Mr. Buffett has spoken: We are in a recession

From the desk of Guy Geldworth:

The jury is in, we are in a recession. Not that most folks who fear job loss or reduced hours, or who have, in fact, experienced it, have doubted it.

Billionaires Warren E. Buffet and Charles T. Munger, Buffet's long-time partner at Berkshire Hathaway Inc., have declared it so. Buffett at the recent Berkshire shareholders meeting in Omaha is a skeptic of the classic criterion: the economy must experience two consecutive quarters of negative growth. His own definition: "...when most people and businesses (are) not doing as well as they were three, six, or nine months before." Obviously, the super rich and those who shill for them like Larry Kudlow (see below) will not respond "yes" to this definition. No discernible change in their income, their material lives.

So, Shush! Don't tell Kudlow of CNBC, the financial channel's market cheerleader whose boss is parent company NBC, which is owned by General Electric. And don't tell our own Guy Geldworth. (We are hopeful Guy's own job is secure when we read headlines such as "UBS may slash 8,000 jobs amid write-downs" in the Los Angeles Times, 5/5/2008.)

But Guy (whom we still love only because he's young and, at heart, principled) and Larry are market guys who've been getting a lot of cheap money from the Fed for years. Additionally, they're dealing with the element who have the money (there's plenty of it around) and who are waiting for another Boom to deploy it in our recent market history of Boom & Bust, Boom & Bust...

Don't worry, there will be another bailout, but after the fall election. Thus, when the market is safe for the "common folk" we'll give a call to Guy because he is, after all, a market guy. But for now, here are the facts. You make the deductions and act accordingly.

• The first quarter numbers are in: GDP growth increased only 0.6%, but even this sickly number is misleading because inventory buildup also increased and indicates actual negative growth.
  
• Exports are diminishing. Both the Chinese and European economies are slowing in their growth. One reason, the dollar has stopped its decline and growth has its own limits.
  
• Economist Paul Krugman has called current banking conditions similar to the bank run of 1930-31. Confusingly, he feels we are not in a recession. I suppose we must crawl through this maze of seemingly contradictory facts and factoids.

OK, the hard numbers. Fasten your seat belts, it's going to be a bumpy ride:

• While the banks have "only" declared $200 billion in losses, $1.2 trillion of losses are yet to come. We know about the huge write downs stemming from the sub prime mortgage debacle. Still to come will be the losses stemming from consumer debt: credit card defaults, automobile loan defaults, student loan defaults.
  
• The Fed has "only" $400 billion in reserves with which to cover losses, yet the losses amount to $1.6 trillion.
• What do the banks do with the "easy" Fed money? Many are not even loaning to themselves. Home loans? Yes, you can borrow, but your rates won't decline. Yet it was your dollars the Fed used to provide cheap cash to the banks. Should you be concerned?
• Related point in housing: Thus far, there have been 200,000 foreclosures nationwide, yet 2,000,000 are projected to follow. "Look for the banks to sell more preferred stock, and bonds in order to "look like they've been doing something" when the inevitable next bailout jackpot occurs after the election. They will want to look good." (Jack Rasmus).

Linkage among: Income Inequality, the Banking Financial Crisis, and the Recession

• More from Jack Rasmus: The United States economy has accumulated $12 trillion in debt in the last six years. $5 trillion in government debt, $4 trillion in consumer debt, and $3 trillion in business debt. This debt should have in some way helped to finance a stimulus to the economy but basically failed. Mr. Rasmus maintains that while some money has gone into financing the Chinese financial boom, from which some American investors have profited, much has gone into off shore tax shelters or was squandered in high risk ventures such as hedge funds.
  
• Thus, a lot of the "debt/stimulus" money wound up in speculative ventures looking for big payoffs such as the current ethanol bubble. While all too many Americans are hungry to fuel their gas tanks with government subsidized corn-based fuel, (part of the $12 billion debt/stimulus) others abroad are simply hungry. One-third of the increase in price of food is related to higher price of corn. Are we Americans not concerned with foreign approval?
  
• Fact: There is actually a surplus of capital which will eventually find its way back into the economy when it is safe.
  
• Fact: For most Americans asset prices are falling, particularly in the value of their homes; and they are incurring greater amounts of debt as living costs rise and the level of their income falls in relative value.
  

One must ask, why trust most pundits on television? They merely work for those who wouldn't know about or seem to care about average people. They're just looking for the next "Bush" to continue the party for the few.

They don't have to look too far. He comes in the form of a former naval aviator, multi-millionaire senator who helped bail out a fraudulent banker who bilked common people of their life savings in the last big boom/bust cycle in the late 1980's.*

How soon we forget department

*In the 1980s when John McCain was embarking on his political career in Arizona, Charles Keating, an Arizona banker, son of a developer, was convicted of racketeering and fraud in both state and federal court after his Lincoln Savings & Loan collapsed, costing the taxpayers $3.4 billion. His convictions were overturned on technicalities; for example, the federal conviction was overturned because jurors had heard about his state conviction, and his state charges because Judge Lance Ito (yes, that judge) screwed up jury instructions. Neither court cleared him, and he faces new trials in both courts.)

Though he was not convicted of anything, McCain intervened on behalf of Charles Keating after Keating gave McCain at least $112,00 in contributions. In the mid-1980s, McCain made at least 9 trips on Keating's airplanes, and 3 of those were to Keating's luxurious retreat in the Bahamas. McCain's wife and father-in-law also were the largest investors (at $350,000) in a Keating shopping center; the Phoenix New Times called it a "sweetheart deal." (CNNfn Web Site, December 2, 1996). (Jack Rasmus)

In today's American judicial system, lack of conviction often is no indication of innocence, particularly when a political figure like McCain steps before the bench.