Tag: Economy

While we have been distracted by the irrational exuberance of a second term for Barack Obama, Benghazi (again) and gun control, the European Union has come around to the realization that there is a need to do something about the economy. On Tuesday the the EU approved a financial transaction tax (FTT) for eleven nations:

Eleven countries won the EU’s backing for a financial transaction tax (FTT), with Germany, France, Italy and Spain adding their names to eurozone neighbours Austria, Portugal, Belgium, Estonia, Greece, Slovakia and Slovenia.

The UK, which already imposes a tax on share trades, could benefit from a shift in banking business if Germany and France tax foreign exchange or derivatives trading in Frankfurt and Paris.

The levy, which could raise as much as €35bn (£29.3bn) a year for the 11 countries, is designed to prevent a repeat of the conditions that stoked the credit crunch by reining in investment banks. Following the decision, the European Commission will put forward a new proposal for the tax, which if agreed on by those states involved, would mean the levy could be introduced within months. Although critics say such a tax cannot work properly unless applied worldwide or at least across Europe, countries such as France are already banking on the extra income from next year.

Former Labor Secretary Robert Reich tweeted:

Despite past unsuccessful attempts to introduce a FTT, two Democratic representatives, Rep. Peter DeFazio (D-OR) and Sen. Tom Harkin (D-IA), will reintroduce the FTT which would raise an estimated $352 billion over the next decade by imposing a 0.03 percent tax on trades. That translates to 3 dollars on every $100 in trades. Critics have said that it will have a detrimental effect on economic growth, one of the bill’s sponsors have stated that has already been proven to be false:

“For 50 years we had a tax that was about seven times larger than this when the country was seeing the greatest growth in its history, post-World War II,” he said. “So we’ve proven this will not have a detrimental impact on growth. In fact, it perhaps is beneficial to growth. It’s not necessarily beneficial to salaries of hedge fund managers on Wall Street.”

Complaints that an FTT would encourage businesses to move elsewhere are countered by the facts that 52 financial executives, including several former heads of mega-banks JP Morgan and Goldman Sachs, endorsed the idea and forty countries around the world have already embraced a transactions tax.

Journalist Economist and author David Cay Johnston joined Ed Schultz on the The Ed Show what the FTT would mean for the American economy.

With the capitulation on filibuster reform and the feral children still running the asylum, there is little chance that something this sensible will even get out of committee. That is a very sad state of affairs for this country.

Correction: We received a very kind e-mail from Pulitzer Prize winning journalist David Cay Johnston noting that he is not an economist. He is a renowned investigative journalist who has written about economics and the US tax system.

There seems to be a lot of celebrating without actually understanding much of what has happened as of late. One reason is that it looks like House Republicans will agree to raise the debt ceiling but only for 3 months until the budget gimmick of all Congressmen supposedly either passing a budget or denying their own pay as if that will ever happen. There will be infighting on whether there should be heavy or light deficit terrorism terrorizing the unemployed as usual, but now we can expect these dysfunctional austerity celebrating battles to go on and on.  And as I pointed out when I predicted all of this 3 years ago, when this is the debate in Washington DC we have already lost.

We’ve Already Lost So Cancel Any Perceivable Celebration

This budget gimmick fight is already on top of what the last debt ceiling fight created with the negotiations coming up over the self induced sequester on the basis that 4 trillion bipartisan austerity is awesome. That is the problem for all debates and all fake “progressive” political rhetoric in DC we heard at the Inauguration even though it was a great speech.

The plans to kick this austerity shit can down the road continually every few months is not a victory; it’s also not even a clean debt ceiling raise because it’s not even going to be for a fiscal year. It also means the White House was really posturing as I said they were when they claimed they wouldn’t negotiate on the debt ceiling; this shows that all this so called new-found post reelection “strength for progress” is a myth. That also means that all the hyp being bandied about, about the low-balled 60 billion to merely 9 billion Sandy relief bill passing weeks late and 51 billion dollars short breaking the Hastert rule did not have the significance of the spin behind it at all. It’s simple: John Boehner was looking out for his own ass as speaker(shocking!). That’s it.

