Beer prices rise for the Consumer as Costs of Production Fall and Profits Rise

A number of brewers announced recently that the price of beer that the consumer pays will be going up citing rising costs. In the CNN story above the reasons given are less vague. The brewers claim to be raising prices to offset rising commodity prices and fall in volumes. Though, commodity prices have fallen recently and have caused farmers and dairies to worry about staying profitable this year. Also, ten days ago Anheuser-Busch InBev announced that their second quarter profits had grown despite the drop in volume because of cost cutting measures. One has to work through the maze of business doublespeak in these non judgmental articles regarding price increase and increased profitability to understand that cost cutting and "synergies" in these cases refers to job cuts as a result of the InBev takeover of Anheuser-Busch.

If you are the kind of person who likes to buy American and support American jobs, it is getting harder and harder to find an economical beer. Though some of the big brewers still employ Americans.

Pay

As a result of the media focus on the crash of a commuter flight in Buffalo, NY it has been revealed that pilots starting out and breaking into the industry make about as much as the girl at Starbucks that hands you your coffee in the morning. Add on to that, the fact that the pilots work long days at a job that it is critical they maintain focus and composure and you get a mild national shock.

I was surprised also. I really shouldn't have been given the nature of corporate America that pays the people that actually do the work a pittance while the executives who have never worked a day in their lives rake in exorbitant salaries. Still when you think of a pilot, its the one job that you wanted as a child that even from adulthood still looks like it has the least chance of turning out like the soul crushing office work you wound up doing.

Now more than ever we need the minimum wage to be set to the actual living wage. There really shouldn't be a distinction between the two. Congress should act now because the old argument that raising the minimum wage would cost jobs doesn't fly when companies nation wide have already cut their staff down to bare bones, cutting labor down to workers with essential functions and then cutting just a few more. There aren't any more jobs to loose.

You might still be foolish enough to believe in the American Dream, that hard work pays off, or you might be an aspiring corporate raider and make the argument that this still increases overhead of even small businesses. Sure it does, but you are willfully ignoring the big picture. To be trite, the rising tide raises all boats. If everyone is being paid a living wage, suddenly you have a surge of new consumers that have never had disposable income before. They are buying their coffee from Starbucks instead of from Maxwell House, which increases the dollars in circulation and increases profits and liquidity.

Of course this only happens if Starbucks, forced to increase wages, doesn't increase the price of their already overpriced coffee. Theoretically this could cause an increasing spiral where the costs of goods is increases commensurate to the increase in the minimum wage creating an runaway spiral of inflation. But that's where the other market forces come in. First, not every company will simply raise prices to artificially keep wages low. In our global mega corporation economy where even the store brand discount paper towels are made by the massive conglomerate that makes the costly brand name ones it is easier for such companies to spread any cost increase out over a large population and over time. This doesn't even have to turn into a situation where Congress is robbing the rich to pay the poor.

This was what we once got from unions. We have them to thank for the weekend and the forty hour work week. Unfortunately now they have turned into a punchline about organized crime and an albatross around the neck of the poorly run auto companies. If unions want to become relevant again they need to seize on this recession and take big bold action that will carry us out of the recession. I don't see this happening. They protect workers who don't work and see themselves as the enemy of management. Even worse younger workers have to pay dues into the union and get little out of it by being relegated to the worst jobs not by the company but by the union that is supposed to be looking out for them, and they still get crap wages because the union had to sell out the decent wages of new employees to maintain the benefits of the retired.

That being said, I have worked for companies that hate unions, ones that just aren't unionized, and ones that have a large powerful union and ones where the union is a minor impact on a portion of business, and I have seen that the big powerful unions still have a beneficial impact on more than the quantifiable benefits and wages one gets.

