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Anatomy of A Market Lie: CNBC Misquotes Yellen, Misreads The Fed And Helps Out Short Sellers

Recently published by The Huffington Post

Going into the Federal Reserve Board’s Open Market Committee meeting of March 18-19, market expectations had coalesced around the expectation that the Committee would begin to change its “highly accommodative” monetary policy – i.e., increase its target for the overnight “federal funds” inter-bank borrowing rate from its current level of zero to one-quarter percent – not before the second half of calendar 2015. Any change in direction toward an earlier increase from this expectation on the Fed’s part, which was the distilled product of the statements and minutes of the last several Committee meetings through January of this year as well as the published views of incoming Chair Janet Yellen, would accordingly be viewed as an unwelcome surprise by the bond and stock markets, sending bond yields markedly up and prices of both bonds and stocks significantly down.

The markets reacted tamely at first to the Committee’s end of meeting statement that reiterated their intention to maintain for a “considerable period” its highly accommodative monetary policy after it completes its “measured” tapering of its bond purchase program. It also noted that both the tapering and any subsequent rate increase decision would be dependent on both incoming data and forward outlook for multiple factors including progress toward maximum employment and a 2% interest rate, as well as overall economic conditions. There was no express or even implied hint in the statement that was seen off the top as altering market expectations for a rate increase sooner than the second half of 2015. 

However, during Chair Yellen’s first post-meeting press conference, a Reuters reported asked her to clarify what she meant in response to an earlier question that the tapering would be on course to be concluded by “next fall” if the Fed’s current consensus estimates of near-term economic activity were realized. The Chair first made clear that “next’ actually meant fall 2014, not fall next year 2015. The reporter than went on the press Yellen on what exactly the term “considerable period” meant when the Fed used it to suggest the period of time it would wait after tapering was completed before starting to raise the federal funds benchmark interest rate target.

 After first asserting that the term was hard to quantify, Yellen went on to say that it would be like “six months”’ or some such but that in any event any such decision would depend on the economic circumstances at the time, consistent with the Committee’s (unsurprising) post-meeting statement .

 Despite Yellen’s evident caution and discomfort in expressing any specific quantitative definition of “considerable period,” the stock and bond markets chose to take Yellen ultra-literally about the six months and turned suddenly and violently downward, with equities down over 200 points within just a few minutes. In short, Yellen was interpreted – against all evidence to the contrary in the Fed’s statement and in all the rest of her answers – to mean that the Fed would start raising interest rates in the spring of 2015 – many months earlier than the markets expect.

 For short sellers, Yellen’s modest “Biden moment” gaffe – bending over backwards to help out a reporter – was a gift from the gods.  It morphed into another weapon with which to panic shareholders and thereby drive market prices quickly down to where they could score later profits buying back at those lower levels and reaping the rewards when the broad markets come to their senses about Yellen’s remarks.

 After the markets stabilized (but distinctly in the downside) and closed for the day, CNBC gave their short-seller friends yet another biased boost by posting a story that actually led with a headline that the Fed had changed interest policy and “embellished” (some might say misquoted) Yellen’s actual words to the effect that she “said interest rate increases likely would start six months after the monthly bond buying program ends.” The CNBC story went on drill home the short-sellers point by specifying that “if the program winds down in the fall, which would put a rate hike in the spring of 2015, earlier than market expectations for the second half of the year.”

To reach this explosively short-friendly conclusion, the CNBC story, besides just twisting Yellen’s words, had to also ignore some basic math. Since the Fed is committed to a “measured” tapering program of $5 million decrease in each of its mortgage and Treasury securities purchases per meeting, it will clearly take until the Fed’s December 2014 meeting at the current pace to fully announce the wind-down of monthly purchases over the remaining six meeting – namely the end of fall, not the beginning (the October meeting). The tapering then would actually end only in January 2015, and six months from then would be in the second half of 2015 – no change in interest rates, no change from market expectations.

 Yet CNBC chose to ignore this math and hear Yellin as meaning early fall (the October meeting), the only way to get to its “Spring Interest Rate Increase” scare-line. CNBC’s one reliable Fed reporter, Steve Leisman, even pointed out this math on the air the first chance he got in an effort to debunk his own network’s emerging story line. But CNBC went ahead with its false headline and story anyway.

When a network ignores its best Fed reporter’s conclusion and publishes a contrary story that also fails basic math, one has to assume that there are considerations other than objective journalism at work.

We have seen this distorted, pro-short playbook from CNBC before. Last summer, the network led the charge for the ‘taper tantrum” that took stocks down several hundred points into when it interpreted Chairman Bernanke’s late springtime intimation of the start of tapering “later this year” as meaning at the Fed’s September 2013 meeting (rather than December, actually more consistent with both market expectations and the data the Fed was reviewing). When September came and went without a taper, those who took the market down and then bought into the manufactured market swoon made fortunes.

Let’s be clear. Higher interest rates are coming in 2015, and most certainly if the economy performs better than expected. A majority of Fed officials forecast a 1% rate level by the end of 2104. But even that only assumes three second half increases of 25 basis points each. It strains credulity to assert, as CNBC did, that the Fed really changed its interest rate policy on March 19 away from what markets were expecting.

Even CNBC seemed to realize its initial story was beyond the pale. It rather quickly took it off its website and found an outside commentator who agreed with its “policy change” conclusion to quote along the same lines. The Internet, however, has a photographic memory, and the familiar CNBC theme that there is yet another cause for a market “correction” was now afloat in the market waters.  Even the NBC nightly network news picked up the faulty CNBC assertion that the Fed had changed policy toward a quicker increase in interest rates.

 When you want facts, listen to Yellen herself, and tune in to Leisman. Otherwise, proceed at your own risk with CNBC.

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 By Terry Connelly, Dean Emeritus, Ageno School of Business, Golden Gate University

Terry Connelly is an economic expert and dean emeritus of the Ageno School of Business at Golden Gate University in San Francisco. Terry holds a law degree from NYU School of Law and his professional history includes positions with Ernst & Young Australia, the Queensland University of Technology Graduate School of Business, New York law firm Cravath, Swaine & Moore, global chief of staff at Salomon Brothers investment banking firm and global head of investment banking at Cowen & Company. In conjunction with Golden Gate University President Dan Angel, Terry co-authored Riptide: The New Normal In Higher Education.

