March 10, 2008: Darkness at the Break of Noon, Knife Fight in the Sandbox, The Ground Begins to Quake

“Darkness at the break of noon
Shatters even the silver spoon
The hand made blade, the child’s balloon
Eclipses both the sun and moon
To understand you know too soon
There is no sense in trying”----Bob Dylan, “It’s Alright Ma, (I’m Only Bleeding)”
www.azlyrics.com/lyrics/bobdylan/itsalrightmaimonlybleeding.html

As the vulchers circle overhead the ground beneath begins to swell and tremors shake the foundations of our political coalitions. This last week has been yet another in which the economic news has been less than encouraging. Today AP Business Writer Malden Read wrote a column detailing the immediate effects of the rise in oil prices to stocks and investments (see http://biz.yahoo.com/ap/080310/wall_street.html). Today Oil surged above $108.00 a barrel driving stocks down more than 150 points with bigger losses reported in the broader NASDAQ and the Standard and Poor’s 500 index. The Dow has now lost over 500 points in the last three trading sessions falling to its lowest level since October, 2006. The upsurge in commodity prices is now being felt as the Consumer Price Index has begun to show a serious up tick in inflation. This has led to further uncertainty in the market and all eyes now look to the Federal Reserve Board meeting on March 18 to see which way the guru’s will lead.

As noted in previous posts, this is Cost-Push inflation, the same kind of inflationary pressure generated by the Arab Oil Boycott of the 1970’s in which the price of crude drives up commodity prices. To raise interest rates puts the economy into a double bind threatening to clamp the brakes down on the economy so hard as to risk serious recession or, perhaps, depression.

The latest news is not good. Read cited a Labor Department report last week indicating that the economy lost 63,000 jobs in February, the most in 5 years. The Commerce Department also reported last week that inflation stood at 1% in February, a 12% annual rate, that—as noted in the previous post “Inflation is a Cruel Mistress—is actually much higher among the lower and middle classes because energy and food are left out of the calculations.

Peter Morici, of the University of Maryland, appeared on CNN over the weekend to report that real wages have fallen, and that the unemployment rate “if figured as it was six or seven years ago” would be 7%. Moreover according to AP Business Writer J.C. Elphinstone, citing the Federal Reserve reported that for the first time since records have been kept—for the first time since at least 1945—the percentage of American’s with equity in their homes has dropped below 50%. According to Elphinstone, “that marks the first time homeowner’s debt on their houses exceeds their equity since the fed started tracking the data in 1945” (see http://news.yahoo.com/s/ap/20080306/ap_on_bi_ge/home_equity). This news came on the heels of a report of the Mortgage Bankers Association on Thursday that the number of foreclosures has skyrocketed and that “borrowers with risky credit that (have) entered the foreclosure process soared to a record 5.29 percent.”

Equity in one’s home had been the hallmark of the modern American middle class. No matter how hard things got, there was a sense of wealth represented by what stood on the foundations of the family home that were in effect ‘squirreled’ away in case the family came to dire straits. No more. Through job loss, and through declining purchasing power brought on by the weakening dollar, inflation, and stagnant or declining wages the American Middle Class has been so savaged by the implementation of the Milton Friedman/Chicago School economic theories that Middle American’s are now, in effect, near bankruptcy. As home prices and, therefore, home equity continue to plunge more and more Americans faced with ‘balloon’ payments and high interest rates and seeing that in reality they have no equity—no dog in the hunt so to speak—are choosing to simply walk away. This is sending shock waves through the cold stone canyons of the financial districts. It is so bad that Federal Reserve Chairman Ben Bernanke called for the lending institutions to provide relief by lowering the principal on the loans. On the principle that 95% of the loaf is better than nothing, he called upon the moneyed interests to reassess their evaluations and mark down the principal and take the loss. It is unlikely the Princes of Greed will heed such advice but will choose instead to ride that elephant wherever it leads….we have already passed 1945 in turning back the clock, next comes 1932 on our way back into the nineteenth century.

This week there was a splendid fracas, a sideshow, concerning a remark about Hillary Clinton made by Obama Foreign Policy advisor Samantha Power. Reacting to the slimy tactics of the Clinton campaign she told a reporter for the Scotsman that Hillary was a ‘monster’ who will ‘stoop to anything’ to get elected. A day after the story came out the Harvard Professor resigned from her unpaid position on the campaign. A pity, but the consequences of rendering the obvious obvious in a campaign struggling hard not to get drawn into, as Barack put it, a ‘knife-fight’. You see in the Clinton universe it is quite alright to compare Obama’s call for a release of the Clinton income tax returns with Ken Starr’s prosecution of Bill leading to his impeachment, but out of bounds if one of the unpaid Obama advisors simply calls Hillary a monster. In the Clinton universe where one can openly question one’s opponent’s ability to be commander-in-chief it is somehow unfair to characterize Hillary’s penchant to “stoop so low to reach so high”. The Clintons, always whining and complaining, have never learned lessons that should have been learned in the sand-box—how to get along and play well with others.

Meanwhile the groundswell building beneath the political landscape has begun to shake. The tremors portend massive seismic shifts that threaten to catch all unawares. How serious is it? Last weekend it was reported that the House seat of former House Speaker Dennis ‘the bastart’ Hastert was won by a nondescript Democrat running a woefully under funded campaign. Last year former Republican House majority Leader Tom De Lay’s old House seat went to the Democracy. Two of the safest Republican seats in the house have been given up….we haven’t seen anything like this since Richard VanderVeen took ‘Ol Jerry Ford’s house seat during Watergate in 1973. Clearly things are getting serious….too serious it should now be obvious for intraparty food-fights or the politics of slash and burn.