Tag: Economy

in Economics.

This is one of the untold tales of the mess we’re in. Contrary to what you may have heard, there’s very little that’s baffling about our problems – at least not if you knew basic, old-fashioned macroeconomics. In fact, someone who learned economics from the original 1948 edition of Samuelson’s textbook would feel pretty much at home in today’s world. If economists seem totally at sea, it’s because they have carefully unlearned the old wisdom. If policy has failed, it’s because policy makers chose not to believe their own models.

On the analytical front: many economists these days reject out of hand the Keynesian model, preferring to believe that a fall in supply rather than a fall in demand is what causes recessions. But there are clear implications of these rival approaches. If the slump reflects some kind of supply shock, the monetary and fiscal policies followed since the beginning of 2008 would have the effects predicted in a supply-constrained world: large expansion of the monetary base should have led to high inflation, large budget deficits should have driven interest rates way up. And as you may recall, a lot of people did make exactly that prediction. A Keynesian approach, on the other hand, said that inflation would fall and interest rates stay low as long as the economy remained depressed. Guess what happened?

On the policy front: there’s certainly a real debate over whether Obama could have gotten a bigger stimulus. What we do know, however, is that his top advisers did not frame the argument for a small stimulus compared with the projected slump purely in political terms. Instead, they argued that too big a plan would alarm the bond markets, and that anyway fiscal stimulus was only needed as an insurance policy. Neither of these arguments came from macroeconomic theory; they were doctrines invented on the fly. Samuelson 1948 would have said to provide a stimulus big enough to restore full employment – full stop.

Monday Business Edition

It’s slowly starting to dawn on Institutional Democrats that they’re going to lose big in November.  The consequences are very real.  Racist Radical Reagan Republicanism is a proven failure.  And Institutional Democrats?  They’re a failure too because they knew what to do and didn’t do it.

I’ll put my policy prescription right up front, the only thing that will save Democrats at this point is massive downsizing- Rahm Emanuel, David Axelrod, Gibbs, Geithner and Summers, Salazar and Duncan.  Do I want heads on pikes?  Figuratively, yes.  These highly paid strikeout kings and clubhouse malcontents have to go for the good of the team.

And if not I hope you’re happy with the crappy offices that come with minority status and one term Presidencies you corporatist whores.  Anyone who claims to care about “electoral victory” is a liar.

It’s Witch-Hunt Season

By PAUL KRUGMAN, The New York Times

Published: August 29, 2010

So what will happen if, as expected, Republicans win control of the House? We already know part of the answer: Politico reports that they’re gearing up for a repeat performance of the 1990s, with a “wave of committee investigations” – several of them over supposed scandals that we already know are completely phony. We can expect the G.O.P. to play chicken over the federal budget, too; I’d put even odds on a 1995-type government shutdown sometime over the next couple of years.

It will be an ugly scene, and it will be dangerous, too. The 1990s were a time of peace and prosperity; this is a time of neither. In particular, we’re still suffering the after-effects of the worst economic crisis since the 1930s, and we can’t afford to have a federal government paralyzed by an opposition with no interest in helping the president govern. But that’s what we’re likely to get.

If I were President Obama, I’d be doing all I could to head off this prospect, offering some major new initiatives on the economic front in particular, if only to shake up the political dynamic. But my guess is that the president will continue to play it safe, all the way into catastrophe.

Opposition Pay-offs

by Dave Anderson, 2010 August 29

The stimulus as passed in ARRA was necessary but insufficient.  It was too small at the topline number for the size of the output gap we actually faced (as the recession was deeper than the earlier data showed) and poorly designed with too much money going to AMT fixes and ineffective lump-sum tax-cuts.  The effective parts were pared back to please Sens. Collins, Snowe and Nelson.  And this was because the Republican Party realized they were the opposition and the job of the opposition is to oppose.  It also was because the Obama Administration likes to punch dirty fucking hippies, especially when they are right on the math and the political outcomes.

What Can Obama Really Do?

by Ian Welsh, 2010 August 29

The idea that Obama, or any President, is a powerless shrinking violet, helpless in the face of Congress is just an excuse.  Presidents have immense amounts of power: the question is whether or not they use that power, and if they do, what they use it for.

…

If Obama is not using that money and authority, the bottom line is it’s because he doesn’t want to.

Putting aside the question of what Obama could have accomplished already, if he wants to help everyday Americans, turn around Democratic approval ratings in time for the midterm elections, and leave behind him a legacy of achievement, he can still do it. If he wants to.