 

 

 

 

Putin’ On The Ritz: Why Western Business Undermines Sanctions To Put Profits Ahead Of Patriotism

Content previously published on The Huffington Post

 

Putin’ On The Ritz: Why Western Business Undermines Sanctions To Put Profits Ahead Of Patriotism

 

Want to put the squeeze on the outlaw Putin by dialing back the offshore shenanigans of his pals among the Russian super-rich? Wait just a minute, Mr. President: what might that do to the London real estate market? Let’s see which side Prime Minister David Cameron ultimately takes on the question of whether to punish Vlad the Invader or protect the City of London’s offshore ATM machine.

 

Want to double-down on sanctions that would dial back the Russian gas and oil supply contracts for most of Europe? Hold on. Who wants to bite the hand that heats us in the midst of this cold winter, which, after all, is America’s fault? Let’s see just how forcefully Chancellor Merkel uses her recent re-election and de facto queenship of the Eurozone to leverage her “good cop” chit-chats with the Russian President into a threat he might take seriously to undermine the 50% of his economy that comes from energy exports.

 

President Obama’s problem isn’t whether President Putin will listen to him, as so many U.S. commentators harp on. The question is whether our NATO allies in the Western end of Europe will put their money where their mouths are when it comes to drawing a red line in favor Ukraine sovereignty. These countries are not in the vulnerable position of our NATO allies in Poland, Latvia, Lithuania and Estonia, or even Slovakia, the Czech Republic, etc., on the Russian border. These countries have plenty of ethnic Russians on their side of those borders. And they are rightfully concerned about Putin’s version of the George W. Bush/Dick Cheney “pre-emptive war” doctrine – namely, that he can march troops (with or without identification) across the borders to preemptively prevent alleged abuse of such Rethnicsussian.

 

Of course, if the British, French and Germans continue to waffle and wobble on whether to become more dependent on potential U.S. energy resources rather than their Putin pipelines, the U.S. idea of sanctions will have to be replaced by putting some anti-missle defenses back on the table, on the Russian border of those former Soviet states. But this resort to a militarized rather than economic action against Putin would only serve to escalate the threat of unintended warlike consequences further. We would not need to do so if the leading European states would be willing to share the pain of tough sanctions on the Russian economy. Not bloody likely!

 

The same goes for American big business with major investments in the Russian economy. Are the mining equipment companies, oil and gas drillers, pipeline suppliers, investment banks, and other U.S.-based exporters of goods and services to Russian countries joining the Republican hawks in calling for tough sanctions on Russia’s economy?  Conspicuous silence. Except for their lobbyists, of course, who are fiercely lobbying the Administration against such sanctions.

 

And what about the supposedly easy solution to Europe’s energy dilemma of simply lifting American prohibition on exporting American oil and natural gas (which, by the way are not Obama decisions but acts of a previous Congress which can only be changed by Congress)?  Let’s see how soon – if ever – Congress gets around to taking action to lift those bans in the face of the opposition from U.S.-based chemical and utility companies (how many Congressional districts don’t have a power plant)?

 

It turns out our own devotion to liberty and international law only goes so far when somebody’s profits and dividends and executive compensation are put at risk. Talk is cheap, but patriotism is expensive, as it turns out. Too expensive for American and European industries with close economic ties and dependencies on Putin and his own somewhat Soviet version of “crony capitalism.” Right now, for many of our “Western” business people, it’s a matter of protecting their Russian partners, at all costs – particularly to Ukraine.

 

China may hold our debt, but it’s Putin who has England’s equity, Germany’s furnaces, and France’s keys to Iranian contracts.  And while sanctions against Iran have precluded only potential business for law-abiding U.S. businesses, sanctions that really bite the Russian bear would hurt existing U.S. business interests. Let’s see if the Congress – so vocal about “doing something” to stop Putin – will actually vote to hurt the U.S. chemical and utility industries by allowing oil or gas exports to Europe. Maybe if Putin threatens to “liberate” the ethic Russian population of Brooklyn from New York’s “stop and frisk” practices. But more likely by then we’re back to missile crisis time anyway.

 

The fact is that it is not the American President but rather American, English, German and French businesses that won’t lift a thumb off their profit scales to save Crimea or even the whole of Ukraine. And why should we be surprised? U.S. businesses refuse to hire until it gets more tax breaks and lobbies ferociously against any increase in the minimum wage to protect their bottom lines and “shareholder values.” Just watch and see over the next week or so how many business commentators start to talk about how sanctions against Russia will hurt “American jobs.”

 

Their apologists in the business media, particularly the so-called “reporters” on CNBC (apart from Steve Leisman) spread blatant untruths about the demographic makeup of the minimum wage workforce to protect the de facto wage freeze on low income Americans. One CNBC anchor confidently observed that those on minimum wage were just teenagers who don’t deserve a raise – while the facts any true reporter would find are that only 16% of minimum-wage workers are under 20. The average age of all such workers is actually 35 and most of them are women of child-rearing age.

 

When CNBC’s “free market advocates” have to stoop to economic fraud, that couldn’t survive in an SEC prospectus review, to protect their patrons’ profits, we should pay attention to how far some business leaders will now go to stop the President and Congress from imposing truly effective sanctions against Russian invasions of a sovereign state, which ironically would prefer to adopt some form of capitalism.

 

Just watch and see over the next couple of weeks how many of CNBC’s business “experts” start talking about how imposing sanctions on Russian interests will hurt the U.S. economic recovery and of course, “American jobs.” Russian contracts are as sacred it seems, as private equity’s “carried interests”– which are truly carried by all other U.S. taxpayers.

 

In short, some of America’s most influential capitalists can live without a free Ukraine, but can’t seem to survive without their friends in the Kremlin.  Profits, like politics, make for strange bedfellows.

 

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By Terry Connelly, Dean Emeritus, Ageno School of Business, Golden Gate University

 

Terry Connelly is an economic expert and dean emeritus of the Ageno School of Business at Golden Gate University in San Francisco. Terry holds a law degree from NYU School of Law and his professional history includes positions with Ernst & Young Australia, the Queensland University of Technology Graduate School of Business, New York law firm Cravath, Swaine & Moore, global chief of staff at Salomon Brothers investment banking firm and global head of investment banking at Cowen & Company. In conjunction with Golden Gate University President Dan Angel, Terry co-authored Riptide: The New Normal In Higher Education.

 

 

 

 

 

 

 

Finally, The End Of The Five-Year Armageddon Trade?

For the past several years, beginning with the collapse of the US housing finance market in 2008, debt and equity markets worldwide have been subject to periodic shocks and jolts that have given rise to what’s now known as the “Armageddon Trade.”

