Pavlina Tcherneva: No, Mr. Krugman, Bernanke’s Conundrum is Completely Different

 The excellent adventures of Ben Bernanke, The Inherent Disorder of Empires, The Intrusion of UNLAWFUL Authority, The Obama OMG magic factory, The Suffering Poor, This self-serving arbitrariness, Time For A New Third Party, Unemployment Catastrophe, Unindicted Co-Conspiritors, Unintended Consequences, US Trade Imbalance, We Are All Cooked, We Have Become Beggars To The World, Who Guarantees the Guarantor?-You Do!, Who owns Congress-Still!  No Responses »
Apr 282012
 

 

By Pavlina Tcherneva, Assistant Professor of Economics at Franklin and Marshall College, Research Scholar at The Levy Economics Institute, and Senior Research Associate at the Center for Full Employment and Price Stability. Cross posted from New Economic Perspectives

Our mainstream colleagues keep banging their heads against the wall. “Why, oh why wouldn’t Chairman Bernanke do more to rescue the economy?” Today Paul Krugman took on this question again, arguing that Chairman Bernanke should listen to Professor Bernanke who had far more sensible ideas about rescuing an economy from a deflationary environment, as seen in his research on Japan during the 90s.

Krugman revisits a 2000 paper by then professor Bernanke, which many of us have scrutinized before, titled “Japanese Monetary Policy: A Case of Self-Induced Paralysis?” Krugman faults Bernanke for not following his own advice…..

The difference is that, unlike Paul Krugman, I actually read Bernanke’s paper from start to finish.

 

Pavlina Tcherneva: No, Mr. Krugman, Bernanke’s Conundrum is Completely Different

Posted by Brian Schuettler at 6:59 pm  

The Age of the Shadow Bank Run

 Back to the basics, Banks - Crisis Discussion, Creditors Caveat, Derivatives Reform, Devaluation, Having Fun With Derivatives, HEY AMERICA-STICK 'EM UP!, Insolvency, Lending Crisis, Let's Call What It Is - DEPRESSION, Moral Hazard, No Bank Is Indispensable, Patience is a virtue...Delusion is a vice, Read and Weep Entries, Regulatory Failures, Risk Management Strategies, TARP fruit loops, The American Financial Oligarchy, The Big Fat Greek Question, The Consequences of Greed, The excellent adventures of Ben Bernanke, The Financial Elite, The Geithner Resignation Watch, The Great American Heist, The Importance of Strategic Planning, The Inherent Disorder of Empires, The Intrusion of UNLAWFUL Authority, The Joy of Being A Bank, Unintended Consequences, We Are All Cooked, We Need Open Derivative Models, Who Guarantees the Guarantor?-You Do!, Who owns Congress-Still!  No Responses »
Mar 282012
 

Since the end of World War II, economists have generally thought that runs on banks were dead, at least as a phenomenon in advanced nations. In the United States, for example, bank deposits are insured by the Federal Deposit Insurance Corporation, and, as a last resort, the Federal Reserve can back deposits by printing money.

The new complication is that bank deposits are no longer the dominant form of modern short-term finance. The modern bank run means a rush to withdraw from money market funds, the disappearance of reliable collateral for overnight loans between banks or the sudden pulling of short-term credit to a troubled financial institution. But these new versions are in some ways still similar to the old: both reflect the desire to pull money out of an endeavor — and to be the first out the door. And both can set off a crash.

These newer forms occur in the so-called shadow banking system, involving short-term financial credit not guaranteed by the deposit insurance umbrella. According to the Federal Reserve Bank of New York, shadow banking accounts for about $15 trillion in assets — more than the traditional banking system. But as recently as 1990, the shadow-banking total was much lower, at less than $4 trillion. The core problem is that the growth of short-term credit has been outracing our ability to protect it, and since 2008 most investors have realized that these shadow-banking transactions are not risk-free.