The Two Stories of This Terrible Economy, Yet Obama and the Dems Won’t Tell Theirs

Robert Reich, Friday, August 27, 2010

If Obama and the Democrats would connect these dots they’d have a story that would make Americans’ hair stand on end. We’re in this mess because of big business and Wall Street. Government is needed to get us out of it.

…

So why haven’t Obama and the Dems succeeded yet? Big business and Wall Street have used their money and political clout to stop government from doing as much as needs to be done.

The story is clear, and it has the virtue of being the truth. Why won’t Obama and the Democrats tell it? Is it because big business and Wall Street have the money and political clout even to prevent the story from being told?

Policy Options Dwindle as Economic Fears Grow

By PETER S. GOODMAN, The New York Times

Published: August 28, 2010

“There are many ways in which you can see us almost surely being in a Japan-style malaise,” said the Nobel-laureate economist Joseph Stiglitz, who has accused the Obama administration of underestimating the dangers weighing on the economy. “It’s just really hard to see what will bring us out.”

Japan’s years of pain were made worse by deflation – falling prices – an affliction that assailed the United States during the Great Depression and may be gathering force again. While falling prices can be good news for people in need of cars, housing and other wares, a sustained, broad drop discourages businesses from investing and hiring. Less work and lower wages translates into less spending power, which reinforces a predilection against hiring and investing – a downward spiral.

Deflation is both symptom and cause of an economy whose basic functioning has stalled. It reflects too many goods and services in the marketplace with not enough people able to buy them.

Banks’ Self-Dealing Super-Charged Financial Crisis

by Jake Bernstein  and Jesse Eisinger, ProPublica

Aug. 26, 10:09 p.m.

Over the last two years of the housing bubble, Wall Street bankers perpetrated one of the greatest episodes of self-dealing in financial history.

Faced with increasing difficulty in selling the mortgage-backed securities that had been among their most lucrative products, the banks hit on a solution that preserved their quarterly earnings and huge bonuses:

They created fake demand.

More Business News below.

Glen Ford writing at Black Agenda Report said on Wednesday “We Are Cornered: There’s No Way Out Without A Fight”: “Obama and his Democratic legislative allies have successfully shielded their Wall Street masters from anything worthy of the name financial reform.”, and “The pace of finance capital deterioration quickens, accelerating the timetable of the Right’s offensive. As the hunger grows, Wall Street’s servants become more aggressive and demanding, and there is nothing in the Democratic Party, as presently constituted, to stop them.”

Ford closed his essay with: “One truth remains: only a massed people can defeat massed capital. If the American Left is capable of bearing that in mind in the critical times ahead, it might just escape the cul-de-sac and make some modest contribution to the world.”

Robert Scheer noted on Tuesday:

It is Obama’s continued deference to the sensibilities of the financiers and his relative indifference to the suffering of ordinary people that threaten his legacy, not to mention the nation’s economic well-being. There have been more than 300,000 foreclosure filings every single month that Obama has been president, and as The New York Times editorialized, “Unfortunately, there is no evidence that the Obama administration’s efforts to address the foreclosure problem will make an appreciable dent.”

The ugly reality that only 398,198 mortgages have been modified to make the payments more reasonable can be traced to the program being based on the hope that the banks would do the right thing. While Obama continued the Bush practice of showering the banks with bailout money, he did not demand a moratorium on foreclosures or call for increasing the power of bankruptcy courts to force the banks, which created the problem, to now help distressed homeowners.

…foreclosures are behind Tuesday’s news that U.S. home sales reached their lowest point in 15 years and that there is unlikely to be an economic recovery without a dramatic turnabout in the housing market. The stock market tanked Tuesday on reports that U.S. home sales had dropped 25.5 percent below the year-ago level.

— Foreclosure

Ford is right about many things, but Ford is wrong about one thing.

There is more than one truth.

They Go or Obama Goes

Robert Scheer,

Truthdig, August 25, 2010

Barack Obama and the Democrats he led to a stunning victory two years ago are going down hard in the face of an economic crisis that he did nothing to create but which he has failed to solve. That is somewhat unfair because the basic blame belongs to his predecessors, Bill Clinton and George W. Bush, who let the bulls of Wall Street run wild in the streets where ordinary folks lived. And there was universal Republican support in Congress for the radical deregulation of the financial industry that produced this debacle.

The core issue for the economy is the continued cost of a housing bubble made possible only after what Clinton Treasury Secretary Lawrence Summers back then trumpeted as necessary “legal certainty” was provided to derivative packages made up of suspect Alt-A and subprime mortgages. It was the Commodity Futures Modernization Act, which Senate Republican Phil Gramm drafted and which Clinton signed into law, that made legal the trafficking in packages of dubious home mortgages. In any decent society the creation of such untenable mortgages and the securitization of risk irrationally associated with it would have been judged a criminal scam. But no such judgment was possible because thanks to Wall Street’s sway under Clinton and Bush the bankers got to rewrite the laws to sanction their treachery.