The idiotic bipartisan sequester created by the last grand self induced standoff over the last debt ceiling fight will come to a head on March 1. I don’t expect a lot of defense cuts despite the posturing and fully expect more cuts to SS and Medicare to be floated and bargained with within multiple negotiations that show nothing but contempt for the public. Yves Smith goes into the real reasons why a Republican grand standoff on the debt ceiling looks like it won’t happen despite the coming miniature ones every few months that will happen where plenty of deal making and deficit terrorism will take place.

All Good Democrats Applaud Republicans Rearranging Battle Lines in Austerity Phony War

It’s not quite that simple.

First, if you widen the frame, the budget jockeying is largely kabuki: which team is going to score more points that appeal (or more accurately, can hopefully be spun to appeal) to their base? The reality is that both parties are fully committed to imposing austerity. The only question is whether we get Dem Lite or Republican Hi Test. But rest assured, neither version will be good for ordinary Americans.

Second, the Republicans have not dropped the deficit ceiling cudgel, but they seem to recognize that it is a mutual assured destruction weapon, and therefore not as useful as they once thought. They seem to still be coming to grips with the negotiating implications. As the New York Times reports, the Republicans are willing to extend the deficit ceiling for three months, but that increase was conditioned on having the Democrats approve a budget (during the Obama administration, no budget has been approved; the government has carried on because Congress has passed spending resolutions). Notice that while Obama has said that he would not discuss deficit cuts under a debt ceiling sword of Damocles. But if he accepts this deal (which includes a gimmick, of having Congresscritters go unpaid if they can’t agree on a budget on the normal timetable), he will still be doing that. So why is this a victory of sorts?

The more important part of the New York Times story on the Republican climbdown is that Dave Camp, the House Ways and Means Committee chairman, disabused his fellow party members of the idea that the government could limp through hitting the debt ceiling by using tax proceeds to pay only debt obligations, Social Security, the military, and other critical needs. So the Republicans can’t refuse to raise the debt ceiling and not do serious damage, pronto. And everyone would blame them for their intransigence. So unless they want to play Major Kong, they will probably continue to play ball with the Democrats on debt ceiling increases while trying to save face about it.

Sitting there looking vainly at the growth, or lack of it to be more precise, of the British economy quarter by quarter following the introduction of austerity measures is a dubious use of time. So rather than sit there each quarter and discuss a dismal economy, I think the first step is to understand that we are in a world-wide economic crisis of the capitalist system. We also need to understand that the policies being introduced are actually not only extending the current crisis, but given that they are leading to increased income and wealth inequality, they will have a devastating impact upon the working classes in the countries introducing these measures. Moreover, the impact of austerity is not accident, it is being introduced specifically to create the economic contraction and  the increased wealth and income inequality in the hope that private sector will take over the state sector services being undermined.

Triple-dip recession?

We need to understand that the introduction of austerity in an economic crisis does not lead to economic growth contrary to the absurd pronouncements of Prime Minister, David Cameron.  Essentially, following a slight blip caused by the Olympics, I suspect we will be witnessing rather bad news. The combination of “beggar thy neighbour” low corporate taxation (to supposedly encourage investment in Britain) and cuts to public spending, services and benefits is not leading to a reinvigoration of the economy; rather the opposite is occurring.

Quite simply, the fall in service sector activity (which accounts for 75% of British economic activity) for the first time in two years (note that it was not in great shape beforehand) means that the economy is contracting.

That’s right. It’s now undeniably pathetic or immoral assuming this is what they want and it probably is. The Trillion Dollar Coin and a 14th amendment challenge have now been rejected. What do we have instead? Insulting fake pseudo macho posturing from the President about what he will or will not negotiate on as if there has ever been anything this POTUS won’t negotiate on. It’s already happening as we speak.

Besides, he just got done with negotiating away his “iron clad” promise to raise income taxes on the rich above $250,000. But this time we are supposed to believe the same fairy tale? Or maybe when I say negotiate when I really mean “negotiate.” Yeah, this is actually what he and John Boehner wanted as in to show us “extremists” who care about people instead of idiotic deficit terrorism on the backs of the poor a thing or two.