Reminiscent of the market positioning that occurred in advance of “Y2K” at the turn of the new century, a bevy of commentators took turns predicting that the market crashes that were triggered by the collapse of the securitization market for mortgage debt were about to be triggered again by various “black swan” (i.e., odds of happening conventionally, perceived like winning Power Ball) events either in America or overseas. This would lead to gigantic losses for security holders with “long” positions, and, of course, tremendous gains for short sellers who would have two ways to win. One, if those black swan events actually occurred, and two, if they could convince enough people that they would, so that they would dump their stocks and bonds in a “pre-fire” fire sale into the willing hands of the shorts when the alleged “crisis” was seen to have passed.

Of course, the Armageddon Trade talk was buttressed by actual occurrences that nobody predicted in their scope and impact.  The near death experience of the American mortgage banking and investment banking industries really did happen, along with the fall of Lehman Brothers, the distressed sales of Bear Stearns, Merrill Lynch, Countrywide Mortgage, Wachovia Bank, and Washington Mutual, the resignations of the heads of Citibank, AIG, Bank of America and other financial giants accompanying their bailouts by US taxpayers, and the bailout/bankruptcies of GM and Chrysler.

If all this destruction of wealth could happen in the world’s most important economy with its global reserve currency, then was it so hard to believe that Greece would default? Or that Germany would abandon the Euro? Or that the Euro would collapse to arithmetic parity with the US dollar or worse? Or that the European Central Bank would prove too weak to act decisively? Or that Italy, Spain and Portugal would follow Ireland and Iceland into virtual receiverships along with their banking institutions? Or that France would finally succumb to its excesses? Or that China would collapse into recession? Or that the US would default on its outstanding debt as a result of the new political Tea Party mistaking the so-called “debt ceiling” law for a credit card limit? Or that the US government would actually shut down for weeks to satisfy the same minority Tea Party and their talk radio sponsors?

As it happened, however, none of these confidently predicted Armageddon events actually happened, dealing a blow to the credibility of the “Chicken Little” school of market sentiment. Instead, US stocks climbed 20-30% in 2013, depending on your choice of scoreboard. Yet as the new year began, the bad news bears put together a new disaster scenario to encourage the investment winners of the past year to take advantage of the “selling opportunity” while they still could, thereby driving down stock prices and rushing money into Treasuries, which were increasing rather than decreasing in value despite the Fed’s December decision to begin tapering its own debt securities purchases. The bears had of course positioned themselves in Treasuries in advance of their latest Armageddon call.

This time around, however, the doomsayers had to weave a much more complex and interrelated, cumulative case for the end of the world as we know it. This included pointing to the following. China was slowing toward a hard landing, based on one month’s PMI data in advance of an earlier than usual Chinese New Year, which always depressed economic activity temporarily. Another imminent “Lehman moment” collapse in China of their “shadow-banking” trust loan finance sector because the collapse of coal prices would not support repayment. A slowdown in US hiring (by some but not all measurers) and retail sales (for some but not all vendors), obviously temporarily impacted by unusually severe winter weather in two-thirds of the country. The potential for a rolling emerging market currency collapse brought on by runs against the Argentinian, Turkish and Hungarian currencies, which in global GDP terms do not amount to a hill of beans, plus a new Italian government crisis. And finally a protracted fight in the US Congress over the extension of the debt ceiling through the 2014 election cycle brought on by the Tea Party caucus in the House and Ted Cruz in the Senate.

This 2014 doomsday scenario succeeded initially in driving a “semi-correction” of 5% in equity values and concomitant rally in ten-year Treasury note values. The cable TV financial networks rallied to the correction cause (if only because they had been calling for one all during 2013 to no avail), bringing on a host of guest commentators predicting a 20% correction (S&P down to 1480), a new bear market, and even a return to recession negative GDP growth this year with the impending collapse of global finance and all commodity markets except gold. Many of them saw it coming in the supposed “weak volume” recovery of 2013 – it would prove a false dawn, as one prophesized.

But as the old prophet Bob Dylan put it even in his Super Bowl commercial, “things have changed.” The markets got smart. They looked under the hood of the global economy found problems, but not crises that couldn’t be handled by the powers that be. China bailed out a weak trust bank, proving they learned the Lehman lesson. That country’s trade figures improved in January, presaging stabilization in manufacturing while the government pursues economic reforms to reign in excess lending – good things that will help prevent crises. Italy had a relatively smooth transition to more energetic and popular leadership (learning the Berlusconi lesson). The House and Senate extended the debt ceiling, no strings, no filibusters (learning the Gallup Poll lesson) and the merging market central banks acted quickly to face reality of currency runs, proving they learned the Thailand lesson.

In short: plenty of worry for the famous wall that markets often climb, but no Armageddon’s on the horizon. Maybe we can get back to “normalcy” after all, even with increased market “volume” more to the upside. Even with that supposed crisis sign, low volume proves to be a fraud.  As Bloomberg has reported, trading volume measured in shares has indeed been down over the past five years, by 27%.  But the average price of shares is way up for the same period (from $24 to $77, well over double!). So volume measured in total market value has actually grown by a third over that period.  Score one for grade school arithmetic. Chicken Littles, it seems, just can’t do the math!

By Terry Connelly, Dean Emeritus, Ageno School of Business, Golden Gate University

Previously published on http://www.huffingtonpost.com/terry-connelly/finally-the-end-of-the-fi_b_4809501.html

Terry Connelly is an economic expert and dean emeritus of the Ageno School of Business at Golden Gate University in San Francisco. Terry holds a law degree from NYU School of Law and his professional history includes positions with Ernst & Young Australia, the Queensland University of Technology Graduate School of Business, New York law firm Cravath, Swaine & Moore, global chief of staff at Salomon Brothers investment banking firm and global head of investment banking at Cowen & Company. In conjunction with Golden Gate University President Dan Angel, Terry co-authored Riptide: The New Normal In Higher Education

Tinker, Taper, Forward Guide: The Fed Confronts The “Coldilocks” Economy

Content originally published on The Huffington Post

Once upon a time in a century far, far away, the US economy was perceived by one and all as in a “Goldilocks” state: not too cold, not too hot, just right.” Just like the porridge at the Three Bears’ house – or so it appeared – conditions in the latter half of the 1990’s were optimal for both bond and stock investors, consumers and producers, traders and investors, buyers and sellers, even mortgagors and mortgagees. There were no walls of worry for mountaineers to climb, no debt ceiling crises, no fiscal deficits. Greenspan was in heaven and all was right with the world of finance.