On top of this problem is the market for derivatives. The quantity of open derivatives amounts to trillions, and these positions are another source of short-term credit risk. So a need for sudden payouts could also prompt a run on a financial institution.

It now seems that the 21st century will resemble the 19th and early 20th centuries, with periodic panics and runs on financial institutions, perhaps followed by deflationary collapses. In the euro zone, these problems have plagued banks and entire countries, like Greece and Portugal. The “country as bank” is a new and not entirely reassuring catch phrase, and it shows that the problem goes beyond the private sector.

If a central bank is deft enough, it can avoid deflation by using loans and monetary policy to guarantee the liabilities of run-prone institutions. That worked reasonably well in 2008, but in the long term such a policy sets up the system for even more danger, by subsidizing bank risk-taking and precarious financial structures.

Another problem is that ending those central bank guarantees isn’t always easy. The European Central Bank has stemmed a financial collapse for now, but only by lending large amounts to banks at 1 percent for a three-year window. And yet the euro zone has entered a recession, so it’s unclear when troubled European banks can return to private capital markets. The central bank may end up taking over much of the allocation of capital.

The arrangement also assumes that economic growth will pick up fairly quickly in the euro zone — hardly a certainty. And there is little market discipline to force European banks to clean up their balance sheets or to exercise caution for the future. So the system remains extremely vulnerable.

Another feature of this new order is that more and more financial transactions will be collateralized with the safest securities possible: United States Treasuries. Demand for them will remain high, and low borrowing costs will ease our fiscal problems. Still, the resulting low rates of return serve as a tax on safe savings, encourage a risky quest for yield and redistribute resources to government borrowing and spending. It isn’t healthy for the private sector when investors are so obsessed with holding wealth in the form of safe governmental guarantees.

THIS entire package of problems seems to be part of “the new normal” — it’s not going away anytime soon.

Some economists, like Ricardo J. Caballero of the Massachusetts Institute of Technology , have called for extending governmental guarantees well beyond traditional bank deposits. That would check the problem, but at what cost? In a larger financial crisis based on insolvency, our government would face intolerable financial burdens, as happened in Ireland when its government guaranteed bank debts.

A broader government guarantee would also spread the moral-hazard problem to an even larger class of financial transactions, raising the odds that the guarantee will someday have to be paid out. In any case, bailouts for creditors are already politically unpopular, and are unlikely to be expanded.

In short, no promising financial path is before us. It’s good that the American economy seems to be recovering, and this may shove some problems into the future. But banking and finance remain a mess at their core. Welcome to the 21st century.

 

Tyler Cowen is a professor of economics at George Mason University.
The Age of the Shadow Bank Run – Tyler Cowen, New York Times

Posted by Brian Schuettler at 7:53 pm  

The Snowball of Empire

 Back to the basics, Bilderbergers 1 USA 0, Coup d'etat in America, The Inherent Disorder of Empires, The Intrusion of UNLAWFUL Authority, The Judeo-Christian Political Coalition, The Oil Question, Truth In Charity, Unindicted Co-Conspiritors, Who owns Congress-Still!  No Responses »
Feb 192012
 

The snowball began its first cycle in 1899 when on February 4 of that year the United States began a war against the Philippines. Two days later the Senate voted to annex the country despite the islanders’ opposition. That country would not be returned to its people until 1934.

Not 20 years later, in 1917, America decided to enter World War I, forgoing Jefferson’s plea to avoid entangling alliances, and, as a result, lost roughly 116,000 men, and millions of dollars, in the war.[1]

The snowball kept rolling with World War II, perhaps the only just war of the century, but as a result, our role in world affairs dramatically changed and NATO was formed in 1949. NATO was the ultimate entangling alliance — forever ensuring our seat at the table of any just or unjust future war.

The rest, as they say, is history. The snowball has been rolling full speed ahead ever since, creating an empire that is both all encompassing and pervasive.

