed its fifth largest embassy in the world - fifth only besides the US embassies in China, Iraq, Afghanistan and Germany - in tiny Haiti, post the 2004 Haiti Bush regime change.

The 2004 Bush regime change was when the US faked a coup attempt in Haiti, kidnapped the democratically elected president (claiming it was for his own safety), and put American agents in power. The current prime minister, we're to believe, is meeting with Hillary Clinton to discuss "redevelopment" projects. If by "redevelopment" one means letting the US come in and steal oil and minerals from Haiti for pennies on the dollar, then yes, that's what the guy is doing.

But how much oil could such a tiny nation have? Perhaps more than you think:

“The Central Plateau, including the region of Thomonde, the plain of the Cul-de-Sac and the bay of Port-au-Prince are full of hydrocarbons” he said, adding that “the oil reserves of Haiti are more important than those of Venezuela.”

“An Olympic pool compared to a glass of water; that is the comparison to illustrate the importance of Haitian oil compared with those of Venezuela,” he explains.

“Venezuela is one of the world’s largest producers of oil.”

And it isn't just oil, but also minerals.


Remember how it was such a big deal that the US moved 30,000 more troops to Afghanistan? Well, we now have over 15,000 troops in Haiti, a country the size of Massachusetts. And there were already well-informed suspicions that the US was after Haiti's natural resources, months and years before the earthquake.

So, I have to take back my earlier statement that perhaps the US really is so incompetent that we don't know how to distribute food and water. That's not the case. We're just tied up with other details, like securing the oil fields and the future gold and silver mines. Thievery first... humanitarian missions a distant second.

You are on your own

What happened in New Orleans in the wake of Hurricane Katrina was so bad that some have theorized it was an intentional failure, an experiment. How do Americans react when put into concentration camps? How do police officers react when told to fire on US citizens trying to find food and water? How do police and residents react when the cops are asked to go door to door confiscating guns illegally? How do parents react when they are put on a bus and their children are taken to a separate bus, to be relocated to a different state for no discernible reason? How do internally displaced Americans behave in their new communities?

But perhaps it was no experiment. Perhaps, here at the end of our empire, we are simply that stupid, that incompetent, that frightened, that bureaucratic, that inhuman. I direct you to Greg Palast's excellent piece on the miserably lousy US response to the Haiti disaster:

6.
From my own work in the field, I know that FEMA has access to ready-to-go potable water, generators, mobile medical equipment and more for hurricane relief on the Gulf Coast. It's all still there. Army Lt. Gen. Russel Honoré, who served as the task force commander for emergency response after Hurricane Katrina, told the Christian Science Monitor, “I thought we had learned that from Katrina, take food and water and start evacuating people." Maybe we learned but, apparently, Gates and the Defense Department missed school that day.

7.
Send in the Marines. That's America's response. That's what we're good at. The aircraft carrier USS Carl Vinson finally showed up after three days. With what? It was dramatically deployed — without any emergency relief supplies. It has sidewinder missiles and 19 helicopters.

8.
But don't worry, the International Search and Rescue Team, fully equipped and self-sufficient for up to seven days in the field, deployed immediately with ten metric tons of tools and equipment, three tons of water, tents, advanced communication equipment and water purifying capability. They're from Iceland.

9.
Gates wouldn't send in food and water because, he said, there was no "structure ... to provide security." For Gates, appointed by Bush and allowed to hang around by Obama, it's security first. That was his lesson from Hurricane Katrina. Blackwater before drinking water.

Iceland, as we all know, has been economically crippled by currency collapse and massive deflation. But they still managed to be far more helpful to civilians on the ground than the US, which behaves like the cartoon elephant scared of a mouse, and isn't willing to deploy food and water until the police state apparatus is well underway. Blackwater before drinking water.

Take note. If we run out of diesel, if hyperinflation shuts down food production, if we can no longer import food (we are net importers of food), if we can no longer properly fertilize and harvest our crops due to the absence of bank credit-- if, in short, the food runs out--

You Are On Your Own.

Ain't nobody gonna be distributing sacks of rice in the town square, unless Iceland cares to fly in on a humanitarian mission. Our sad government isn't capable. All the soldiers and planes and MREs in the world are no match for stupidity at the top, and we have stupidity in spades.



ADDENDUM:

Another report from Haiti (January 17):

Thousands - or tens of thousands - more are still trapped under the rubble and need rescue. Today is an absolutely critical day. If these people don't get water today they will die....

President Barack Obama, flanked by his predecessors George W. Bush and Bill Clinton said, "By coming together in this way, these two leaders send an unmistakable message to the people of Haiti and to the people of the world."