Ben Franklin Report: The Mark to Market Rule

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As if in direct response to Colbert's challenge to create something, anything to believe in to turn the recession around, the Financial Accounting Standards Board changed the Mark to Market rule. Unfortunately this was actually in response to intense pressure from Congress and the Banks. This lets banks revalue their toxic assets before reporting them on their books. (Which makes me wonder why this was done just after the end of the first quarter.) The banks that took on more risk than they could manage don't just get to value these assets at whatever they want, they get to value these pieces of steaming crap at whatever they think someone would pay if anyone was interested in buying a steaming pile of shit just because someone called it golden.

Of course this looks exactly like what we have been doing so far in relation to this banking fiasco. We looked at the disaster and saw that the people in charge had established a system of perverse incentives that encouraged highly risky acts and called them extremely safe because of a complete lack of regulation. Our response has been to give even more huge shit tons of cash these very same people that fucked us for fun and profit and by removing any other regulation that insists we call a spade a spade. I am finding it harder and harder to resist the urge to call for murderous mobs to converge on Wall Street.

The Wall Street response to the reduction of regulation was obvious. Though, two years ago, if you said that Dow 8,000 would be good news people either would have thought you were crazy or they would have been terrified.

In this article, John Berry tries to criticize the negative reaction to the rule change that I outlined above. But he is comparing apples to oranges when he says,

The family doesn’t have to put up money to cover the difference between the mortgage and the lower market value. Nor should the Atlanta bank have to take a big hit on its reported income because some other mortgage-backed securities owner sold in a depressed market.

He is comparing the effect on banks that have to back their lending by having 10% of that value on their balance sheets. Which of course home owners don't do. And the family that is upside down on their mortgage will have to pay that money on the mortgage that is more than the value of their home just because they bought at the wrong time.

Lots of pundits and apologists for the financial industry keep trying to accuse home owners that face loosing their residence of buying beyond their means. Through this argument they try to push some of the moral culpability for this fiasco on people who only wanted a nice house. They didn't buy above their means, they listened to the market. The market told them what they were worth. It's not their fault the market lied to them because they couldn't have understood the market. Seriously, if huge banks couldn't see this coming when they specialize in finance, then its simply irrational to accuse home buyers of wrongdoing just because the effect of their actions is to further reduce the property value of their neighbors.

Berry does make a legitimate point about the removal of reality in accounting. He asserts that the Atlanta bank he is referring to in the above quote intends to hold on to its mortgage backed securities until they mature. Meaning the bank will be getting all the money from the mortgagees. This is the family in his apples to oranges scenario who has to pay the full value of the mortgage even though the house is worth less. (But hey, at least it still provides the same amount of warmth and shelter. Its just that breakfast nook they added doesn't mean they can afford to send the kids to college.) This means that the banks assets are really worth nearly their full value because the bank will get paid what it originally bargained. So the accounting rule lets them value their assets at what they can reasonably expect to still get paid over 30 years and they can lend out more money to consumers and businesses which increases liquidity and gets the markets moving again and leads to more manufacturing, more jobs, and more spending. Everyone's happy.

Except that just brings us back to where we started last November. No one knows how many mortgages will go into arrears or how many will be devalued through the proposed new bankruptcy rules. The short of it is we don't know if the mortgage backed securities will be worth what they were originally bargained for in 30 years when they run their course. All we do know is that they will be worth less. If not become worthless.

Anticipating the Worst

John Kerry hosted a discussion last week where he had a round table of experts engage in hysterics regarding the recession and asked them to criticize his party's stimulus, the one he cosponsored. One of their doomsday warnings was that major wars, such as World War II, are preceded by long periods of economic recession. They predicted such an outcome if the current recession lasts, oh say more than two years.

This, in relation to certain things I have been hearing people say, leads me to be concerned. My specific concern is a sensitive one to discuss, however I feel that it is necessary to discuss in the interests of preparedness and prevention. The subject of race riots. If we recall, WWII and most regional conflicts in recent history were preceded by racial unrest or have a racial element to the conflict. Iraq, Darfour, Bosnia, Rwanda.