Conspiracy of Two

“I’m the President of the United States,” Obama told Boehner [in 2011]. “You’re the Speaker of the House. We’re the two most responsible leaders right now.” And so they began to talk about the truly epic possibility of using the threat, the genuine danger of default, to freeze out their respective extremists and make the kind of historic deal that no one really thought possible anymore – bigger than when Reagan and Tip O’Neill overhauled the tax code in 1986 or when Bill Clinton and Newt Gingrich passed welfare reform a decade later. It would include deeper cuts in spending, the elimination of all kinds of tax loopholes and lower income tax rates for all. “Come on, you and I,” Boehner admitted telling Obama. “Let’s lock arms, and we’ll jump out of the boat together.”

It’s too late to spin tales of the intrepid politician that stands up to Congress. You know, as Stephen Colbert says regarding journalists, fiction. Debt ceilings were never negotiated until this POTUS put his full faith in crediting John Boehner for NOT using the debt ceiling as a hostage as part of the Obama/Bush tax cut deal in 2010. Oops. I predicted this. Others deluded themselves thinking this mess happening right now extended from back then was somehow an abstract form of 11th dimensional chess again and again. When will they learn?  

After Pres. Barack Obama’s pick for Treasury Secretary confessed to a lack of financial expertise, you would have thought that the president’s choice for the number two spot would have been someone to fill that gap. Silly you. President Obama’s choice for Deputy Treasury Secretary is rumored to be Ruth Porat, who lobbied for Wall St. against regulation. This is her profile from Business Week:

Ms. Ruth Porat has been Chief Financial Officer and Executive Vice President of Morgan Stanley since January 2010. Ms. Porat served as the Global Head of the Financial Institutions Group at Morgan Stanley from September 2006 to December 2009 and also served as its Vice Chairman of Investment Banking from September 2003 to December 2009 and Chairman of the Financial Sponsors Group from July 2004 to September 2006. Throughout the recent financial crisis, she has been responsible for the Financial Sponsors Group ‘s coverage of financial institutions and governments globally, and she led the team advising the U.S. Treasury with respect to Fannie Mae and Freddie Mac. Ms. Porat began her career with Morgan Stanley in 1987 in the Mergers and Acquisition Department.

According to Forbes, Ms Porat is the most influential woman on Wall St.

The Sunlight Foundation reports that Ms Porat lobbied on behalf of Wall St., meeting with regulators about Dodd-Frank rules nine times:

* 2012-03-27: Met with the Federal Reserve to express concerns on bank capital rules

* 2012-04-30: Met with the Federal Reserve to claim surcharges for Too Big To Fail banks were not necessary. Later also said regulating derivatives would hurt liquidity.

* 2011-12-14: Met with the Federal Reserve to ask for more lenient disclosure requirements for Morgan Stanley

* 2010-10-28: Met with the Federal Reserve to push back on Volker Rule and for more flexibility on Proprietary Trading

* 2010-11-02: Met with Treasury on the CFPB (no disclosures on meeting’s purpose)

*  2011-02-01: Met with Treasury on Capital and Liquidity (no disclosures on meeting’s purpose)

* 2011-05-03: Met with Treasury on the Volker Rule (no disclosures on meeting’s purpose)

* 2011-07-07: Met with Treasury on Derivatives (no disclosures on meeting’s purpose)

* 2011-01-05: Met with FDIC on Volker Rule (no disclosures on meeting’s purpose)

h/t DSWright at FDL News Desk

Ms Porat is not what Obama’s critics meant when they complained about a lack of woman in influential positions in the cabinet. Really, Mr. President, a Wall St. lobbyist? Jamie Dimon must be so pleased.