It is Obama’s continued deference to the sensibilities of the financiers and his relative indifference to the suffering of ordinary people that threaten his legacy, not to mention the nation’s economic well-being. There have been more than 300,000 foreclosure filings every single month that Obama has been president, and as The New York Times editorialized, “Unfortunately, there is no evidence that the Obama administration’s efforts to address the foreclosure problem will make an appreciable dent.”

[snip]

Obama To Create 17 New Jobs By Resigning And Finally Opening That Restaurant

WASHINGTON-In an effort to counter the highest unemployment rate the nation has faced in a quarter century, Barack Obama announced Monday that he will create 17 new jobs by resigning from the presidency to pursue his lifelong dream of opening a cozy little down-home restaurant just off the Galesburg, IL exit on Interstate 74. “Now is the time for drastic measures, and the several line-cook and serving positions that will be generated by Barry’s Place are imperative to getting the economy back on track,” said Obama, donning a white apron over rolled-up shirtsleeves. “The hope is that this bold initiative will demonstrate to other American business owners that it is possible to break the cycle after they somehow get sucked into politics and things snowball so fast that they lose sight of what’s really important, like serving people the best slice of pecan pie they’ve ever tasted at a price that can’t be beat.” Vice President Joe Biden has reportedly followed Obama’s entrepreneurial lead by purchasing a secondhand cologne and condom vending machine that will be installed in the men’s bathroom of a Wilmington, DE offtrack betting parlor.

Hopefully he’ll also be soon hiring a new White House Economic Adviser, a new Treasury Secretary, and a new Fed Chairman. If he knows what’s good for him… and he ain’t no dummy, or puppet, or so I’m repeatedly assured.

You rock, B. You can do this. I have faith in you.

Crossposted at Daily Kos and Docudharma

Note: Due to a deluge of editorial cartoons over the past week or so, I’m going to, time permitting, post Part II of this weekly diary in the next few days.  In addition to some of the issues covered in this edition, I’ll include more cartoons on the floods in Pakistan, the withdrawal of combat U.S. forces in Iraq, and Rupert Murdoch’s $1 million contribution to the GOP.

State of the Economy

by Ian Welsh

2010 August 23

The key issues are that States and municipalities are essentially bankrupt, and that corporations aren’t hiring.  Corporations aren’t hiring because their profits are fine, and because they don’t see where the sustained growth would come from.  States and municipalities are having income issues because the incomes of median taxpayers have not recovered and the number of employed is not increasing (ignore the “unemployment rate”, what matters is how many people are employed and that hasn’t recovered worth a damn.)  Since States and municipalities have limited ability to borrow and can’t print money, in both cases, unlike the Feds, this means they must cut or raise taxes and in general States are ideologically opposed to raising taxes and municipalities don’t feel they can.  Housing prices remain depressed, which is the main source of money for municipalities.

Since there is no chance of a real stimulus being passed (and if there was, Obama would do it badly, like he did the last one) and since Obama refuses to spend the TARP money on the economy until it’s his reelection on the line rather than Congressional Dems, and since there’s no obvious source of new jobs in the US economy, I see little reason to expect the US economy to recover.  Even if the world economy somehow does, it will route around the US, since the US is a high cost domicile and there is no good reason to produce in the US.  In the old days you produced in the US because that was where the next big tech boom occured, the skills were there, and you needed in.  With the deliberate strangling of innovation in the US due to the oligopolization of the economy, the next tech boom (if there is one) is unlikely to occur in the US.

…

None of this was necessary, but Obama chose to not just ask for too little money in his stimulus, but spent the money very badly even outside of the hugely useless tax cuts.  The money did not give the economy an obvious medium term direction: either a huge telecom build-out or an energy and conservation build-out, and the huge bailouts for financial firms created a more concentrated financial sector full of zombie banks with no intention to lend money.  The failure to create a workable cram down on housing prices which also rescued underwater home owners has left housing prices underwater and credit markets still sclerotic.  With the House either going Republican in the fall, or if it remains Democratic with the Democratic margin being controlled by hard-core Blue Dogs, even if Obama did buy a clue, there is little chance that a decent restructuring stimulus bill could get through Congress and the actions of regulatory bodies like the FCC, the Justice department, as well as Obama’s implicit recognition of the health oligopoly, make it clear that his administration has no intention of challenging, let alone dismantling, the oligopolies which are draining the life blood of the US polity.