The things that I have been hearing that worry me are a linking of the effects of the recession on individuals to illegal immigration of Hispanics. I have heard people remark, "why should I be worried about the civil rights of illegal immigrants I can't even find a job myself." To be sure, I have only heard this sentiment coming from racist people who already bemoan bilingual signage. Still, the linking of the bad effects of the recession on individuals, by the individuals themselves, through the issue of illegal immigration, to a specific racial category of people, is what worries me. The immigration debate already inflames gun toting extremists to the point of mobilization. And the Minutemen were in existence when we were still relatively prosperous. I fear the recruitment power the recession will have for violent racist radicals.

This will be the kind of thing that plays out like prior race riots. On the streets in the poor parts of the country people will feel the pressure building every day. That sense of racial tension will never see the light of day in the MSM until the flood waters suddenly burst forth in a regional paroxysm of violence. Local riots will break out and only local outlets will cover them until they become either large, or last multiple days, or become shocking in some other way. Then the national MSM will start saying what had been obvious to 1/4 of the country for months. This will all be a complete shock to white middle class midwesterners who will wake up one morning as the MSM brings their attention to race riots already in progress.



Honestly, I hope it doesn't happen that way. Maybe it will just be local like the riots over the killing of Oscar Grant III. Or maybe the racial tension will never reach critical mass, or maybe the catalyst will never appear. I am just worried at the pace with which racist sentiment against Latinos has changed under the influence of the recession. For practical purposes, we should be concerned with good relations with Mexico because a good portion of their GDP is remittances from the US, and they recently discovered epic shit tons of oil. We should stay friendly with our neighbors.

The Walk of Shame: Corruption and Government, Don't Look So Suprised

Apparently the tax law is so complex that even the guy in change of writing it doesn't understand his own obligations under that law. Or maybe he just forgot to report tens of thousands of dollars in income over two decades. Somehow, I think that if I made a similar mistake there would be gruff men in dark suits knocking on my door.

Speaking of money owed to the government. Days after the Interior Department received an award for high standards of integrity the Inspector General of the Interior Department issued a detailed report describing inappropriate conduct among the minerals management services who collect royalties from oil companies. The sordid dealings include contract fixing, inappropriate sexual relationships between regulators and oil company execs, and regulators being on the payroll of oil companies as consultants. The missing money comes in where the MMS has failed to pursue thousands of dollars in royalties owed to the government by the oil companies while they have been racking in record profits and growing fat off of huge tax subsidies. Subsidies which also don't seem to be doing anything to keep gas prices low. At least the "MMS Chicks" had a good time.

Pelosi seems to think this will effect the nature of the debates regarding increased offshore oil drilling. By which she doesn't mean that this information revealing that the Bush administration could have done something about the rising cost of oil will be used to take increased drilling off the table. (Drilling that wont do anything to reduce the cost of oil since it will take decades for there to be any production and that production will be so small as to not make any impact at the pump.) No, this will just result in some language being added to the bill regarding integrity. This new information won't change anything because it has already been decided to go ahead with drilling. In fact congress has decided to go ahead with a worse plan than that suggested by Paris Hilton.

Ben Franklin Report: Quick Shots Across the Bow

Today will see Round 2 of top economic officials versus Congress! To the finish! For the first time yesterday Fed Chairman Ben Bernanke mentioned the dreaded "R" word, and it isn't radical or racism.

In the Wall Street Journal today, Andy Lapierre gives a thorough look at the ongoing credit crisis and the Fed's responsibility in causing asset bubbles, malinvestment, and labor dislocation through the "Greenspan put."

The President of the New York Federal Reserve, Timothy Geithner is still worried about the state of capital markets, and has a plan to fix the regulatory overhang created by the Federal Reserve's new lending options. In an election year, the Fed has a steep hill to climb in justifying putting so many billions of tax payer dollars at risk. His testimony, though really boring to read, has a couple of gems firmly lodged into it. Like this:

The sudden discovery by Bear’s derivatives counterparties that important financial positions they had put in place to protect themselves from financial risk were no longer operative would have triggered substantial further dislocation in markets. This would have precipitated a rush by Bear’s counterparties to liquidate the collateral they held against those positions and to attempt to replicate those positions in already very fragile markets.