Well, that scenario turned out to be a fairy tale indeed, fueled by conventional Federal Reserve monetary largesse and conventional wisdom favoring deregulation of financial engineering. The worst economic debacle since the 1930’s Depression followed the fable of financial nirvana. Clearly not everything was “just right.”  There were severe imbalances in the world of leveraged finance, especially in terms of the hidden costs of genuine risk that would emerge as interest rates were finally forced to rise, too late to halt the free-market excesses that had their way with Goldilocks while the Fed looked the other way.

Understandably, then, few observers of today’s US economy would dare to suggest we are anywhere near a Goldilocks moment, despite the recent (though much delayed) emergence of relatively benign data suggesting that a recovery from the great Recession is truly on track. Vito Racanelli of Barron’s, just this past weekend observed that “The longer view is that some 150,000 to 200,000 jobs are being created monthly, on average; inflation is low; the Fed remains accommodative; and the quality of earnings is good.” But he went on to note that, while these facts were good for the stock market, it was not a pretty story for 20 million un- or under-employed households. No Goldilocks economy yet. But maybe “Coldilocks” would be more apt description, especially considering the confusing jobs picture that confronts the new Fed Chair, Dr. Janet Yellen.

Perhaps buoyed by her now two degrees of separation for the discredited Greenspan, she nonetheless faces markets that may be pulling and tugging her to follow up the famous Greenspan and Bernanke “puts” that have been perceived to underwrite the rallies in both stock and bond prices (though obviously not bond returns) since 2009 that have put our generation of three “bears’ to rout – until very recently, when the jobs creation data turned much too cold.

Speaking of cold, the disappointing job numbers – adding up to  just 188,000 for December and January combined compared with the 194,000 one-month average since last January  – have been blamed on the unusually cold and snowy weather affecting two-thirds of the US land mass. The same goes for declining auto sales, disappointing retail sales over the year-end holidays, and the softening in housing sales and prices over the same period. But multiple commentators rushed dismiss “weather effects” as lame excuses and rushed to predict a 20% “correction” in stock prices (i.e. a 1480 S &P) and even a turn toward recession unless the Fed reverses its tapering course for its monthly bond purchases, or even if they do that.

The renewed Armageddon trade worked for about a week or two with a little help from some overdone panic about the Turkish lira and the Hungarian whatever, giving the TV folks’ friends in the hedge fund community ample opportunity to buy in cheaper (after missing the 2103 market rally) before the markets came to their senses. Or as Racanelli’s Barron’s piece put it: “despite Soft Jobs Data, Stocks Edge Up on Week.” Perhaps, at least the stock market seemed to be thinking, there is something to the “Coldilocks” story. The economic recovery is real and will only be deferred, not derailed, by the bout of cold weather, Groundhog Day predictions be damned!

Stock market bulls have indeed been playing a game of “whack a mole” for a couple of weeks as the prophets of doom spun TV tales that some combination of China, Argentina, Hungary and the “Polar Vortex” (no, that’s not a new derivative instrument) were forming a perfect storm of currency and consumer collapse that would bring on recession risk and put the new Fed in a classic bind: either dramatically reserve course on tapering (and thus lose credibility) or keep on course and risk killing the recovery.

A few bullish market participants might well have bought in to the idea that the Fed would flinch on tapering (the new “Yellen Put”), but most seemed to discredit the often-wrong monthly jobs creation data in the so-called “business establishment” Labor Department survey, and put more faith in the accompanying “household” survey, which actually showed a monthly employment gain of over 600,000. This figure is much more in line with the private SADP survey, which showed nearly 400,000 new private sector jobs, almost double Labor’s “establishment” report. There was even some other, intrinsically good data amid the chill in the Labor report: new declines in under-employment and increases in labor force participation, both of which suggest even more “Goldilocks” turns in the recovery despite the weather.

A more pressing matter for Chair Yellen as she enters the 2014 bears’ domain will be to finesse the Bernanke ”forward guidance” legacy –namely, a 6.5% unemployment rate “threshold” when the Fed would start thinking about raising short-term interest rates. Yellen helped create that legacy herself, but was also instrument in the Fed’s push to fuzz it over last month by saying the Fed will find it appropriate to keep rates low “well past” the time – maybe even next month  – when unemployment drops to 6.5%.

Both the bond and the stock market, of course, now want to know what “well past” means. Yellen will be testifying in Congress on February 11 and 13, but would be highly unlikely to get out ahead of her Fed colleagues on any specificity, since she has not even chaired one meeting yet. We are more likely to get clarity at the next Fed meeting (just about the time of (you guessed it) the Ides of March!

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Terry Connelly is an economic expert and dean emeritus of the Ageno School of Business at Golden Gate University in San Francisco. Terry holds a law degree from NYU School of Law and his professional history includes positions with Ernst & Young Australia, the Queensland University of Technology Graduate School of Business, New York law firm Cravath, Swaine & Moore, global chief of staff at Salomon Brothers investment banking firm and global head of investment banking at Cowen & Company. In conjunction with Golden Gate University President Dan Angel, Terry co-authored Riptide: The New Normal In Higher Education.

 

 

 

 

 

THE ‘WAG THE DOG’ MARKET; STOCK MANIPULATION MADE EASY

THE ‘WAG THE DOG’ MARKET; STOCK MANIPULATION MADE EASY

The American stock market has been beset by a spike in volatility and downward pressure since the beginning of the year. Some of the riptide declines began with the unexpectedly light employment report for last December, issued early in January. While private research reports had documented net job increases well above the 200,000 or so that had been reported by the Labor Department over recent months, the government estimated only 74,000 were added. For those market speculators waiting all 2013 for the oft-predicted 10% downward correction in stock prices that would give them a chance to get in to the market after missing its 30% increase over the year, the disappointing jobs report offered their first chance to send their minions onto cable TV to promote the well-worn “sky is falling” thesis that would lead investors to quickly “take profits” and get out of the markets “while they still can.”

This ploy amounted to just another well-promoted renewal of the “Armageddon trade” that spooked investors – and opened doors to speculators to buy stocks cheap before the inevitable snap-back when Armageddon forgot to happen in 2009, 2010, 2011, and 2012 (based on doomsday scenarios for the Euro, the European “PIIGS” states, China and even the US).  This time investors – fooled not just once but four times by the chicken-little game –didn’t swallow the jobs report whole and refused to panic.  This was  largely because the dismal report was found to be based on statistics collected for only one week in December, and the coldest one at that – which artificially held down all sorts of employment but only temporarily.