Korea, the Soviet Union, Vietnam, Iran, Iraq, Pakistan, Somalia, Bosnia, Kosovo, Iraq again, and Afghanistan: the United States has had military personnel in (or engaged with) all these countries at one point or another throughout the past 50 years, and today is responsible for over 600 military bases in 40 countries across the world.[2]

As the Department of Defense states, “the United States military is currently deployed to more locations than it has been throughout history.”[3]

The snowball, which started out as a flake, has now reached Leviathan status and is on a downward slope growing larger and larger with every revolution. The empire of the United States now touches every country, directly or indirectly, in the entire world.

The Snowball of Empire
by Nico Perrino on February 17, 2012

Posted by Brian Schuettler at 1:40 pm  

Fragile and Unbalanced in 2012

 Nouriel Roubini, Our phony middle class, Patience is a virtue...Delusion is a vice, Pig-Headed Economic Policy May Still Lead to Disaster, Political Implications, Read and Weep Entries, Sound Familiar?, TARP fruit loops, The American Financial Oligarchy, The Arrogance of Power, The Consequences of Greed, The End of American Capitalism As We Know It? - Discuss, The excellent adventures of Ben Bernanke, The Financial Elite, The Global Economy, The Great American Heist, The Importance of Strategic Planning, The Inherent Disorder of Empires, The Intrusion of UNLAWFUL Authority, The Obama OMG magic factory, The Sorry State Of American Manufacturing, The Suffering Poor, The Ticking Euro Bomb, This self-serving arbitrariness, Unemployment Catastrophe, Unindicted Co-Conspiritors, Unintended Consequences, Wage Deflation, We Are All Cooked, We Have Become Beggars To The World, Who Guarantees the Guarantor?-You Do!, Who owns Congress-Still!  No Responses »
Dec 172011
 

Policymakers are running out of options. Currency devaluation is a zero-sum game, because not all countries can depreciate and improve net exports at the same time. Monetary policy will be eased as inflation becomes a non-issue in advanced economies (and a lesser issue in emerging markets). But monetary policy is increasingly ineffective in advanced economies, where the problems stem from insolvency – and thus creditworthiness – rather than liquidity.

Meanwhile, fiscal policy is constrained by the rise of deficits and debts, bond vigilantes, and new fiscal rules in Europe. Backstopping and bailing out financial institutions is politically unpopular, while near-insolvent governments don’t have the money to do so. And, politically, the promise of the G-20 has given way to the reality of the G-0: weak governments find it increasingly difficult to implement international policy coordination, as the worldviews, goals, and interests of advanced economies and emerging markets come into conflict.

As a result, dealing with stock imbalances – the large debts of households, financial institutions, and governments – by papering over solvency problems with financing and liquidity may eventually give way to painful and possibly disorderly restructurings. Likewise, addressing weak competitiveness and current-account imbalances requires currency adjustments that may eventually lead some members to exit the eurozone.

Restoring robust growth is difficult enough without the ever-present specter of deleveraging and a severe shortage of policy ammunition. But that is the challenge that a fragile and unbalanced global economy faces in 2012. To paraphrase Bette Davis in All About Eve, “Fasten your seatbelts, it’s going to be a bumpy year!”

Fasten Your Seatbelts For Rough 2012 – Nouriel Roubini, Project Syndicate

Nouriel Roubini is Chairman of Roubini Global Economics and professor at the Stern School of Business, New York University. His detailed 2012 global growth outlook is available at www.roubini.com

