THE NEXT TEAR DROP

"Before the Next Teardrop Falls" was one of the late great Freddy Fender's big hits.

According to a recent article in Forbes, since 2007 the average salary for college graduates is down 5%, even though the Bureau of Labor Statistics claims average workers' earnings are up 10%. (We recommend a quick visit to the old salt lick before you swallow that BLS stat, however.)

Point is the value of a college degree is falling while the cost is skyrocketing. It's the cost part you want to keep your financial eye fixed on as "America's college student loans ballooned into a $900 billion crisis."

So forget rock turning and distant lands, the next teardrop in right in front of you. The Forbes article explains it all in one short, declarative sentence: "It's the federal government."

The nation's total credit card indebtedness is roughly $690 billion, auto loan debt $730 billion. And student loan obligations, just one more once, $900 billion. That's roughly 30 times the Scold of Omaha's worth. But don't expect Mr. Buffett to bail them out unless there's some kind of package deal with mezzanine financing involved.

If you're familiar with the term smell as in Pell grants, you've probably missed your calling. You probably should have been a sommelier. In 1991, Forbes states, one in ten Americans carried student loans. It's one in five today. Forbes charges "it's the huge expansion of federal grants to higher education."

Between 2001-2008 that amount tripled. And in 2008 Congress passed a five year, $34 billion a year aids package, "making federal support for colleges and universities one of the fastest growing parts of federal discretionary spending in history."

Since we're talking education, here's an easy one. What over the same period went from 40% to 80%? My old girlfriend's spending pattern is close, but incorrect.

Correct answer: The amount of these loans the fed holds.

Enter stage left Pell grants. In the 11 years from 2000 to 2011 they "increased threefold from 3.8 million to 10 million." One more point from the article. Roughly "53% of recent college grads are either unemployed or acutely underemployed" with a whole gaggle more holding down menial jobs.

In Freddy's version he sings: "If the teardrops ever start, I'll be there before the next teardrop falls."

Unfortunately, Freddy' gone. But when the first student loan teardrop hits the old terra firma, the only one who will be there is Mr. and Mrs. and Ms Taxpayer, the real lenders of last resort and the only lenders in society government views as neither too big nor too small to fail.

GET USE TO IT

Like a huge reptile, Wall Street is this giant beast that has to be fed.

The fare of choice is elastic money supply. An investment banker's worse nightmare is inelasticity. If you want to make a Wall Street banker gag, forget maggots or Paducah or your name, just mention inelastic money supply. But be prepared to perform a Hemlich if you do--unless, that is, you're not feeling particularly charitable that day.

The ties between Wall Street and the Fed are ties that bind. They date back a long way. In the beginning a Wall Street banker said: Let there be a centralized bank. And there was, two of them to be exact, both put to rest by public demand, the first after a 30 year run in 1811 and the second in 1836 following a turbulent 20-year stint and a public onslaught by President Andrew Jackson, a Democrat, a hard-money advocate and big-time foe of centralized banking.

Instead of an amen! Somebody give me a: "My how times change."

After a long hiatus the bankers as is their want we're famished. The National Banking System then in place, a brainchild of their own machinations several years earlier, wasn't cutting it. It wasn't bad. But it could be better. Centralized is to rules as rules are to who's defining them. And in this case it wasn't the bankers and it wasn't centralized enough.

To create inflation otherwise known benignly as booms you need elasticity. That's what bulging waistlines are all about. Investment bankers love their own brand of spandex. It's spelled bonuses. And in good times they come often and big.

What this world needed was a "lender of last resort," a pseudonym for too big to fail, a self-perpetuating credit expansion device controlled by bankers. A money multiplier known in less civil circles and the underworld, it's called a pyramid. The piper keeps playing until redemption day. Those old black and white photographs of long lines outside the nation's banks during the Depression era, that's redemption day.

Back then money was supported by gold and silver. An a small kid with a paper route you had to go door-to-door once a week to collect. It taught you a lot of things. How to make correct change without a computer was one. Another was how common dollar bills with the words "silver certificate" printed on the front were. It you own one today it's a collector's item. Guard it with your favorite bureaucrat's life.

So it was 100 years ago this December our current central bank was birthed. Apologists will say after the Panic of 1907 when banks were caught holding the Old Maid, something suppose to happen only to buffoons and neophytes, the call went out. Truth and facts are stubborn things. The call really started in 1896 right after McKinley defeated the silver-tongued, silver-backing William Jennings Bryan.

As with any change people must first be convinced it's needed. Fear usually serves the purpose quite well. Heroes needs villains. Preachers sinners. And Wall Street bankers need those bonuses.

So short of any serious, meaningful overhaul, look for more boom and busters. Get in, buckle up and get use to it.