Finally we hear the truth on a major foreign policy issue from Obama. A message has been sent: we have come to pillage your country in its greatest hour of need....

Yesterday, Secretary Hillary Clinton was sent to Haiti and gave a speech saying that the US is doing "every thing we can" to help the Haitian people. But that fact that her trip to the Haitian airport stopped all aid from arriving for three hours - three critical hours on a day when the difference between life and death for tens of thousands is a drink of water - should tell you everything you need to know about the US relief effort.

Remember that the rich are post-national; they don't care whether the poor are Haitian or American... either way, they're the nameless rabble. George Carlin's message was "They don't care about you," which -- harsh as it is -- is true. So do something to protect yourself, and to help the Haitians. (I went through Medecins sans frontieres / Doctors without Borders, here, but I don't honestly know which charities are best.)

Nationalizing our 401k's

Of all the economic possibilities I've mentioned to people, the one that gets the quickest "No, that'll never happen" reply is when I suggest the government will nationalize our retirement accounts. By "nationalize" I don't mean outright confiscation-- I am not saying they'd simply seize the contents of our 401k's. But they might, for instance, mandate certain investments: we'd all have to buy our fair share of Treasury bonds. They might limit withdrawals, limit investment options, and/or impose egregious fees and taxes. In short, the government may begin controlling our retirement money in ways which amount to a de facto nationalization.

They are not, obviously, going to use the word 'nationalization.'

The power elite are masters of the incremental approach. You don't just suddenly announce you're going to make all airline passengers go through roughly the same treatment afforded to incoming prisoners. People would be outraged. No, you just slowly introduce one damned thing after another until you arrive at the prisoner treatment, having suffered no more public protest than a bunch of kvetching. Similarly, they aren't going to suddenly impose 20 new controls on our retirement accounts, but you can bet it's at the end of their road map.

And so it begins:

The U.S. Treasury and Labor Departments will ask for public comment as soon as next week on ways to promote the conversion of 401(k) savings and Individual Retirement Accounts into annuities or other steady payment streams....

It sounds so innocent. Convert your retirement into a simple, safe annuity that pays you X amount on a set schedule, and you never have to worry about a stocks crash again. But what exactly will they be putting your money into, behind the scenes, in order to guarantee you those safe, set payments?

Treasuries. Which they're having a hell of a time offloading just about now.

Here's Karl Denninger's take (boldface is his):

Let me tell you what this is - it is an attempt to prevent the collapse of the Treasury market!

. . .

I have no quarrel with the government mandating that you have a choice in your IRA or 401k account to buy short-duration Treasuries....

But - "choices" have a funny way of turning into mandates, and this looks to me like a raw admission that Treasury knows it will not be able to sell its debt in the open market - so they will effectively tax you by forcing your "retirement" money to buy them!

This may be the only way for Treasury to hold down interest rates to something reasonable in the intermediate term, but doing so will instantaneously remove a major source of funding for the stock market - that is, the monthly and quarterly inflows from retirement accounts.

. . .

This "proposal" can only mean one thing - Treasury smells smoke.

Jesse over at Jesse's Café Américain weighs in as well:

As a rule of thumb, the worst possible time to convert lump sum savings into a fixed income annuity would be when interest rates are historically low....

For some reason the Obama Administration is promoting the idea now that there should be some encouragement for Americans to start converting their 401K's and IRA's into annuities, to provide themselves with lifetime income.

Interest on your savings, currently, is just about zilch. Why lock in that crappy interest rate by converting to an annuity? You'd be turning your money over to the government in return for payments which would not keep up with inflation. You'd have less and less purchasing power as time went on. This is not being done for the benefit of the American people.

And it's not just the people who already have retirement accounts. If you don't have any retirement funds, don't assume this won't affect you.

Jesse highlights an article from last June which suggests that the Obama administration wants to mandate retirement contributions:

Officials in the Obama administration are moving quickly to develop the investment infrastructure behind the president’s proposal for mandatory automatic enrollment in individual retirement accounts, which could be supported by the creation of Treasury-issued retirement bonds [emphasis mine].

J. Mark Iwry, deputy assistant secretary for retirement and health policy at the Department of the Treasury, said that administration officials are exploring some “conservative” options for investing the assets of 78 million Americans that he estimates could be automatically enrolled in this “universal” workplace retirement system.

The initial proposal allows for employees to opt out of the plan, but I'm skeptical about that. Consider that some versions of the health care bill suggest prison time for not buying insurance, even though insurance may cost up to $15,000 per year per family. Now consider how likely it is that employees will be allowed, without penalty, to opt out of the retirement plan. Not too likely, in my opinion.