Posted by Brian Schuettler at 7:08 pm  

Mall Rats Can’t Bring About the Wealth of Nations

 Investment in Infrastructure Is A Win/Win, Our phony middle class, Patience is a virtue...Delusion is a vice, Pig-Headed Economic Policy May Still Lead to Disaster, Small Business-Bedrock of America, Subsidiarity, TARP fruit loops, The American Financial Oligarchy, The Arrogance of Power, The Consequences of Greed, The End of American Capitalism As We Know It? - Discuss, The excellent adventures of Ben Bernanke, The Financial Elite, The Geithner Resignation Watch, The Great American Heist, The Growing American Fascist State, The Importance of Strategic Planning, The Inherent Disorder of Empires, The Judeo-Christian Political Coalition, The Obama OMG magic factory, The Sorry State Of American Manufacturing, The Suffering Poor, The Ticking Euro Bomb, This self-serving arbitrariness, Time For A New Third Party, Unemployment Catastrophe, Unindicted Co-Conspiritors, Unintended Consequences, USA Is the New Japan, Wage Deflation, We Have Become Beggars To The World, Who Guarantees the Guarantor?-You Do!, Who owns Congress-Still!  No Responses »
Dec 042011
 

there is something fundamentally wrong with a culture that promotes spending as the key to health and wealth. A multidecade borrowing-and-spending binge whittled the U.S. savings rate from an average of 9.6 percent in the 1970s, to 8.6 percent in the 1980s, to 5.5 percent in the 1990s, to 3.3 percent in the 2000s. At one point during the housing bubble, the savings rate approached zero.

My generation learned about the virtues of thrift from our parents, who were children of the Great Depression. Subsequent generations haven’t had the benefit of real-world teachers. For them, the 1930s are a story told through sepia-toned photographs of ravaged dust-bowl farms and bread lines.

Younger generations of Americans have grown up on conspicuous consumption. The focus has been on what something costs today — the monthly interest payment on the credit card or mortgage — not whether the car or home is affordable. Easy and cheap credit made it all possible.

Incentive to Spend

The Federal Reserve is complicit, too, in discouraging saving by holding its benchmark rate close to zero and pledging to keep it there at least through mid-2013. Consumers aren’t getting paid to save. The rate they can earn on bank deposits is negative when adjusted for current or expected inflation. Therefore, they spend. High real rates induce consumers to forgo current spending and save.

Households have been deleveraging for three years in an attempt to repair their balance sheets. Yet many economists and policy makers advocate more borrowing and spending as a cure for what ails the economy, and cheer as mall rats infest stores in the middle of the night. How can that be?

I suspect it’s the old short-run/long-run dichotomy. By now, though, it should be obvious that the U.S. suffers from an extreme case of short-term thinking, and it underpins decisions on everything from tax-and-spend policy to monetary policy.

Even the stock market applauds more “consumption,” a synonym for spending I try to avoid. A former editor said the word made him think of people wasting away from tuberculosis, which happens to be Merriam-Webster’s first definition. It was enough to convince me.

In the context of this column, however, the alternate definition seems appropriate: “the utilization of economic goods in the satisfaction of wants … resulting chiefly in their destruction, deterioration, or transformation.”

“Destruction” should be a tip-off that whatever it is, it isn’t wealth.

Mall Rats Don’t Produce Wealth of Nations – Caroline Baum, Bloomberg

Posted by Brian Schuettler at 10:09 am  

How a “Bad Bank” appears to be a “Good Bank”

 The Inherent Disorder of Empires, The Intrusion of UNLAWFUL Authority, The Joy of Being A Bank, This self-serving arbitrariness  No Responses »
Nov 202011
 

it is in the bank’s best interest to ensure that the “thickness” of the equity tranche is maximized (for both a bank and a securitization structure). However, since it is perceptions of thickness that matter, believable means to achieving equity buffers are far more effective. Contrast that need with a bank on a physical fractional standard where the amount of cash in a vault is the governing limitation. Under the cash standard the bank would be out of business once the cash dwindled, regardless of whether there were any actual losses incurred. Again perceptions matter here, but it is more about cash on hand and less about actual losses. So it seems like there has been a positive evolution as actual losses are now the impetus for “runs”, not just fear of a lack of available physical cash. The capital-based framework systemically sorts “bad” banks from “good”.