CHECK OUT

Check out the chart listed in Boom and Bust on the website below for several reasons. First, it's one of the more interesting sites, started by Victor Niederhoffer, a hedge fund guy who once traded for Soros until he flamed out. Next, besides Niederhoffer, some savvy people drop in to liven up the discourse, in itself refreshing.

 Finally, the chart elicits a comment that summarizes exactly what happened to those Asian tigers in '97 that too many folks today in our view just don't get. We were in Bangkok in August of '97 and huge building cranes were everywhere. A friend called it the positive crane sign not too different from the positive suitcase sign when people show up at the ER with their suitcase in hand.  

It was just like one of my old girlfriends I call Suddenly. One day she was there, the next.......
http://www.dailyspeculations.com/wordpress/?p=8144

EVERYBODY HAS ONE

Whether you're a professor with a warped Keynesian strut and a blunted beak ensconced safely in the bowels of academe or a media Talking Head hawking books, baseball caps and Stars-and-Strips coffee mugs, everybody has one.

The Fed has spoken.

 Like Ground Hog Day it's set, another period of bond buying frenzy. For how long even Mr. G won't risk a guess. Such musings would surely fall beyond the ken of even the most rudimentary econometric paradigms. 

 That's really too sad because the furry one couldn't do much worse than the huge clutch of highly-paid economists struggling to unriddle the riddle that isn't, a seemingly birth defect of the dismal science clan.

As a Wall Street media wag recently noted: "These folks have accurately predicted six of the last two recessions, for which some have received a Nobel. " It reminds one of the metaphysical question and answer: How long's it going to take. However long it takes.

In the eyes of many it no longer matters. The real damage is loose, out there somewhere lurking in the shadows like a night stalker waiting and ready to pounce. And next year, according to many, Helicopter Ben will stately ride Amtrak back to his beloved Princeton, closing another chapter in the fabled history of the 100 year old Federal Reserve Bank, the future of the willfully uninformed and apologetic masses once again flat lined. 

Pretend you're eavesdropping at a recent Minnesota Ice Fishing Festival around a group of well-bundled-up ice fishermen waiting for one of them to reel in a fish or fowl or large We-Love-Al Franken picnic cooler. They give away some odd prizes in the Land of 10,000 Lakes.

You overhear a guy two ice holes to the left, between a couple of loud belches, shout to three of his frozen-beer swigging buddies: "I don't know about you guys, but I just bought a shit-load of June SPY puts."

Some might think that's a contrarian indicator of the first degree. But only time and the best-looking-back-to-the-future econometric model will tell.

MARKET WRAP

An apparent disagreement among FOMC members knocked a 100 points off the DJIA as Fed decides to continue its bond buying spree until the unemployment numbers improve, according to CNN-MONEY. The DJIA closed at 13,927. 

Yesterday the market rallied on M&A activity suggesting it continues to look for any feeble piece of possible good news to move higher. Retail investors, apparently weary of paltry returns in so-called safer havens, apparently believe as one Wall Street wag put it, "a lot of darks clouds seem to be clearing."

Will Bernanke be gone in 2014 when his second term ends? Some economists think so, while others believe if he goes it will be bad for the economy. Recall Obama waited until August of 2009 to reappoint him. If he goes he will leave with the distinction of getting the most no votes for a second term of any other Fed chairman.

Gold hit a 7-month low today, closing at 1,578/oz., down over $200 or 12% since October, as it moves closer to falling below its 50-day moving average. Traders call it the death cross, when the 50-day MA falls below the 200-day MA. Some take it as one more sign to the retail crowd those dark clouds are clearing.

ALL ABOARD

Ever notice when a government-sponsored program goes snap, crackle and bust, it's an independent government agency.

The US post office should come to mind, along with several others like Amtrak, Freddie and Fanny and from what we read Sally Mae's sucking O2 from a respirator. Some even claim it's the next bubble headed to Burst City. Rumor is Sally's got an Amtrak ticket all paid for and ready.

One psychiatrist we know given this news recently told us he's handing out to all his patients a copy of his latest pamphlet, "Get Your Hard Hats Ready, Taxpayers." He claims it works circles around Paxil for new-onset or recurring depression.

Trouble is there are many of these independent or privately-run government agencies, like the Federal Reserve Bank. Most of them get deep-sixed for one simple reason. But that's the problem, don't try to tell anyone. It's too painful, too-clear cut, too simple. You'll have social anthropologists calling you out for some of their latest drivel, ethnocentricity.

If you haven't heard of it you've probably been keeping your Neanderthal gray matter away from the New York Times, not a bad hobby if you're looking for one

For those of you who don't sport scruffy greying beards and wear phony ruffled blue denim work shirts, ethnocentricity is one academia's latest attempts to explain why we're all biased. In short, it's because you were raised by the parents you were raised by and grew up in the neighborhood you grew up in. That is, unless you're from Hope, Arkansas.