No... the US Treasury wants its cut of the money made by 78 million Americans who do not currently save for retirement. Your sole option, initially, may be to purchase "R bonds" (government retirement bonds), with the ability to "graduate" to other conservative funds once you've saved enough money. Your distributions will come in the form of an annuity, with no say over the rate of draw-downs. If that isn't nationalization then I don't know what is. This will not be the plan for everyone, but once it's the plan for some, their foot is in the door. You have to think like an incrementalist. We've got annuity plans, mandatory enrollments, R bonds... you can see where this is going, right?

But hey, keep contributing if you think it can't happen here.

UK Telegraph, October 21st, 2008:

Here is a warning to us all. The Argentine state is taking control of the country’s privately-managed pension funds in a drastic move to raise cash.

It is a foretaste of what may happen across the world as governments discover that tax revenue [is plunging], and discover that the bond markets are unwilling to plug the gap....

President Kirchner has been eyeing the pension pool for some time. Last year she pushed through new rules forcing them to invest more money inside the country – always a warning signal.

My fear is that governments in the US, Britain, and Europe will display similar reflexes. Indeed, they have already done so.

Anything is possible in a banana republic

From the Wall St. Journal's Fund-flows firm suggests government manipulated stocks:

The unusual circumstances that led the U.S. market to rally powerfully in 2009 might be explained by secret government moves to buy stocks, according to Charles Biderman, the founder and chief executive of TrimTabs, a research firm that tracks liquidity flows in the market.

"We cannot identify the source of the new money that pushed stock prices up so far so fast," Biderman said in a statement Tuesday.

The source of approximately $600 billion net new cash necessary to lift the market's overall capitalization by $6 trillion last year could not be identified by TrimTabs, Biderman said. The money, he said, didn't come from traditional players such as companies, retail investors, foreign investors, hedge funds or pension funds [my emphasis].

So that rules out... well, practically everybody. Who the heck is buying this crap?

According to Biderman, the Fed would have done this by purchasing stock futures, which are traded after hours. This caught my eye because Zero Hedge has recently argued that the past 3 months' worth of stock market gains have been entirely due to after-hours futures trading:

Furthermore, if anyone was merely looking at the trading action in regular hours, one would think there was absolutely no profit made since early September. The reason for that: all the upside since September 14th has come exclusively from after hours action. The chart below demonstrates the relative performance of regular hour trading in the SPY as well as that in the extended session. The notable observations: gaps, gaps, gaps. Every single day, minimal volume pushes the futures index higher. Good news, bad news, it don't matter to the Goldman S&P and Russell 1000 futures desk: they just lift every micro offer, giving the impression that the market is unstoppable, often leapfrogging each other as the latest viagra'ed GDP or unemployment rumor is spread. Come morning, it is time for the HFT brigade to come in and scalp their trillions of pennies while leaving the market unchanged, then at 4pm handing it off again to leveraged futures manipulation and dark pools. In a nutshell, this is the secret of the past quarter's phenomenal market performance.

The red line is how stocks have performed during normal trading hours. The green line represents the rise in stock markets that came from futures trading during the off hours. And as Zero Hedge says, it's all coming from the futures.

There seems to be some argument about whether it's the Fed direct, or the Plunge Protection Team, or Golden Sacks who's behind the futures buying. As if there is any daylight between these guys! The pseudo-government plutocracy is the pseudo-government plutocracy, regardless of the official titles.

What's evil about this is that the prolonged rally will have sucked investors back into stocks in their 401k and other retirement accounts. And the rich, in case you weren't aware, can make just as much money as the market falls as they can while the market is rising. We may become poorer, but the rich always get richer.

A dollar in hand is worth twenty in the bank

Customers wait in line to remove their savings from a branch of The Northern Rock bank on September 17, 2007 in Kingston-Upon-Thames, England. Approximately £2bn has been withdrawn by customers since the bank applied to the Bank of England for emergency funds.

In a much-publicized post, the folks at Zero Hedge have alerted us that money market funds, one of the safest and most liquid investments available, may soon be neither safe nor liquid. The Obama administration, it turns out, wants to allow money market managers to halt redemptions. "Halt redemptions" is a nice way of saying that they can decide not to give you your money back, indefinitely.