But the speculators soon got another gift that keeps on giving – this time from the always volatile “emerging market” sector overseas – specifically in this case, the rapid depreciation of the currencies of Argentina and Turkey, which had been living beyond their means for years but only recently exposed as such by the Fed’s December decision to begin “tapering” the monthly money-printing that had found its way to the hot-return markets like those two countries, among others. Black market rates for exchanging the Turkish lira and the Argentine peso into dollars spiked precipitously, their Central Banks rushed to raise local interest rates and adjust exchange rates to counter the panic in the streets. Then speculators rushed in first to the currency markets to pressure the country authorities further to test where even more tumultuous – and profitable –breaks could be triggered! But the speculators also quickly saw that there was an even bigger game in play, and one they could play on a very low-cost/high returns basis – namely, playing the whole US stock market against itself for a quick buck on the short side with a relatively very small investment, just like in the good old days of the Euro-panic of 2010 through 2012.

The initial US market reaction to the Argentine-Turkey tango – which gave the speculators their renewed opening – was a flight to the quality of treasuries, which took the ten-year note up to levels that reversed the ‘normalizing’ price decrease (and rate increase) expected in the wake of the Fed’s tapering and mimicked a pattern usually associated with the onset of recession fears. Then came multiple 100+ declines in equity markets as they picked up the ‘all is not well” scenario laid out on cable coverage starving for something that looked like dramatic change. All this manufactured doom and gloom has created a perfect scenario for the speculators’ favorite playbook. Here’s how it works:

A big problem in a really consequential market, like a collapse in Chinese growth, would merit a drastic equity market response, more than even the 10% correction that short sellers and the many hedge funds that missed the 2013 rally altogether because of their antipathy to any “Obama’ market or whatever. But that’s reality; speculators deal in fantasy. Chinese GDP is equal to a large percentage of US GDP, more than the top ten US states combined. But Argentina, Turkey, Hungary – that’s a whole other story. Argentina’s GDP is just the size of Arizona and Missouri combined; Turkey’s is the same as Virginia’s and North Carolina’s combined.  And Hungary is supposed to be an earth-shaking currency problem? Its GDP is the same size as Kentucky’s.  But these global minnows allow the speculative whales to play an ultra-efficient market manipulation game at very low cost.

The “sky is falling” speculators just briefly “invest” a relatively small amount of their dollars to take a market position that drives down these little countries’ currencies even farther, take a mega-short position in the Dow or S&P averages. Then like the Armageddon psychology promoted by the cable TV “experts”, do the rest of the work for them, driving down equities to return big and quick short-position profits that more than make up for the losses incurred on currency manipulation, and opening the opportunity to buy favored equities – which they know will not be hurt by a Hungarian devaluation or whatever – on the cheap for 2014.

They played the same game back in the day when Greece or Spain were going to bring down the Euro, or the world: a few bucks pushed to spike the rate for “Credit Default Swap” insurance on Spanish debt, for example, could be relied on to drive down the entire global equity market, at least for a few days. Panicking equity investors gave up perfectly good positions as the TV folks quickly marshaled their forces to cover the coming global market calamity (which of course never happened), the speculators sold out their CDS positions at a loss but reaped a harvest of short-sale profits and then bought in cheap to reap the later equity rallies of 2010, 2011, 2012 and 2013.

Spain and Greece, however small in their own right, were at least tethered to a really significant currency and the Euro-bloc economy. But Turkey, Argentina, Hungary – they are really the tail that now wags the global equity market dog.

Market suckers have been taken in by these speculative games for four years running; why should 2014 be any different, especially with CNBC cheering them on by not explaining what’s really going on? Sure Armageddon talk ups the ratings, but maybe CNBC should ask itself: when we succeed in scaring everybody but the speculators and hedge funds out of the market, who’s going to be left to watch us?

 

The Night Before Christmas, Version 2.0

Content originally published on The Huffington Post

‘Twas the night of Black Friday,
And all through the Malls

The shoppers were stirring,
Over-crowding the halls.

Mama with her smart phone
And I with my Pad

Had just checked the prices
For what could be had.

When up on the Cable
There came breaking news –

The Fed would soon taper:
There’s no time to lose!

We sprang to our apps,
Checked our 401k’s;

Withdrew our deposits;
And put in for a raise.

The bond vigilantes
Were laughing with glee

When they heard how the experts
Were so sure on TV

That there would be no Santa
For Christmas this year.

Bernanke is going,
It’s high time for fear.

Rates will jump skyward,
And mortgages, too:

The stock bubble’s popping –
It’s long overdue.

The hedge funds were rousing,
And chucking their meds

As dreams of cheap equities
Danced in their heads.

When all of a sudden
Peace came to the planet;

Somebody remembered
Ben’s successor is Janet!

She’s calm and composed
And truly delightful.

With a wink and a nod,
She said not to be frightful!

Her economist smile
Does resemble a bow!

She’s not yet for taper:
She’ll keep interest rates low!

She wants to be sure
There’s enough job creation –

And with no filibuster
She’ll win confirmation!

We went right back to shopping -
A true test of endurance

But we almost forgot
To sign up for insurance.

We had only hours
To ObamaCare D-day:

If that doesn’t work,
They should sell it on E-bay.

But when we got finished
The store bargains were gone,

So this Christmas cheer
Will be bought Amazon.

Jeff Bezos is smiling,
So’s UPS;

So what if the Congress
Is still just a mess.

Nuke truce with Iran
Could mean one less crisis.

And on top of that,
It’s good for gas prices.

On fracking, on cracking;
We’ve got our own oil;

We can cut ethanol
And take care of our soil.

But some Christmas wishes
Just haven’t been heard:

It’s too bad these matters
Have long been deferred.

We need a real budget
To pay for the nation.

And while DC’s at it,
Let’s fix immigration.

We shouldn’t gut food stamps,
Hunger’s not the poor’s fault;

And in 2014 let’s not
Even think debt default.

While most of us wonder –
Will next year bring more dread?

A few fellow citizens
Think two years ahead.

Cruz fears some will challenge
His Canadian birth;

While Christie’s determined
To reign in his girth.

Ms. Clinton knows Bill’s shots
On Obama are scorin’ –

But she’s keeping her eyes
On Elizabeth Warren.

Thank goodness we’ve got a full two years to go
Before we get Jeb, Rand and Marc Rubio.