In a recent Bloomberg piece one poor, benighted soul, lamenting Amtrak's wretched financial state, wrote: "One way or another, fixing Amtrak will require congressional action." 

Now that's like taking a bite from the bureaucrat that bit you in the first place.

The best, most humane way to end Amtrak's woes is to start the IV drip now.

VALUE IS TO VAGUE

If beauty is in the eye of the beholder, where does that put value?

Insiders supposedly sell for a variety of reasons.  And according to Wall Street folklore, they buy for only one. Last time we looked the G7 and a host of others in Euroland had negative real interest rates. And a good number of the others like China are manipulators.

Members of the manipulator group come and go. Membership is circumstance-based. So despite what mental behemoths like Chuck Schumer try to tell you, China's hardly alone. It can get crowded at the top.

Negative real and low nominal interest rates are designed to discourage saving and ramp up borrowing. Boosting equity prices and pumping air into the phony wealth effect many main stream economists love to cite is the neat brown wrapping on the package.  

It's we-feel-so-much better now we can rush right out and go further into some more debt.  No wonder Lenin coined the term "useful idiots."  For sure he had more people in mind than the Krugman's of the world. It's the ultimate monetary-policy elitists' insult. 

Most are aware of 1492 and what occurred. But just a 100 years later in Elizabethan England in 1592 Robert Greene's pamphlet, "The Defense of Coney-catching," first appeared. According to the vernacular of the day, a coney was a rabbit raised for food and thus tame. A coney-catcher was a thief, a con man who worked the streets preying on unsuspecting, innocent passers-by.

The term coney appears in at least two of Shakespeare's plays and Giovanni Florio's translation of Montaigne's essay, "Of The Cannibals." As a quick aside some scholars believe Florio, a scholar in his own right, was Shakespeare.  

Greene argued that there were worse crimes committed by so-called reputable folks. What Greene was pointing out swindling is still swindling, choose whatever name you like; they're male and female, high and low class practitioners of the art. Card sharks, slackers, drug dealers, pimps and prostitutes are only one layer of coney-catching. Just as many don suits, carry iPads and valet park.

The point is with all the political and economic jockeying for position the definition of value gets vague and vaguer. But it's the third part of the comparative case you got to most worry about. Bricks and mortar aside, that's a dangerous jungle.

PASS THE PAXIL

If someone walked up to you and asked: "Zero times a positive integer equals what?"

This is an elementary school example of why you should not rely on the mainstream media for your daily rush of news. Zero times anything always comes out the same, zero.

With MSM it's about marketing, not reliable information you want to stake your family or your future or for that matter anything you cherish and hold dear on.

Whether its about another freeway car chase or corporate corruption or the latest celebrity version of ménage a trios it just so much warmed-up hash. It may smell good, but taste and substance, well, they're as they always are part of the rest of the tale. And part of the rest of the story is about who gets to tell it? 

LIES, DAMN LIES AND GOVERNMENTS

There is an old saying about lies, damn lies and statistics.

Many people attribute it to humorist Mark Twain. But Twain reportedly gave credit for its origination to British Prime Minister Benjamin Disraeli. A search of Disraeli's papers, however, showed no mention of it and, according to some, the saying didn't become popular until after Disraeli's death in 1881.

 In his autobiography, Chapters From My Autobiography, in 1906, Twain wrote:

Figures often beguile me, particularly when I have the arranging of them myself; in which case the remark attributed to Disraeli would often apply with justice and force: 'There are three kinds of lies: lies, damned lies, and statistics.'

A colleague who's very much still with us takes a little different twist. He says: "There are lies, damn lies and governments."

The incidents of governments getting caught with their tongues buried deep in the disinformation jar are too numerous to list. The Federal Reserve Bank is an independent central bank. The word independent is open to debate obviously, but for now we'll deploy a Paul Harvey and leave it for later. It relies heavily on statistics to spread its financial propaganda.

So that poses an interesting question: how much of those statistics are lies, how much damn lies and how much government just being government? 

PUSH MEETS SHOVE

A lot of people who look at those Democrat-Republican red and blue maps don't get it.

In many ways those maps are similar to the maps of the 1850s before the great American Civil War. The country was divided. One of the reasons it was a north-south division is because much of the west was still territory. Statehood lay far in the future for states like Arizona and New Mexico.

A lot of people get sidetracked by what many historians have painted as the major issue behind that 1850s division, slavery. As horrible and as ugly as any form of slavery is, the real underlying cause, as it almost always is for war, was economic: One section of the nation trying to force its policies on another.