Now That’s Rich

By PAUL KRUGMAN, The New York Times

Published: August 22, 2010

We need to pinch pennies these days. Don’t you know we have a budget deficit? For months that has been the word from Republicans and conservative Democrats, who have rejected every suggestion that we do more to avoid deep cuts in public services and help the ailing economy.

But these same politicians are eager to cut checks averaging $3 million each to the richest 120,000 people in the country.

What – you haven’t heard about this proposal? Actually, you have: I’m talking about demands that we make all of the Bush tax cuts, not just those for the middle class, permanent.

…

And where would this $680 billion go? Nearly all of it would go to the richest 1 percent of Americans, people with incomes of more than $500,000 a year. But that’s the least of it: the policy center’s estimates say that the majority of the tax cuts would go to the richest one-tenth of 1 percent. … And the average tax break for those lucky few – the poorest members of the group have annual incomes of more than $2 million, and the average member makes more than $7 million a year – would be $3 million over the course of the next decade.

In Striking Shift, Small Investors Flee Stock Market

By GRAHAM BOWLEY, The New York Times

Published: August 21, 2010

One of the phenomena of the last several decades has been the rise of the individual investor. As Americans have become more responsible for their own retirement, they have poured money into stocks with such faith that half of the country’s households now own shares directly or through mutual funds, which are by far the most popular way Americans invest in stocks. So the turnabout is striking.

…

The notion that stocks tend to be safe and profitable investments over time seems to have been dented in much the same way that a decline in home values and in job stability the last few years has altered Americans’ sense of financial security.

…

But then came a grim reassessment of America’s economic prospects as unemployment remained stubbornly high and private sector job growth refused to take off.

Investors’ nerves were also frayed by the “flash crash” on May 6, when the Dow Jones industrial index fell 600 points in a matter of minutes. The authorities still do not know why.

Special BP Blowout Disaster Coverage

1 Gulf claims chief says no-sue rule was his idea

By HARRY R. WEBER, Associated Press Writer

Sun Aug 22, 4:09 pm ET

2 For Gulf tourism, problem is perception – not oil

By NOAKI SCHWARTZ, Associated Press Writer

Sun Aug 22, 1:51 pm ET

Outrageous?  We report…

“We the Parasites” Benefiting from HAMP

By: emptywheel Sunday August 22, 2010 7:58 pm

The guys in charge of our economy actually seem incapable of understanding who they work for-not to mention the additional problems their “qualified success” will cause. (What happens in a decade when large numbers of middle class kids can’t go to college because the government decided it was okay to subject their families to more misery during a foreclosure?)

Or, they don’t give a shit that this program asks homeowners to pay over and over for their mistakes, all to make sure the banksters never have to pay for their own.

Which is the other problem with this attitude. The alternative to HAMP, of course, is cram-down, in which the banksters have to cut the principle owed to them to what was probably more realistic value in the first place. Every time cram-down gets dismissed, the person dismissing it as an option mobilizes the language of morality, the need to make homeowners pay for buying more home than they could afford (assuming, always, they haven’t been laid off because the banksters ruined the economy or run into medical debt). But there seems to be no language of morality to describe the price banksters should have to pay by failing to do any real due diligence on loans or for accepting transparently bogus assessments of value. Heck, even the banksters get the equivalent of cram-down without a big morality play.

Treasury’s attitude about HAMP is not just evidence they’ve lost all track of who they work for and where the benefits of the economy are supposed to be delivered, but it also suggests that these Treasury folks have lost the most basic notion of capitalism, that if businessmen never pay for bad decisions, they’ll continue to make bad decisions.

Daniel Tencer writing at RawStory Friday reported that “The US economic recovery in recent quarters is little more than a “cover-up” and the world is headed for a “Greatest Depression,” complete with social unrest and class warfare, says a renowned economic forecaster. Gerald Celente, head of the Trends Research Institute, told Yahoo! News’ Tech Ticker that there’s no risk of a “double-dip recession” because the first “dip” never ended.”

“We’re saying there’s no double dip, it never ended,” Celente said. “We’re looking at the Greatest Depression. There’s no way out of this without [rebuilding] productive capacity. You can’t print [money to get] out of it.”

“Celente said the current unemployment rate, if it were measured as it was measured during the Great Depression, would be around 17.5 percent. And he expects that number to rise to around 22 percent in the coming years.”

“One of the good businesses to get in to may be guillotines,” Celente quipped. “Because there’s a real off-with-their-heads fever going on. People are really fed up.”

…

“We went from a country that used to be merchants, craftspeople, manufacturers, to clerks and cashiers,” Celente said. “We have to bring manufacturing back to America.”