NSA’s on the job
Against terrorist mayhem;

But if they must see our phone bills,
Why don’t they just pay them!

And just one wish more
For a Christmas appearance –

Can the NFL refs
Define pass interference!

Teslas at Costco: Welcome to California — U.S. Economy of the Future

Content originally published on The Huffington Post

What is a luxury, $80,000 car (albeit with more subsidies than even ObamaCare’s best option) doing in a Costco parking lot while the owners load up with discount groceries? Probably it’s there as Exhibit A of the new California Economy — coming soon, as most Californian things do, to a country near you — one that features a “new frugality” of the rich. Indeed, stock market futures tell us that the rich are sitting on more cash than ever before and certainly more than the boom times earlier this century and in the bubbly 1990s. And to save on gas purchases, they are willing to pay more, with the help of gourmet “car stamps” from a State seeking to limit greenhouse gas emissions.

Just down a few streets from Costco in Palo Alto, The Fresh Market’s parking lot shows off a few more Teslas, because this higher-end food merchant has put in multiple electric charging stations, ironically, right next to a Shell station! The Teslas don’t yet outnumber the Priuses, but up the road at the movies in Redwood City, you can charge up your hybrid in the multiplex movie house lot. Here’s another manifestation of the new California economy: active environmentalism isn’t expected to exhibit sacrifice; now it’s expected to be downright convenient!

But wait, you say: isn’t California an economic joke, constantly in debt, a laughingstock of an economy with a housing market in free fall and cities going bankrupt left and right while public colleges cancel classes while jacking up tuition 15 percent a year? That was, certainly, the California of yesterday’s news. But it’s no longer the state of today.

California no longer has a budget debt. Its tax receipts, so far this calendar year, are actually running far ahead of expectations and are producing a surplus, thanks both to an improving stock market (with recently successful Silicon Valley IPO’s likely to continue this trend well into 2014) and a program of increased sales and income taxes which the naysayers predicted would tank the economy but clearly have done the opposite. As a result, Janet Napolitano — the new head of the State’s public University system — was able to announce a freeze on tuition at California’s flagship schools, with the support of the Governor.

Housing prices have come back stronger in California than in most of the rest of the country, and stocks of homebuilders with large land holdings and development presence in California have performed exceedingly well this year. Some of the state’s hardest hit communities — a couple of which have pursued bankruptcy resolution to address public payroll and pension issues — are seeing stabilization in home prices and speculative interest in rental conversions as well as a gradual reduction in homeowners stuck with “underwater” home values compared with mortgage indebtedness.

In no way does this progress against 30-50 percent declines in home prices constitute a replication of the housing bubble of 2001-2005, as some commentators have suggested. The only “bubbles’ in this water are from homeowners coming up for air. Other states should be happy to copy California’s aggressive approach to providing relief to struggling households in working through their mortgage debt. Moreover, new public companies providing important services to support the housing market like Zillow and Trulia have their roots in the Golden State.

California and its leading agricultural and technology businesses are also heading up the charge for comprehensive immigration reform, on economic grounds, among others. The State recognizes that regularizing the status of 11 million undocumented U.S. residents and liberalizing the nation’s unduly restrictive Visa and green card rules would unleash a wave of economic activity (including taxpaying and extended financial support for Social Security and Medicare) that would make Federal Reserve stimulus programs unnecessary. Strangely, many of those who oppose the Fed’s actions also are the most vocal critics of immigration reform.

California, better than other regions of the country, perhaps understands how many jobs are going begging in this period of profound and seemingly intractable unemployment. While 11.3 million Americans are shut out of the job market, nearly 4 million jobs are not being filled because our work force currently lacks the relevant skills or orientation to perform the tasks. California’s leading universities continue to be a magnet for overseas students wishing to gain scientific and engineering credentials, but our country makes them unwelcome the moment they earn their degrees. California would like to take the underground economy where about four in ten undocumented residents consist of folks who have overstayed their Visas and bring it above ground where it can make a much more lasting and fulsome contribution to GDP.

California has shown that a state can take a stand against global warming, greenhouse gases and violent weather through a combination of subsidies and controls on emissions and at the same time generate economic growth. In the process, the state has taken the lead in an uphill battle to keep America from ceding future leadership in renewable energy generation to countries like China and Germany, while remaining a powerful force in terms of continued production of fossil fuels. California companies like First Solar, SunPower and Solar City have proved that renewable fuels are not a financial pipe dream but a profitable reality for their employees and their investors. The State’s venture capital industry has embraced advanced biofuel technology as well, in ways that do not retard food production.

Even in “old” industries like ports and rail, California has become a leader in technology-driven logistics. It has been a voice crying in the wilderness of Washington D.C. for renewal of America’s vital transportation infrastructure, which many in the rest of the country seem to believe we can’t afford to keep up any more. If the rest of America wants to just let our roads and bridges and terminals and water systems literally rot, California will not join in such self-sabotaging madness.

In short, California is fast emerging as a beacon of optimism and American self-confidence in the face of rampant pessimism, “can’t do-ism” and self pity. Optimism has always won out in the end in this country, so it would be wise to pay attention to what California is doing – it’s too good to resist for much longer.

What’s Happened to the Federal Obamacare Exchanges?

Originally posted: 10/21/13

If the government shutdown and debt ceiling controversy had not captured the national attention over the past three weeks, we would be more focused on the failure of the federal Obamacare exchanges to work. That of course was Ted Cruz’s and the Tea Party’s choice of focus, and it backfired. Their best case against Obamacare was muzzled in the noise about closed monuments, credit rating downgrades, and the split in the Republican Party.

On the other hand, the exchange operations have been a mess for nearly three weeks, as the registration process software and its connectivity with insurers has, to say the least, left a lot to be desired. Now that attention is focused on this inexcusable failure of the administration to deliver the goods on the president’s signature legislative accomplishment, a preliminary accounting (and accountability) is certainly in order.

The word “preliminary” is important here. Just to give two examples: the first three weeks of major federal government projects — even by the best men and women with the best intentions – have fallen on their face for about that same amount of time. The U.S. attack on Afghanistan after 9/11 was considered a virtual failure three weeks in. President Bush stuck with the game plan, his administration didn’t panic, and the situation turned rapidly favorable after that in terms of driving the Taliban from governmental control. What happened later with the loss of focus on that War in order to chase the phantom WMDs and mushroom clouds of Iraq, however, is another story — that mistake carried on for years and years, not weeks.

