White House on Campaign Donors, David Rosenber "99% Chance of Recession," How Foreign Banks Got Fed Money, and Why the Immediate Threat of Deflation is a Myth

Not too much news today as Pres. Obama threw Rep. Weiner under the bus.  Give it a few days and the dude will be outta there.  Some slightly big news from the White House as the Obama campaign is trying to let big name donors know that the doors are open to bribe the president for special privileges.  Via HuffingtonPost:

WASHINGTON -- One of the more acute challenges confronting President Obama's reelection campaign is retaining donors who have grown disaffected during the first term in office. In a private memo obtained by The Huffington Post, top Obama aides offered a candid template for how they're tackling that task.
Hoping to keep the support of a key Florida supporter, the president's political team suggested that top White House aides give him the sense that his voice was "being heard" inside the administration.

Hmmm, this move sounds awfully different from Obama's infamous 2010 State of the Union Speech:

Last week, the Supreme Court reversed a century of law to open the floodgates for special interests – including foreign corporations – to spend without limit in our elections. Well I don't think American elections should be bankrolled by America's most powerful interests, or worse, by foreign entities. They should be decided by the American people, and that's why I'm urging Democrats and Republicans to pass a bill that helps to right this wrong.

And yet his supporters will continue to look the other way as Goldman Sachs gets ready to be his top donor yet again.  Even if Obama's gets a butt-load of campaign donations from big banks (he will), a slowing economy certainly won't help him.  Chief economist at Gluskin Sheff & Associates David Rosenberg is 99% sure we are headed for another recession:


Rosenberg is right, we are headed for another downturn.  He is wrong in that we never made it out of the original recession though.  Technically we may have, but I doubt Joe Schmo off the street believes it.

So yesterday, I pointed out the awesome Zerohedge post on how the Fed has been helping out foreign banks.  Here Robert Wenzel brilliantly explains why it wasn't necessarily a bailout of the Eurozone:

QE2 was a Treasury buying operation. It wasn't a direct money pump to anyone. If you don't have Treasury securities, you aren't getting a direct pump from the Fed via QE2. If you have Treasury securities, you aren't in the type of financial bind the PIIGS are in. The PIIGS only which (sic) they had $600 billion in Treasury securities sitting around.

But the fact that the money is sitting with US branches of foreign banks suggests that the sellers of the Treasury securities might be foreign sellers.

QE2 appears to have been taken advantage of by the Chinese and other foreigners to dump some Treasury securities, rather QE2 being a bailout of the PIIGs and it had little to do with the U.S.

With a global financial system, is it really any surprise that Fed printed money doesn't stay in the U.S.?

I will end with a few great questions from Mish and a reader on why the chicken littles of deflation and slacking demand are full of it:

Series of Questions

• If your refrigerator conks out, will you buy a new one or wait 6 months to take advantage of lower prices?
• If the transmission on your car fails will you wait 6 months to get it fixed?
• If your pantry is bare, will you wait 1 month to buy food even if you expect food prices to drop?
• If you need a new winter coat, will you wait and if so, how long?

The answer to that last question is "Perhaps for a bit, but you will not wait 3 years even if you expect prices will be even lower 3 years from now."

Miracle of Survival

Today I received an even better example from "Chris" who writes...

Hello Mish

The best argument in your “winter coat” deflation comparison is consumer electronics. Everyone knows that as soon as they buy something from the consumer electronics department the price next month will go down or the same product will be offered with more bells and whistles for the same price. Yet by some miracle Best Buy seems to survive!

Thus, the next time you hear the Fed or some parrot taking about the importance of inflation expectations and how people will hold off buying stuff if they expect prices to fall, please calmly ask them how the hell Best Buy stays in business, making a huge profit on hundreds of stores, selling merchandise that will undoubtedly be lower in price in a few months.

According to the incredibly silly "inflation expectations" model, Best Buy cannot possibly exist, so it must be a miracle that it not only exists, but thrives.

When it comes to economics, you can't expect common sense to show people the way.  Even I have been guilty of idiotic assumptions in the past (and maybe in the future).