American Labor Camps?

by Al Martin

American Labor Camps? Thank You, General Primakov!

(7-13-09) In this economic environment, work camps in America may ultimately be “necessary.” What’s the one area where the Obama Regime has not fulfilled its campaign promises? Reversing US PATRIOT Act powers and dismantling the CILF (Civilian Inmate Labor Facility) program. Indeed they’re spending more money on CILFs because they understand the need for it, and they understand the need for the President to have PATRIOT Act powers in an economic environment wherein civil unrest is growing and will be growing even more...

Meanwhile there has been a change in the Obama Regime’s public stance, in that they have been warning in a more forthright fashion that a second dip in the economy is coming. They’re doing it in a backhanded way, but you can tell that the regime is concerned. Otherwise why would they have floated the idea of a Second Fiscal Stimulus program as a trial balloon to see how the markets would react? This roiled the Dollars and the Bond market as well as the equities.

What does the market want? It wants the Obama Regime to actually utilize its First Stimulus program. Of the $1.7 Trillion appropriated, only 15% of the money has actually been spent. This is the same old problem with government fiscal stimulus programs. It takes governments so long to get the money into the system. The hang-up is the same. Governments are laden with a cumbersome and inefficient bureaucracy, in which you have, let’s say, 13 departments doing the job of one department. Consequently a program which is supposed to be funded never gets funded because it takes government so long to develop a mechanism to administer and monitor that program and distribute the money.

What’s the alternative? Handing out bags of cash worked in Iraq and Afghanistan. You can see Helicopter Ben Bernanke flying over and dropping more bags of Bennies (Benjamin Franklins that is). If it’s good enough for Iraq it should be good enough for America. In America, however, we insist on crossing the t’s and dotting the i’s. When governments try to do that, invariably it will take them years to develop new programs and new agencies.

The Double Dip means nothing good for the US population – unless you’re short equities. It entails nothing good unless you know how to make your money “make money.”

Obama himself was warning that the unemployment rate is going up into the double digits and that we are a long way from the bottom in residential foreclosures. We also see Secretary of Debt Geithner warning of the coming debacle in industrial and commercial property yet to come. Fed Chairman Bernanke mentioned that this concept of so-called “green shoots” fostered by Bullish Shills in financial media is nonsense and the only thing we have is brown weeds. In a backhanded way, they’re trying to warn the public that a double dip is on the horizon and there’s nothing that government can do about it.

So who are the weakest citizens in the United States, who are now part of the problem instead of the solution? It’s the US citizen who makes $68,000 a year, is married, has 2 minor-age children as well as a home mortgage, a car loan and credit card debt.

As readers well know I have ranted for years against what I have called the Cookie Cutter Society, and what the consequences of this ultimately are. This is the folly of debt-financed consumption, in order to maintain a particular kind of lifestyle, i.e. marriage, having rugrats, having homes and cars, etc.

In the immediate post WWII environment, as we have said before, the construction of a Cookie Cutter Society was necessary in order to pick up the planet’s economies, which had been devastated through a back-to-back process of a 10-year depression followed by a world war. By 1946, economies were effectively on the ropes. Then it was necessary ot create a Cookie Cutter Society, but at some point, since the concept was false, it cannot be maintained over the long term. Why? Because you consume too many resources which can not be renewed. The production of semi-renewable resources is also limited.

The Second Fiscal Stimulus Program, which was floated last week, was first promoted and then pulled back by Secretary of Debt Geithner and Obama himself. This Obama Regime is different from the Bush Cheney Regime by its level of candor. From a political perspective, it is a good thing because they have admitted that they inherited an enormous mess, which will take decades to fix, and they don’t really have a clue how to fix it since such a situation has never existed before. They are distancing themselves from the political impact of a further economic decline.

At the same time the Obama Regime is promoting this so-called health care reform, which is compounding the budget deficit and therein lies evidence of the inexperience of the current regime. This is a regime full of left-wing children, i.e. grandchildren of Great Society visionaries. They want to put on the back of this fiscal stimulus program, as it were, a lot of Great Society programs form the Lyndon Johnson era. However this is the wrong time to do it. They know that if they don’t get these initiatives like universal health care done now, the chances of doing it sometime in the future are something between zero and none – as the fiscal situation of the United States continues to deteriorate.

If you’re a left-winger this makes sense, because now is the time to issue the debt and raise the taxes to do what’s necessary to finance a universal health care program. Now you can expand the amount of debt without inflation. That’s the one thing the Democrats have on their side. However it’s really unfortunate for the economy. Deflation becomes a problem for the economy under Democratic regimes because Democrats will invariably use deflation to dramatically expand debt in order to finance Great Society programs, knowing that they can do so without inflationary implications.

And how is the Obama Regime dealing with the states going bankrupt one by one? They’re not -- and that’s the problem. They are continuing the problem that the Bush-Cheney Regime had in ignoring the fiscal deterioration of the nation’s states, counties and municipal governments.

The Obama Regime said they will not bail out California because they don’t want to provide any more debt guarantees. That may be the right thing to do because California, Illinois and New York are all involved in a political logjam on budgetary issues, and it’s not an economic logjam. The Obama Regime believes that if it withholds a federal bailout, it will force the Democrats who are the obstructionists, particularly in state governments, to cave in. This is really a fight between federal Democrats battling state Democrats. The Democrats are largely the problem in the state governments and also the county and municipal governments. They will not approve the budgets necessary to begin to tackle the problems because they too like the federal government want to tack on a lot of social spending and relief programs. The federal government can do that, but the state governments can’t because they don’t have the ability to issue the debt willy-nilly to finance it.