Sen. Bernie Sanders has already decided that he will not vote to approve President Barack Obama’s replacement for Timothy Geithner, Jack  Lew, AS Treasury Secretary, with good reason. It seems that Mr. Lew, who currently is the president Chief of Staff, does think that deregulation had a role in the housing crash. This is Sen. Sanders’ statement:

Jack Lew is clearly an extremely intelligent person and I applaud his many years of public service to our country. I believe that he will be confirmed by the Senate. Unfortunately, he will be confirmed without my vote. At a time when the middle class is collapsing and millions of workers are unemployed, I do not believe he is the right person at the right time to serve in this important position.

As a supporter of the president, I remain extremely concerned that virtually all of his key economic advisers have come from Wall Street. In my view, we need a treasury secretary who is prepared to stand up to corporate America and their powerful lobbyists and fight for policies that protect the working families in our country. I do not believe Mr. Lew is that person.

We don’t need a treasury secretary who thinks that Wall Street deregulation was not responsible for the financial crisis. We need a treasury secretary who will work hard to break up too-big-to-fail financial institutions so that Wall Street cannot cause another massive financial crisis.

We don’t need another treasury secretary who believes in ‘deficit neutral’ corporate tax reform. We need a treasury secretary willing to fight to make sure that large, profitable corporations pay their fair share in taxes to reduce the deficit and create jobs.

We don’t need a treasury secretary who will advise the president that he should negotiate with the Republicans to cut Social Security, Medicare, and Medicaid benefits. We need someone who is going to strengthen these programs.

We don’t need another treasury secretary who believes that NAFTA and Permanent Normal Trade Relations with China have been good for the American economy. We need someone in the White House who works to fundamentally re-write our trade policy to make sure that we are exporting American goods, not American jobs.

Matt Taibbi, contributing editor for Rolling Stone magazine, and William Black, associate professor of economics and law at the University of Missouri-Kansas City, a white-collar criminologist and former senior financial regulator, joined Amy Goodman and Juan Gonzalez at Democracy Now! to discuss why Jack Lew is a “failure of epic proportions”

At Huffington Post, Prof. Black also described Mr. Lew’s role as OMB Chief during the Clinton administration, that set the stage for our current economic and financial problems, his path to Wall St. and back through the “revolving door” to the Obama administration. He calls Mr. Lew “another brick in the Wall Street on the Potomac,”

From CBS News:

   Obama is clearly comfortable bringing another ex-Wall Streeter into an administration that, beyond a recent ratcheting up of populist rhetoric, has done relatively little to rein in the financial industry.

   That, in turn, reflects the ease with which Washington hands like Lew shuttle between the Street and the Hill. Case in point: Lew’s predecessor as budget chief, Peter Orszag, left the agency and joined Citi as vice chairman of global banking. A job in politics is no longer a back-door to a lucrative job in banking — it’s a red carpet. The revolving door keeps spinning.

   The Citi alternative investments] division ultimately lost billions. As for Lew, he naturally made big bucks during his three-year stint at Citi, including a [roughly $950,000 bonus in 2009 — after the company’s federal bailout.

Lew helped establish finance policy under President Clinton. [..]

Lew’s predecessor as chief of staff was William Daley. Daley is a lawyer. Daley was on the executive board of J.P. Morgan-Chase during the crisis and before that he was on Fannie Mae’s board of directors. Daley is a member of “Third Way’s” controlling board. Third Way is a Pete Peterson ally that lobbies in favor of austerity and cuts to the safety net. It pushes Wall Street’s, and Pete Peterson’s, greatest dream — privatizing Social Security. Privatization would allow Wall Street to increase its profits by hundreds of billions of dollars in fees for managing our retirement savings. [..]

The obvious aspects of this pattern include: (1) Obama prefers to have Wall Street guys run finance (despite coming to power because Wall Street blew up the world), (2) the revolving door under Obama that connects Wall Street and the White House has been super-charged, and (3) even very short stints in Wall Street have made Obama’s finance advisers wealthy. The obvious is vitally important, and it is largely ignored by the most prominent media. The obvious aspects help explain why Obama’s economic policies have been incoherent, ineptly explained, inequitable, and often slavishly pro-Wall Street at the expense of our integrity and citizens. [..]