But as we see all too plainly today, there is no real answer when a large proportion of the banking cohort cannot be counted as “good” banks. In fact, the capital ratio scheme has already completed part of its job by pointing out which banks are in fact “bad” banks. Where the system seems to be failing is in how to deal with those problem institutions since there is no shortage of less-than-believable “solutions” to the equity capital buffer problem.

If regulators endorse, as they appear to be doing, the fantasy of risk-weighted asset optimization accounting, then the capital ratio-standard of banking is entirely insufficient to do the full job it was designed for. This is nothing more than moral hazard in different clothing.

At some point, the banking system is supposed to advance the idea of intermediation in the real economy. Since long-term economic health is utterly dependent on money being efficiently allocated to “good” ideas and projects (those that have the best prospects for long-term stability and sustainability), it follows that banks that accumulate large losses are economically inefficient. “Bad” banks are doing nothing more than assigning and allocating credit to “bad” ideas, so the economy is actually far worse off if they continue to exist. It makes no sense to allow inefficiently allocating banks to stay in business since they produce a negative productivity of credit money.

Under less stressed systemic circumstances, the capital ratio failure of “bad” institutions would likely lead to the orderly bankruptcy of the credit producer in question – with the full approval and assistance of regulators. The system is simply ill-equipped, however, for a mass of failures (defined by the size of institutions) at the same time. In other words, the equity capital system is not all that much better than the physical system since both inadequately deal with systemic pressures (though in opposite directions). That means that the capital limitations from the preceding stage of the systemic event, the credit buildup, is not at all effective at limiting the ability of the system to build and maintain negative productivity of money and credit. The equity standard allows a large accumulation of “bad” banks, in direct contrast to its stated purpose.

The supposed superiority of the equity capital system led the banking system to fully believe it had discovered a better understanding of risk, and therefore could accumulate far more risk than a physical system. This unwarranted expectation meant extending fractional lending out to extremes. At the same time, these accumulations of risk were advanced into the real economic system through perverted prices and incentives.

Reality No Longer Has a Seat at the Banking Table – Jeffrey Snider, RCM

Posted by Brian Schuettler at 4:01 pm  

Most of you understand this.

 A Growing List Of One Term Presidents, A Moral Question - Not A Political One, A State of Distress, “the Greenspan doctrine”, Back to the basics, Bilderbergers 1 Germany 0, Bilderbergers 1 USA 0, Coming Social Unrest, Consumption Ran the Old Economy, Coup d'etat in America, Death of the Dollar, Decapitalization, Devaluation, Dismal Science-Ignorant Scientists?, FDR, Fiat Currency, Figures don't lie but Liars can figure, Former Economist, FREEDOM, Goldman: Underwriter or Undertaker?, Greenspan is kind of stupid, HEY AMERICA-STICK 'EM UP!, It Is Nice To Be Part of the Elite!, It Is Supposed to be a Republic!, IT'S ALL ABOUT POWER AND MONEY, Let's Call What It Is - DEPRESSION, Obama Bingo, Obama's Hypocrisy, Our phony middle class, Patience is a virtue...Delusion is a vice, Pig-Headed Economic Policy May Still Lead to Disaster, TARP fruit loops, The American Financial Oligarchy, The End of American Capitalism As We Know It? - Discuss, The excellent adventures of Ben Bernanke, The Financial Elite, The Great American Heist, The Growing American Fascist State, The Inherent Disorder of Empires, The Intrusion of UNLAWFUL Authority, The Judeo-Christian Political Coalition, Unindicted Co-Conspiritors, Who Guarantees the Guarantor?-You Do!, Who owns Congress-Still!  No Responses »
Nov 052011
 

One of the things that I suspect has brought many of you to Naked Capitalism is the hard lesson that conventional wisdom in finance and economics has been very costly to ordinary citizens around the world. If you had believed the prevailing world view of early 2007, that markets were efficient and bad actors would of course be found out and shunned, that were were in the midst of a Great Moderation and could expect to enjoy continued prosperity, punctuated by shallow recessions, and that financial innovation was a boon and therefore to be encouraged, you had an ugly awakening. The global financial crisis imposed tremendous costs on investors and society at large, via unemployment, a housing bust, plunging tax revenues, cuts in government services and increasing political discord.