Why? Because the market for municipal securities has been hurt and it was never as deep and liquid as it was for federal Treasury securities. The market for municipal securities during the last 12 months has been greatly diminished, They simply can’t float the debt to finance increased social spending.

Meanwhile Bill Gross and PIMCO, the world’s largest bond manager, has opted out of the management of the so-called toxic securities in the PPIC (Public Private Investment Corporation). They’re going to let BlackRock and a few others handle it. They didn’t like the restrictions that were placed on the program. It should be remembered that PIMCO bought a lot of distressed securities with the intent of selling them back to the Treasury for a profit. This would be done is a program that it was going to manage. This would have stunk politically.

For PIMCO, a conservative well-run bond firm with a stellar rate of return, six months ago, started to recommend the purchase of junk securities (the very fact of a PIMCO recommendation increased their price) in order to justify a market level, so that they could then resell them to the Treasury. Why? Because they saw an easy dollar to be made. Although they have had stellar returns in the past, the returns on their bond funds were not particularly stellar in more recent times. They saw a quick buck, not only for their firm, but for those who are invested in junk securities as well. This would have increased their overall performance and recover some of their past prestige.

PIMCO went out and bought a lot of junk at 10 cents on the dollar. Then they made a general recommendation which then lifted prices of junk from 10 cents to 20 cents on the dollar. This then has lifted the performance of the funds that they managed that are invested in the very same junk paper. And besides you had a ready buyer at the end of this process – the Treasury.

So what else can be done about the economy? The only thing the regime can do is to try to accelerate its efforts to get money into the system which has already been appropriated under the first economic stimulus program. There’s only so much you can do, if you don’t have the mechanisms in place to get the money to the market. If you say to your agency minions, to speed up the process, they won’t – because they don’t have the ability ot do so. There is very little that the regime can do.

The best thing the Obama Regime can do is to do what it’s doing, and that is, warn the Unwashed. The regime’s constituency, after all, are the Unwashed, so therefore the regime sends put a warning that a second dip is coming. That capital preservation is king and that it’s time to contract debt, not expand it. That it’s not time to buy a house yet. These are the signals that the regime is sending and indeed the so-called “hunkering down” signals are the right message to send. So when can the Unwashed do at this point? They have to stop thinking that they can live as well as they did before.

And what is the biggest threat? The ultimate problem has been the creation, under Republican Regimes, of an economic system, wherein the bottom 50% of the population has become economically unproductive. As the economy continues to unravel, the drag of that bottom 50% of the population becomes more telling because they consume increasingly more economic resources than that which they are contributing to. Ultimately this problem has to be faced because the United States even tough it is a diminished position, it is still king of the hill of the planet. Why? Because everyone else has been diminished even more than we are.

You could say that the biggest threat to the planet’s economy is the bottom 50% of the American population because of the threat they represent to the US economy and by extension the threat that this would represent to the economy of the planet.

So is the logical extension of this the concept of work camps? Of course. There have been circumstances like this before. Media pundits laugh about this -- how can 50% of the population incarcerate the other 50% in labor camps? Yes, they can – and there have been many historical precedents.

The bottom half of the economic population will never come back to their previous levels, since there is no mechanism available that will bring them back to the top half. So therefore they have to be eliminated somehow – either outright eliminated, or they have to be placed in work camps, or some environment where the economic drag they constitute can be limited.

It becomes fundamentally unfair what the bottom 50% or the Unwashed are doing. That’s where 94% of the foreclosures are occurring. That’s where 97% of the credit defaults occur. The stress that they represent to the nation’s economy has to be effectively financed by the top 50%. Perhaps it may be fair to just rid the nation of them. And in a way the government is already doing that.

Despite Obama’s Great Society ambitions, government sponsored relief programs are diminishing. The amount of money available is decreasing. The 50 million uninsured are mostly in bottom 50% of the population. Therefore you can see, as Kaiser Foundation points out, that the life expectancy of the bottom 50% of the population is declining at an increasing rate. The life expectancy is declining due to a huge increase in people not having health insurance which severely limits their access to health care.

Also economic stress has led to a dramatic increase in alcohol and tobacco consumption, as well as the consumption of grease- and fat-laden foods. That increase in consumption is also concentrated in the bottom 50% of the population.

What the government needs to do is to coordinate these economic factors in such a way as to increase the rate of decline of the median life span of the bottom 50% of the population. At the same time the government has to reduce the drain they cause to the public purse. What needs to be done is to organize the economically unproductive into labor camps.

Obama should actually be thanking the Bush Regime for the billions they spent seruptitiously and unlawfully on the American Gulag. It should be noted that US Homeland Security advisor and former KGB General Yevgeni Primakov, about 5 years ago, said on BBC Radio that the foundation of the American Gulag has been prepared. He was the one who came up with the blueprint for the construction and management of the American Gulags.

Even though they created the problem, the Bush Cheney Regime also began to work on the solution.

As the older Unwashed are now vying for Walmart Greeter positions, the next generation will be vying to be the Kappos of tomorrow’s American Gulags.

Remember -- American Labor Camps are Joe Six Pack’s future…

* AL MARTIN is an independent economic-political analyst with 25 years of experience as a trader on NYMEX, CME, CBOT and CFTC. As a former contributor to the Presidential Council of Economic Advisors, Al Martin is considered to be a source of independent analysis for financially sophisticated and market savvy investors.