From This Is the Government: Your Legal Right to Redeem Your Money Market Account Has Been Denied:

A key proposal in the overhaul of money market regulation suggests that money market fund managers will have the option to "suspend redemptions to allow for the orderly liquidation of fund assets." . . . The next time there is a market crash, and you try to withdraw what you thought was "absolutely" safe money, a back office person will get back to you saying, "Sorry - your money is now frozen. Bank runs have become illegal."

It was money market accounts, if you recall, which nearly imploded the US financial system in September of 2008. If you haven't seen the video of the Congressman who spilled the beans on this, you can see it here (under 2 minutes). He said:

On Thursday [September 18, 2008] at about 11 o'clock in the morning, the Federal Reserve noticed a tremendous draw-down of money market accounts in the United States, to the tune of 550 billion dollars was being drawn out in the matter of an hour or two.

The Treasury opened its window to help. They pumped 105 billion dollars into the system and quickly realized that they could not stem the tide. We were having an electronic run on the banks. They decided to close the operation, close down the money accounts, and announce a guarantee of $250,000 per account so there wouldn't be further panic out there. And that's what actually happened. If they had not done that, their estimation was that by two o'clock that afternoon, five and a half trillion dollars would have been drawn out of the money market system of the United States, would have collapsed the entire economy of the United States, and within 24 hours the world economy would have collapsed.

Now we talked at that time about what would happen if that happened. It would have been the end of our economic system and our political system as we know it.

The Obama administration want to prepare for the next leg down, the next panic in the markets, by making the same sort of run on money market accounts impossible. And I suspect that, more generally, if the banks get wind that we want our money out, rules will come into play that prevent withdrawals. In the UK, in October of 2008, they had their own near disaster, and reportedly came within 2 hours of a total banking shutdown, including ATMs.

It's hard to imagine such a shutdown, I know. Here's an old New York Times report on a surprise banking shutdown in Argentina in 1987:

The crisis that has crippled the Argentine economy for the past five months took a sudden turn for the worse over the weekend after the government suspended bank and foreign exchange operations indefinitely....

The sweeping embargo on banking and foreign exchange transactions, announced late Friday, goes into effect Monday and is expected to aggravate the economic crisis further.... A similar decision in December to freeze bank deposits led to huge street protests and food riots that left 27 people dead and ushered in a period of chaos in which the country had five presidents in less than two weeks.

Argentina had banking shutdowns of varying lengths over and over again, with long periods where withdrawals were possible but limited to small amounts. As I understand it, during the most recent currency crisis there were many who never were able to reclaim their savings in full. Some part of their money was simply confiscated by the banks.

And although it's not an explicit policy, it is reportedly already very difficult to obtain large sums of cash from banks, and it's been this way for a year or two. Banks have extremely little physical cash on hand. They resist withdrawals of as little as a few thousand dollars, and if a wealthy individual wanted to withdraw (say) $25,000 in cash on a given day, the bank would likely be unable to accommodate such a request.

For most Americans this may not be much of a consideration, as they might not have much money in the bank, let alone any savings in money market accounts. But if you happen to have savings, you might: 1) withdraw physical cash, 2) diversify holdings into several banks, 3) utilize smaller community banks or credit unions (with caution), 4) spend the money to pay down debts, or 5) make necessary purchases or home repairs today, rather than waiting.

I'm no fan of fiat paper currency, but there is likely to be a period of time when credit systems freeze and only physical cash is accepted. And we really have nowhere near enough cash to maintain commerce. Not even fricking close.

Let's do the math here. John Williams has estimated that the US might contain only $200 billion in physical cash, or less than $700 per person. (Most physical US dollars are in use outside the US, in the drug trade, in Russia, by Hezbollah... the list goes on.) Over the past decade, the estimated "velocity of money," or the number of times that a given dollar would change hands in a year, ranged from about 8.5 to 10.5. In other words, in order for everyone to pay their bills and make their purchases, each dollar had to change hands close to 10 times.

But hang on-- if we were using actual physical cash at that rate of money velocity, we'd only have $700/person x 10 exchanges/year = $7,000 to spend per year. Which clearly is not enough.

Having to go to solely physical cash -- let us fervently hope this never happens -- would be catastrophic. On the one hand the deflation would be crushing; commerce would crash and there would be shortages of everything. On the other hand, money velocity would skyrocket and presumably the printing presses -- the real, actual, printing presses -- would be run full throttle. At some point this would lead to price instability, with prices for the most necessary goods rising quickly.

Physical cash would be infinitely more valuable than some 0's and 1's at the bank that you can never withdraw. And in this case, I am using the term "infinitely" with mathematical precision, since the value of your binary digits would approach zero.

Don't wait till everyone else figures this out. By then the emergency banking shut-down will already be underway.