The other even more apt comparison would be the first three weeks or so of the rollout of the bipartisan Prescription Drug Program under Medicare — also universally reported as a failure in its early days. Again, sticking with the program despite even bipartisan political criticism at the start paid dividends over time, and prescription drug coverage has itself been partially expanded under the Affordable Care Act (a/k/a Obamacare).

So first of all, it would be wise to withhold some degree of judgment and give the federal exchange a little more time before declaring it brain dead. And time would give us a chance to catch our breath, get enough perspective and ask pertinent questions while the software folks try to fix their mistakes.

Yes, their mistakes. It is a government program, of course, but the software work was contracted out to private enterprise (which is always being held up as the model for “how government ought to work”). Well, in this case, private enterprise didn’t do so well in what should have been a manageable web design project — big and complex, but hardly a problem that should have been too big or complex for the folks who revel in “big data.”

Perhaps that’s the problem one faces when the government is pushed to choose the lowest bidder; you get what you pay for. Or maybe not. What is most curious, however, is that the same Canadian-based company that fouled up the federal exchange delivered a very successful model to the state of Kentucky, one of a few states that elected to cooperate with the Affordable Care Act rather than, as many Republican governors and legislatures chose with the obvious intent of messing things up, dump the program entirely on the federal exchange. That exchange was, after all, intended to be a back-up system rather than the sole entryway to insurance coverage for the majority of uninsured Americans. Why was the same firm able to construct a perfectly good product for Kentucky and a substantially flawed version for the federal level?

Could it be that the federal program was sabotaged by some software engineers with Tea Party sympathies at the Canadian contractor? Or at Quality Software Services, a subsidiary of Unitedhealth, a leading American insurance company? One would think that if Google, Amazon, or EBay could have produced a workable Federal Exchange even with the tight deadlines imposed under the Affordable Care Act (made tighter, in fairness, buy the decision of the Obama Administration to delay the final specs until after the 2012 election to avoid potential political criticism). It just doesn’t seem to be characteristic of “private enterprise” to be so incapable of applying “best practice” standards of performance across two high profile engagements. Perhaps someone in authority should look into whether any shenanigans went on within the coding staff of the firm.

Heads should roll, too, within the Administration, even the head of Health and Human Services Secretary Kathleen Sebelius, whose post-Exchange launch performance has been so clueless as to suggest maybe she was in that state also even before the launch. Accountability starts at the top, and the president is certainly taking his lumps over this. So should others, perhaps especially for the decision to task the government’s Centers for Medicare and Medicare Services office with oversight of the 55 subcontracts involved in the construction of the Federal exchange, rather than an experienced private sector contractor. As we say in business, that judgment seems to have been a “terminable event.”

There must be governmental accountability for such embarrassing failure. But the accountability must also extend to the private sector firms that failed to live up to their contractual responsibilities to produce a product that works, on time and on budget. The private sector software firms’ excuses seem to mirror the old joke about the power company executive who told a press conference after a power failure: “What do you expect us to do, provide power to the whole city?” The relevant answer with the Federal Exchange, of course, is “yes!” It’s time to see if the choice made in the Affordable Care Act not to include a truly ‘public option,” but rather to rely on the private marketplace to deliver quality health insurance, can be validated by the actual performance of the private sector.

Look Past the Lies: The Politicians Are Negotiating?

Originally posted: 10/15/13

Speaker Boehner and Ted Cruz, and President Obama and Harry Reid are each blaming the other pair for the standoff about the government shutdown and the debt ceiling increase. As usual in the blame game, a lot of lies are spinning out of control. Prime example: “the president won’t negotiate.” Like a lot of lies, this one starts with a half-truth. Obama has indeed declined to negotiate, but only so long as the threat of creating an economic catastrophe is being used as a bargaining chip. This is the type of lie that the SEC would call a fraudulent “omission of a material fact.”

So too the lie that “The debt ceiling is a credit limit; increasing it or lifting it would add to the debt.” This is very popular with Tea Party spokespersons and Rush Limbaugh, but is categorically untrue. The debt ceiling is not a credit limit. We’ve already spent the money by appropriation from Congress, and we haven’t collected enough revenue, under Congress’ tax and fee enactments, to cover the spending. The debt in fact is already there by operation of law. The debt ceiling legislation itself is more of a fraud than anything else, but we’re stuck with it and it must be raised to avoid default.

That brings up another lie: there will be no default if the debt ceiling isn’t raised — we have enough money to pay debt service. Again, a half truth. True, we can probably scrape together enough tax receipts in late October and November to pay interest due on treasuries. But that’s not all we owe and there are no rules on what the Government is allowed to do when it doesn’t have enough ready cash to pay all its bills. It will have to default on something, and that will be enough for another rating agency downgrade. That’s as bad as a default itself, as we shall see.

Once the Fitch agency reduces our sovereign debt rating from AAA to AA, it becomes the second such firm of the “big four” credit review agencies to do so. And that in turn means that a whole bunch of investment funds can no longer hold Treasury securities because they are no longer AAA. This will be hard on pensions and banks, but toughest of all on money market funds, which are supposed to maintain their net asset value “sound as a dollar” by holding only the most risk-free assets. One they start dumping Treasuries, as they must, the “run” on money market funds will make the 2008 financial crash and credit freeze look like a little leak in a boat rather than the economic tsunami that’s coming.

The Tea Party says that’s all a phony crisis, just like 2008 was cooked up by a bunch of liberals to justify government intervention in the banking, auto and health care industries. But if that crisis is so phony, why does the Tea Party keep complaining about the recovery being too slow – what’s to “recover” from if there was no real crisis? This next one will be real enough.

In one sense, the only way out of the corners everyone involved has painted themselves into must involve some sort of negotiated settlement. And negotiation is going on despite the public posturing.

In fact “conversations” are going on. Boehner and Pelosi are meeting. Obama is meeting with both the Republican and Democratic caucuses. President Obama has stated that he would accept a short-term government reopening and debt ceiling deferral to give time for Congress to negotiate a budget with everything on the table. Boehner says that would amount to “unconditional surrender” on his part, but he has also all but surrendered the fight to either defund or delay ObamaCare and has left only the medical device tax repeal realistically “on the table.” Congressman Paul Ryan, Chair of the House Budget Committee and the leading House GOP expert on the budget, has proposed a solution to the crisis without any ObamaCare strings attached, as long as there is serious progress on entitlements and tax reform. While Obama has resisted entering such a dialog if the Republicans insist that any revenue increase is (like ObamaCare) “off the table,” the President has publicly conceded he could live without tax rate increases and reasserted his desire to cut corporate rates in the context of broader reforms.