In short, we judged that a sudden, disorderly failure of Bear would have brought with it unpredictable but severe consequences for the functioning of the broader financial system and the broader economy, with lower equity prices, further downward pressure on home values, and less access to credit for companies and households.

In a sign that the credit crisis is spreading beyond the mortgage market where it first reared its ugly head, Americans are falling behind on every single type of loan.

And, for good measure, here are some anecdotal accounts of the muni bond problems. Public projects are being forced to sell bonds due to tighter and tighter budgets, but being handled on the other end by higher financing costs. Of course, in some cases, these are projects that will save money for the taxpayer.

Ben Franklin Report: a Perfect Storm

As always, the world keeps spinning, and people will keep being people. So, by way of briefing, here are a few developments, like how a Recession is inevitable. Bush is optimistic.

Ben Franklins are increasingly worthless, compared to most foreign exchanges. The Dollar has gone below 100 yen for the first time in more than a decade, and keeps hitting new highs against our poor greenback. Inflation, though, reportedly didn't go up by very much in February, perhaps signifying a leveling out of prices, in the wake of consumer prices not properly reported in the Consumer Price Index. Any hope that inflation will be ameliorated by flattening or perhaps falling consumer demand is probably, at best, naive with oil on its march up to $125 a barrel. Fannie Mae and Freddie Mac may have been thrown a lifeline by Fed chief Ben Bernanke, but should he have? Is it enough? $200 Billion is a lot of money to be financed by Treasuries, yet not very much compared to the size of the mortgage market. Speaking of which, is going into dire straits as the crisis is beginning to move into the more traditional branch of mortgages, those whom enjoy good credit histories. In truth, the Fed has now set a course to assume all risk to the global financial system from the mortgage crisis.

Treasury Secretary Henry Paulson has announced new financial guidelines that are already market practice, which mostly center around risk assessment and the documentation required to receive a mortgage. Any notion of adjusting accounting requirements to allow banks to free up capital on their balance sheets, however, seems extremely misguided.

Fanning the entropy further, a pair of large financial institutions have collapsed in the wake of the problems in the financial sector. Bear Sterns, just after appointing a new head of East Asian operations, found its liquidity destroyed almost overnight. Thankfully for them, JP Morgan is riding in to the rescue. The Carlyle Group may come to the rescue of its stepchild, not-really subsidiary Carlyle Capital Corporation, as its assets have been seized. In a branding effort, David Rubenstein, Carlyle co-founder, wants to make sure that investors break even. This effort, like almost all of the efforts of the Fed and Treasury, are aimed at helping large banks and financial institutions recover their capital outlays lost as a result of inordinate risk assumption.

Must Watch Video: Tent Cities in LA.

A Testimonial that generically represents the leading edge of the crisis.

154,000!

Sometimes its hard to keep up the necessary level of Rage to continue blogging about politics.  It gets tiring.  Then, I hear something like this.  

154,000 United States veterans are homeless!

What the fuck!  Thats un-fucking-acceptable!  These people dedicated years of their lives to serve us.  They put their lives on the line to protect us.  They enlisted with the promise of a better life and a leg up on the future, and now they are the wards of the fucking VA who can do little more than count them.  This is the definition of a miscarage of justice.  They deserve a minimum gurantee of housing, food, and medical care for life.  

Ben Franklin Report: Warning Signs

Parroting the same policy as many previous Treasury Secretaries before him, Sec. Henry Paulson has come in favor of a 'strong dollar.' Of much more interest, though, is his sound byte saying that the government will not step in to intervene in the market on behalf of investors who made poor decisions and took on way too much of the worst kind of risk. Federal Reserve Chairman Ben Bernanke, in some of the most constructive testimony of his tenure thus far, indicated without words that the U.S. economy is probably already in a recession, that there will be bank failures in the near future, and yet he does not anticipate stagflation in the near-term.