Prof. Black gives examples of the less obvious aspects of the pattern that compound problem of Pres. Obama appointing people who have failed, not just professionally, but ethically and morally. It is an eye opening, scathing critique of an administration that is trying to force a destructive policy of austerity and why Jack Lew is a terrible choice for Treasury Secretary.  

Nobel Prize-winning economist and New York Times columnist Paul Krugman argues that saving money is not the path to economic recovery. Instead, he tells Bill, we should put aside our excessive focus on the deficit, try to overcome political recalcitrance, and spend money to put America back to work. Krugman offers specific solutions to not only end what he calls a “vast, unnecessary catastrophe,” but to do it more quickly than some imagine possible. His latest book, End This Depression Now!, is both a warning of the fiscal perils ahead and a prescription to safely avoid them.

On Pres. Obama’s choice of Jack Lew for Treasury Secretary

(W)hat the president needs right now is he needs a hardnosed negotiator. And rumor has it that’s what he’s got, so.

The president can’t pass major new legislation. He can’t formulate major new programs right now. What he has to do now is bargain down or ride over these crazy people in the Republican Party. And we what we need now is not deep thinking from the treasury secretary. If the president wants deep thinkers, he can call Joe Stiglitz, he can call other people. What he needs from the Treasury secretary is somebody who’s going to be very effective at dealing with these wild men and making sure that nothing terrible happens.

Damning praise, indeed.

New York Times economics columnist, Prof. Paul Krugman posted a graph from Center on Budget and Policy Priorities in a post to his blog indicating the deficit problem has mostly been solved:

The Center on Budget and Policy Priorities has a graph:

Click on image to enlarge

The vertical axis measures the projected ratio of federal debt to GDP. The blue line at the top represents the projected path of that ratio as of early 2011 – that is, before recent agreements on spending cuts and tax increases. This projection showed a rising path for debt as far as the eye could see.

And just about all budget discussion in Washington and the news media is laid out as if that were still the case. But a lot has happened since then. The orange line shows the effects of those spending cuts and tax hikes: As long as the economy recovers, which is an assumption built into all these projections, the debt ratio will more or less stabilize soon.

Prof. Krugman noted that the CBPP advocates for another $1.4 trillion in revenue or spending cuts over the next decade. While there are still problems the debt/deficit is not as bad as is being presented by politicians and the traditional media. So while we everyone was loosing sleep about falling off cliffs, the cliff was a bad dream. Now the government and the media need to wake up and start talking about jobs.

We know by now that fake tough talk from the President on letting the Bush tax cuts above those making $250,000 expire being an absolute was just that, fake. So there’s absolutely no reason to believe that Republicans do not have all the leverage in this upcoming debt ceiling fight coming up. They do.

US Double-Dip Death Watch Continues

Jay Carney’s press conference today leaves no doubt that the situation is substantially as I described it in my previous post.  The White House commitment not to negotiate on the debt ceiling is mainly fluff.  Their public position is that the Congress must lift the debt ceiling with a “clean” vote first, before a deal can be struck on the massive spending cuts that will take place automatically in March.  Carney implores listeners to believe that the debt ceiling and sequester are “separate” issues, and insists that “this not a negotiation the White House is going to have.” But of course the entire press conference is itself a public gambit in an ongoing negotiation that obviously includes back-channel talks.

There’s also no reason to believe the President won’t put up huge cuts to our safety net just to raise the debt ceiling thanks to what we know from the austerity memo from Jack Lew’s office when he was head of Obama’s OMB in 2011.

This was all thanks to the gross incompetence of not adding a raise in the debt ceiling in the original 2010 deal that extended the Bush tax cuts as I have repeatedly pointed out. However more than half of you already know this, so let’s get to the here and now; there are only two options.

There is the 14th amendment challenge to the SCOTUS option and there is the minting of a 1 trillion platinum coin to start off with. We know the 14th amendment challenge is the least likely scenario to be pursued now. So given the lack of appetite there, there is only one other option and the President better consider it because no one believes the fake posturing about a debt ceiling raise “not being for debate.” Too late. It is.