Meanwhile, the House GOP keeps “releasing government agency hostages” one at a time in hopes of deflecting public criticism due to high-profile harmful effects like the recent denial of military survivor benefits for war casualties. The Democrat-controlled Senate hasn’t taken these one-off bills, insisting that Republicans can’t just pick the government they like to fund but starve the EPA, OSHA, Food Stamps and the Energy Department. Yet they have only “tabled” these proposals, not literally voted them down.

In short, there is a deal here to be had when there is a will to do so. But this impasse is still looking more like the baseball strike of a few years ago than anything else, which only got settled when the unthinkable cancellation of the World Series brought everyone to their painful senses. Baseball recovered, but it took a couple years and a lot of steroidal home runs to bring all the fans back. And we are now having much talk among GOP hard-liners and Tea Party types that either a “default on debt” won’t happen or that maybe it wouldn’t be so bad after all – maybe the markets would even rally if we held the debt ceiling as is. Realistic economists pull out their hair out at these sentiments. But what the Tea Party folks have in mind is using the current debt ceiling as a sort of de facto “Balanced Budget Amendment” that, as of October 18, will literally force the federal government to spend only what it takes in. Supreme austerity – total victory for the Tea Party! This view will be the hardest to “negotiate” away – it’s more like Custer’s Last Stand. The Indians will be the rating agencies.

The Tea Party End Game? Trigger U.S. Default, Then Impeach Obama

Original post date: 10/4/13

The far-right faction of the Republican Party known as the Tea Party and its principal spokesperson Rush Limbaugh are experts at spinning fantastic conspiracy theories about anyone who dares to disagree with them. Obama is a Muslim, a non-citizen (unlike Senator Cruz, who was born in Canada to an American mother) a Hitler clone, a communist. Excess salt in diets and concerns about obesity are liberal plots to install government controls (just like those “new-fangled” light bulbs). Likewise the non-Fox ‘drive-by’ media are not to be trusted: the Politico founder is “to the left of Stalin,” the AP is a secret arm of Democratic National Committee, NBC is in the tank for ObamaCare because it dares to explain how to obtain it.

Limbaugh’s latest conspiracy spin is that the new health insurance exchanges under the Patient Protection and Affordable Care Act are actually an Obama plot to destroy the private insurance industry and force everyone to go to the Government to get their coverage. He conveniently ignores the fact that all insurance policies available on those exchanges are mandated by law to be, and are, provided by private insurers! There is no ‘public option’ under ObamaCare. Wall Street has been rewarding the stocks of most of the major health insurance carriers in view of the vast potential for new subscribers. But “never mind” according to the Tea Party crowd: our lie is truth.

Like the Alice in Wonderland characters they are, words for the Tea Party mean only what they say they mean, and the rest of us have to accept their reality or face banishment from their kingdom. Seeing how far Sarah Palin and Chuck Grassley got with the notion of ObamaCare “death panels,” they now have turned “debt default” into a good thing for America. Tea Party types are great at dishing out whatever story suits their overriding “narrative” of the tyrannical rule by a vast Left-wing conspiracy of America since at least the Presidency of Woodrow Wilson. But can they take it? Let’s see, shall we?

Here’s a view of what the Tea Party seems to be up to. Start with the fact that they believe there is nothing wrong with using their “budget” power to shut down the Government, especially the EPA, HUD, Department of Energy and Department of Education. Moreover, they also believe that failing to raise the debt limit is not a problem. Indeed, they even believe that a US debt default would be a good thing for the country, because they think it would bring down the President and force a radical restructuring of government spending in the wake of whatever financial panic ensued.

Remember, these are people who believe (contrary to all evidence) that Wall Street is in the tank for Obama anyway (and vice versa), so what happens to the stock market is no concern of theirs. Perhaps many Tea Partiers don’t realize that their mutual funds are collections of stock holdings. We are not dealing in the world of reality here, but fantasy does from time to time impact reality. And it’s about to, big time.

Tea Party adherants also don’t think that debt rating agencies are at all relevant, so a Standard & Poor’s downgrade of US debt in advance of actual default, which would trigger a stock market crash without question, also does not bother them either. (As noted above, many of them obviously don’t realize that their 401k’s actually own stocks!)

Failure to raise the debt ceiling by October 17 will put US Treasury securities technically in default even though the Government will obviously use every dollar it receives in taxes and fees to pay debt service for as long as it can. That technical default will trigger serious financial consequences for holders of Treasury securities worldwide, especially among banks. Overnight credit and commercial paper will dry up because the collateral used for security – Treasury securities – will be impaired. Likewise money market funds, so popular among US savers and corporations, will be in deep trouble keeping their $1 parity value. This problem will be exacerbated due to the suspension of all Social Security, Veterans and disability benefits

In short, Tea Party obstinacy through October 17 will produce a financial panic probably worse than occurred in autumn 2008. Since the Tea Party opposes, in retrospect, the TARP program that resolved that panic (which Limbaugh claims was phony in any event), they will make no move in Congress to “fix” the panic by switching their votes to favor any debt ceiling increase.

As they know, the reality of this dire situation will force President Obama into a difficult position of having to either let the literal default disaster happen, apply his executive power to “defend the Consittution” — including the 14th Amendment provision that says the “validity of the public of the United States, authorized by law, including pensions…shall not be questioned” — to override the debt ceiling limits, or work a deal with the Federal Reserve to meet US borrowing needs indirectly.

No matter which course the President chooses, the Tea Party will immediately file Articles of Impeachment against both him and the Vice President, alleging either that they have violated the Constitution by sidestepping the debt ceiling, or that they are personally responsible for the US default through their “high crime” of putting ObamaCare above US “full faith and credit.” They know full well that the Senate would not likely convict on such spurious charges, but they will, along the way, threaten to “primary” any House Republican who dares vote no, and thereby also pre-empt any attention for the rest of this Congress on immigration “amnesty” which the Tea Party hate as much as ObamaCare. And Obama himself will be tied up until the 2014 election defending these charges.

This outcome would be the definition of a Tea Party “win-win.” Of course an improbable impeachment conviction of Obama and Biden would be the cherry on the cake, as it would install their hand puppet Boehner as President until the 2016 arrival of the Koch Brothers’ own Manchurian Candidate, Senator Ted Cruz.

If you think this scenario is crazy, you’re right. But in the Tea Party Twilight Zone of American political theater, it’s the “new normal.”