In other pressures on the U.S. Dollar, OPEC has agreed to not lift output, which has pushed crude oil to a new record close, even further exasperating the oil standard. Pricing barrels of oil in euros is undoubtedly just around the corner. Expect to see oil ministers from the various OPEC countries begin speaking about it openly before their next production meeting.

As municipal bond markets continued to deteriorate, forcing yields up on long-term bonds, the city of Vallejo becomes the largest city in California to look bankruptcy square in the eye. This probably is the beginning of the trend, rather than the end of it, especially as houses will continue to have their values reappraised downward.

As an interesting aside, Fannie Mae paid $200K to lobby those who decide upon its workings. FNM's $2.1 billion loss on the year announced yesterday could put pressure on the ability of the mortgage giant to tap into credit pools, as Moody's announced that Fannie Mae's B+ rating is under review.

If you're wondering tomorrow morning why your wallet feels lighter, it's because it probably is. As of publishing the dollar was at a new record low against the Euro, weaker than the Canadian Dollar, and near a 4-year low with the Yen.

Ben Franklin Report: the Economic Stimulus

In the course of putting together their bipartisan economic stimulus package together, Congressional Democrats are willing to put aside something as small as the rule of law. After all, it wouldn't be prudent to try to bring contempt citations against former White House officials during the middle of negotiations, nonetheless the mountain of lies that led up to the Iraq War.

Bush hasn't outlined his plan, per se, just given a rough outline, namely a "robust" package with a $150 billion price tag. All of the key players in Washington have some version of the stimulus on their wish list, and each has already staked out his or her position on the matter. The Republicans and Democrats in Congress are pondering how to bridge the philosophical divide between individual tax rebates and decreasing business taxes. Lou Dobbs, ever the interested observer, says that the economy is going into a recession and there isn't much that a stimulus could hope to accomplish.

Of course, the presidential candidates of both parties aren't to be left out of the fray, each of them is sticking their pole into a position. We can probably expect to see more of the petty bickering among the Democratic candidates that they've exemplified so far. What they hope to accomplish using the decade-old "No Friends in Politics" mindset that has gotten us so far over the course of Republican control of the Congress. The only candidate who is actively against the stimulus is the one candidate who isn't officially running, Mayor Michael Bloomberg (I-$$$$) of New York City, who sees the giveaway as bad fiscal policy.

Meanwhile, the Congressional Budget Office is seeing the glass as more than half full. Focusing more on the $219 billion dollar deficit that the government has run so far this year, and predicting that the economy won't hit recession levels.

Regardless of how I otherwise disagree with Mayor Bloomberg's politics, I find his position the most reasonable. With another year of phenomenal deficit in the face of countervailing trends, this drop into the general economy will prime the markets for further spending, if the authors of the agreement see their dreams come to fruition. I remain skeptical. With the further aggravation of the deficit, this will further aggravate the U.S. National Debt, and contribute to a worsening macroeconomic situation. On Aug. 9, 2009, by my rough calculations, the clock will turn over to $10 trillion dollars, or roughly the same as our annual GDP, barring additional spending or the unlikely attempt to pay it down.

As another reminder on why not to put off anything, negotiations are over and the stimulus package has been assembled. Unfortunately, workers who earned less than $75K or couples who earned less than $150K, will earn approximately $300 and $1200, respectively. This little drop is hardly likely to inspire the next bubble, unless it's for pharmaceuticals; breweries, wineries, and distilleries; or for local head shops.