It didn’t have to be, but the President made it that way by trusting John Boehner with the full faith and credit of the US so now political default(the only way it could happen as a currency sovereign) is a possibility thanks to this mess. So a Trillion Dollar Coin (TDC) is the first step and a small chance at redemption that suddenly is bigger than the blogger and the blogs talking about it thought it would be. It suddenly got real and thank goodness it did because we need to go further. To defeat austerity for the future we also should go from a Trillion Dollar Coin (TDC) towards Platinum Coin Seigniorage(PCS) and think about minting coins of a higher value up to 60 trillion. Therefore, as a firts step, I urge all of you to instruct the President to…

Direct the United States Mint to make a single platinum trillion dollar coin!

This past week calls by Republicans to not raise debt ceiling got little push back from the talking heads this Sunday as Senate Minority Leader Mitch McConnell made the morning rounds insinuating that it might not be so bad. Lets get something straight that the MSM village is allowing to happen here. The Republicans are conflating passing a budget bill (future spending) with making the payment on those expenditures (past spending). Those two things are NOT the same. The debt ceiling addresses the later and the consequences of even threatening to not pay US debts would have the same, if not greater, negative results as it did in 2011 when the feral children of the House held it hostage. The result of that debacle was the current sequestration bill and “fiscal cliff” crisis.

The inflation that everyone from the Federal Reserve to Wall St. wants to the one thing that would put the US in the same boat as Greece, facing increasingly higher interest rate payments. In other words the debt ceiling and the budget resolution are NOT the same and should not be treated the same.  The sequester and the budget resolution are negotiable; the debt ceiling is not.

This idea of holding the debt ceiling is in fact so dangerous to the world economy that politicians, economist and pundits are calling for President Barack Obama to act by using possibly the only legal means he may have, mint a Trillion Dollar Platinum Coin. Even New York Times columnist and economist, Paul Krugman has change his mind calling for the president to be ready to mint that coin:

Should President Obama be willing to print a $1 trillion platinum coin if Republicans try to force America into default? Yes, absolutely. He will, after all, be faced with a choice between two alternatives: one that’s silly but benign, the other that’s equally silly but both vile and disastrous. The decision should be obvious. [..]

It’s easy to make sententious remarks to the effect that we shouldn’t look for gimmicks, we should sit down like serious people and deal with our problems realistically. That may sound reasonable – if you’ve been living in a cave for the past four years.Given the realities of our political situation, and in particular the mixture of ruthlessness and craziness that now characterizes House Republicans, it’s just ridiculous – far more ridiculous than the notion of the coin.

So if the 14th amendment solution – simply declaring that the debt ceiling is unconstitutional – isn’t workable, go with the coin.

If you think that this possibility isn’t serious, consider the fact that the feral children of the House now do introducing legislation to prevent the president from minting the coin

And now a US Congressman has come out against the coin idea and is proposing a law to ban it (via Matthew O’Brien). Ironically, this action actually legitimizes the coin option. [..]

In the past, hiking the debt ceiling was pretty painless, but some in the GOP are staunchly opposed to doing it, raising the specter that the US will default on its obligations.

It’s because of this that some people are getting more excited about the “Platinum Option,” which refers to a technical loophole in the law that allows the Treasury to create platinum coins in any denomination, theoretically up to a trillion and beyond. [..]

We’ve posted his full press release below, but the key thing here is that the idea is now legitimized, as a GOP Congressman implicitly acknowledges that the coin idea is currently legal.

Note that in his press release, the Congressman uses the flawed analogy of comparing the US government to a small business. Unlike governments, small businesses can’t print money. And small businesses can’t “deficit spend,” the way governments can.

The opponents of this idea are also wrong. Josh Borrow, who writes at Bloomberg‘s The Ticker, enumerates why their arguments are all wrong and concludes:

Minting the platinum coin would be less economically damaging than any of the above options, which is why Obama should announce he will pursue it if the debt ceiling is not raised. Hopefully, inflation hawks will be so alarmed by the president’s intention to use his direct monetary authority that they will choose to cut a deal and we’ll never actually get to the minting stage.

But if Republicans call Obama’s bluff, he should be ready to mint that coin – – and to save the economy by doing so.