Instant Gratification
Ilargi

The desire for instant gratification has apparently pervaded all aspects of the times we live in, including the collapse of our economies. Once you tell people that such an event is inevitable, they want it to happen as soon as possible, or they lose both their focus and their interest. Warhol's 15 minutes of fame is a thing of the distant past, simply because it's so boringly long.

In the past two years, nothing fundamental about our economies has changed in any structural way, and certainly nothing has improved. The damage has been done, whether you care to look or not. What has changed, though, are appearances. If you look at certain sets of numbers from a certain angle, you could swear the recession was over and recovery is here. However, if you'd step back and take some time and look again from another angle, and another, it’s obvious that no recovery is even remotely near. But most people are not patient enough, or just lack the focus, to take that step back, and take that extra bit of time to observe what happens around them.

All the combined bail-outs and stimulus plans and doctored "official" numbers, when put together, seem to paint a picture of a live pig. And unless you can wipe off the lipstick right here and now, then and there, people will insist that what they are seeing looks an awful lot like a pig. And that is basically all it takes for them. That fills their immediate gratifying needs. It's much easier that way. They reason that if that pig were really dead, as you claim, they would know. Or smell, or something. They are rational creatures (the people, not the pigs), and smart to boot, and they would see through the disguise, and anyway, the folks they voted into office would never risk the wellbeing of their voters by telling them lies about the (non-)existential features of a bacon factory.

Inevitably, this view of the world is most strikingly concentrated around stock markets. Much as they know or feel that the S&P 500 has no necessary direct influence on their own lives, it sure looks to be a handy measure, and most of all it only takes maybe 10 seconds per day to check. Hey, if that pig is really dead, it sure does a good job of looking alive.

And of course it makes sense that people who think they have understood what is happening, through reading The Automatic Earth and/or other sources, become uncertain if what they think they have seen takes (what seems like) a -too- long time to materialize. Even if they can rationally figure that those who hold the power in a given society have both the means and the motive to make things look -much- better and sunnier than they truly are.

And so discussions even here at The Automatic Earth increasingly turn to "the stock markets haven't toppled yet, but you said they would!". Yeah, that pig sure looks ready to party, doesn't it?

Now, we have never been, nor pretended to be, a venue aimed at traders or investors, whatever level their involvement in stocks or other investments may be. And sure, we have been surprised too by the extent to which governments dare go, and their citizens are ready to accept, presenting an image that differs to the upside from what underlying numbers suggest. Risking the bankruptcy of entire nations rather than coming clean and thereby risking your careers, it truly is a spectacle worth observing. And at a rate of $1 trillion per month, the US economy can be made to look like a live hog in the eyes of the majority of the population.

And yes, there are plenty people playing the markets who have money on that, and are cashing in. But that's not why we are here, not for pointing out profit opportunities. There are a zillion other joints for that, and if you look sharp and well, you find they all conveniently contradict each other. In the short run, we're all potential tycoons. In the long run, not so much. Stoneleigh and I started The Automatic Earth not to make you make money, but because we are interested in preventing losses for our readers. Which is not the same thing. And while preventing losses may seem less of a priority these days than a year ago, with rising stock markets and all, it will -again- be the prime consideration for everybody other than professional shorts once the downtrend sets in.

Some people think that the Fed can take all the debt on its sheet (it has some $8 triilion at present) and thereby nullify it, but then the ECB can do it too, presumably, and all other central banks; so where does the debt go?

We seem to run into all sorts of confusion when it comes to the state of the economy, be it global or national. There are people who think that central banks are colluding to make all debts go away (no, I'm not kidding, there are those who really think that) by pumping ever more money (i.e. more debt) into the great beyond.

Then there are those who feel that central banks and Treasury Departments, either just stateside or across the G-20, can issue unlimited amounts of paper and trick investors all over the globe into believing that all the paper is worth what it says it is, and they'll be good for whatever IOU's they issue at whatever yield they'd like to sell them for.

I see people suggesting that the US Congress controls Wall Street, and even the Federal Reserve. Some think that quantitative easing, especially when part of a concerted effort, can go on indefinitely and without limit. There are even those who think that Bernanke, Geithner and Obama are executing successful policies that will benefit the American population, if not mankind as a whole. After all, according to government calculations, the recession has been succesfully battled and is now over. What more do you need to know?

But it all feels way too much like discussing the shade of lipstick on the carcass, or the latest botox inserted into Joan Rivers. And such things do not interest us.

When in doubt, return to the long term basics. If you look beyond and underneath all the very tempting and persuasive make-up, there are two elements of the pig that will always remain the most essential, that decide whether it lives or dies: housing and jobs.

There is no such thing as a US housing market anymore, other than through government-run purchase and guarantee schemes. Fannie Mae and Freddie Mac have some $6 trillion in shaky loans on their books, and the shift away from them and towards the Federal Housing Administration and its finance arm Ginnie Mae has resulted in the FHA dropping way below its already insanely low 2% required reserves level (to 0.59%). These numbers, in all likelihood, represent only the mortgages involved. I for one would like to see what that does add up to in mortgage-backed securities issued. Not that I’m considering holding my breath.

And even with Washington (yes, that would be you) as the only player left in a market that has managed to draw in some 5 million uberlosers in 2009 (thanks, Barracks O.), there are scores of stories about towns where only 1 in every 4 or 5 empty properties are ever put up for sale. Madoff got 150 years for his scam. And his didn't run into the trillions.

As for jobs, we've covered the topic more extensively here than should be necessary to make you grasp its reality. The bottom line is that close to 1 million Americans are added to the unemployed contingent every single month, with the most rapidly rising contingent being the most long-term jobless. For whom Congress last week extended bare benefits by 14 weeks. Just lovely. And what are we, and they, going to do then?

A nice contradiction is emerging in the White House. The president apparently will shift his focus to two separate topics: jobs (for which there'll be a December summit) and the federal deficit. That should be good. Both ideas are a year late, if not more. And they are incmpatible. You're not going to create jobs by cutting expenses. Not going to happen. How to sell a paradox?! Stay tuned.

When talking about finance and the economy, the Automatic Earth obviously can't completely ignore what happens with stocks and options and shorts and what have you. But that doesn't mean they are what we focus on. They're nothing but a poor and highly volatile indicator for the situation those people find themselves in who do not participate or "play" in those markets.

The state of our economies, whether US or elsewhere, cannot be determined by looking at daily stock exchange data. For that matter, and as sad as that is, it can't be determined using government data either. We have no choice but to read between the lines of a seemingly endless array of words and pages, and look for the spots where the lipstick and the rest of the make-up start cracking. And crack they do, and crack they will. All pretense does. Which is good, when you think about it. After all, as Leonard Cohen puts it:

There’s a crack, a crack in everything. That’s how the light gets in.

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