Again, Downloading Does Not Hurt Sales

Here is an article describing the reaction in the blogosphere to the admission form the MPAA that they had exaggerated the percentage of their profit losses that stems from illegal movie downloading. Like the RIAA these people use heavy handed and potentially illegal harassment tactics. The movie industry also attempted to place the blame for its falling profits on the video gaming industry. They fail to accept the reality that what they are producing is not entertaining. They are at least not entertaining enough for a person to pick up their twenty dollars, lug its moral weight out to their car, drive to the cineplex and hand that hard-earned money to the stoned high school drop out behind the terrorist proof glass. Ooh and what a variety of equeally attractive choices the temple to Hollywood offers. Should you select, 27 dresses? Over her dead body? National Treasure? Juno? Mad Money? Water Horse? The Bucket List? Untraceable? Cloverfield? Rambo? Oh the choices do go on and on. How can you pick? I think the only reason people actually go to these movies is because they have terribly depressing lives that if they were to think about their life at all they would be compelled to suicde. Even the commercials for these movies make me tear at my own flesh. Given the choice between National Treasure and death, I suppose I would go to National Treasure. Oh and don't forget the fucking recession.

Feeling Sub-Prime?

The thing I want to point out here, that hasnt been mentioned except as denials that it is a consern, is that when the subprime mortgage market is allowed to push off its horrid investments on Fannie May and Freddie Mac this amounts to welfare. This is fucking corporate welfare. These are opportunistic people who took advantage of poor optimistic people who only wanted in on Bush's "ownership society." These subprime lenders were only conserned with making a buck and they all knew they were making a bad investment, which is why they hid these in larger investment packages and passed them off like hot fucking potatoes. Now that the investment has turned out to be a bad one they want to pass the burden of cleaning up the mess on to you and me, the fucking tax payers, and they want to leave the Joe and Jane Doe holding the bag. The poor people that got suckered into these predatory loans are still going to loose their home, while the fucking asshole real estate "flippers" got rich off of over inflated house values.

The big point again is that you and I are going to have to pay for the bad investments of some selfish dickheads. This whole thing strikes me as hypocritical bullshit. the people that wer making these investments are the kind of assholes that bitch and moan about the cost of social services and demand we privatize everything, but as soon as trouble looks their way and they go crying to the government for help. Every aspect of this makes me sick.

This whole thing is made worse because its tied up with the falling dollar, droping consumer confidance, falling manufacturing, inflation, falling wages, increasing unemployment, vastly increasing deficet.

That Sucking Noise

Apparently, the confluence of record oil prices, a financial fallout in our primary sector for economic growth for the past decade or so, and creeping inflation is too much for the U.S. Economy to bear. The main indicator of the turbulence, the poor dollar has in the past day tumbled to a new record low against the Euro, as well as for the most part falling back to pre-Clinton exchange rates against other world currencies, notably the Canadian dollar. The Chairman of the Federal Reserve, Ben Bernake, one of the masterminds behind this rapid currency devaluation, has signaled that he expect the economy to slow for the rest of the year, and regain momentum in the beginning of 2008. What might be slightly worrisome is that he mentioned that they have not even calculated for even the possibility of a recession. The European Central Bank, for their part, are worried about the potential impact of cheap American exports on the world market, with Bush's new best friend Nicholas Sarkozy going so far as to mention the phrase "trade war." All of this makes me wish that the Fed still published statistics about the growth of money supply.

Oil, on the other hand, is not nearly as interesting, it only hit an amazing high just over $96 per barrel, as opposed to actually eclipsing the $100 price range. Between the price of oil being up 42% since August and "I think the market is due for a correction," I would say that we need to start car pooling more, or perhaps look into public transportation.

In other news, the primary builder for expensive homes in the U.S., Toll Brothers announced that their sales are going into tailspin, bringing up the question of whether the leg that is consumer spending is wobbling... Hopefully, it's only wobbling.

The New York Stock Exchange and most other world indices were pushed down today by poor results in the tech sector.

By far the most worrying aspect of all of this is the mention by Cheng Siwei, Vice Chairman of the Standing Committee of the National People's Congress and the other mastermind, that the American dollar is losing its status as a world currency.

I hope the managers at brokerages are telling their people to lay off the coke.