Yet no one in power before the crisis has been punished or even suffered much. In fact, 2009 and 2010 Wall Street bonuses exceeded the record levels of 2007. As former IMF chief economist Simon Johnson described in a May 2009 Atlantic article, the US instead suffered a quiet coup, with the top end of the financial services industry becoming more concentrated, more powerful, even more concentrated and more firmly in charge of the political apparatus.

Most of you understand this. It’s awfully hard not to notice that we have a two-tier system of justice, in which the major financial firms get to flout the law and violate their own contracts, yet are able to get their agreements enforced against seemingly everyone, from credit card, mortgage, and student debt borrowers to municipalities who entered into risk-laden swaps they didn’t understand to nations like Greece, where a clearly insolvent borrower cannot get a deep enough restructuring out of fear of triggering payouts on credit default swaps. But complexity, leverage, and opacity have been the big banks’ best friends in executing this program of looting. You’ve come here to get educated so you won’t be so easily taken next time.

So the lies that the elite financiers have peddled appeared to be free, when in fact, many of them were sold via clever messaging and lobbying.
Read the Rest…

At Naked Capitalism

Posted by Brian Schuettler at 9:24 am  

“forgive us our debts, as we forgive our debtors”: an American year of Jubilee

 A Growing List Of One Term Presidents, A Moral Question - Not A Political One, Back to the basics, Collateral Damage, Coming Social Unrest, Consumption Ran the Old Economy, Coup d'etat in America, Deflation-Inflation-Stagflation, Economic Analysis Isn't Science, History of Finance, It starts with a foundation, IT'S ALL ABOUT POWER AND MONEY, Moral Hazard, Obama's Hypocrisy, Our phony middle class, Patience is a virtue...Delusion is a vice, Pig-Headed Economic Policy May Still Lead to Disaster, Political Chaos, Political Implications, TARP fruit loops, The American Financial Oligarchy, The Arrogance of Power, The Consequences of Greed, The Democrats Blew It Again, The End of American Capitalism As We Know It? - Discuss, The Financial Elite, The Importance of Strategic Planning, The Inherent Disorder of Empires, The Judeo-Christian Political Coalition, The Suffering Poor, Time For A New Third Party, Truth In Charity, Unemployment Catastrophe, Unintended Consequences, USA Is the New Japan, Wage Deflation, We Are All Guilty, We Have Become Beggars To The World  No Responses »
Oct 312011
 

The American financial system seems ultramodern in its complexity, but it is actually ancient in the brutal ways wealth asserts power over others. The earliest societies were torn by conflicts between lenders and borrowers, the rich versus the poor. They were compelled to fashion hard rules and put restraints on lending to curb the cruelties and promote a moral minimum for social justice. Nearly every country and culture embedded these values in religious tenets that governments enforced. Anthropologist David Graeber asserts provocatively in his book Debt: The First 5,000 Years that the power struggles over debt were probably the starting point for developing civilization’s moral codes. The arguments typically began when kings or landowners lent some of their surplus wealth to peasant farmers, then took away the debtors’ property if they failed to repay the loans. In olden days, the creditor would seize the debtor’s livestock and vineyard, perhaps even his children to be enslaved as household servants, until the debts were repaid. If the failure of borrowers persisted, the wealthy lenders would wind up owning all the property, with the peasants reduced to tenant farmers on the land they had once owned. The negative cycle stopped when the peasants could no longer borrow because they had nothing left for lenders to claim in default. Economic life at that point was frozen or depressed, no longer functioning. In a rough sense, this resembles what happened to our economy in the financial crisis. Debtors were tapped out, up to their eyes in debt, and creditors recognized that they could not lend to them anymore without losing their money. In modern economies, no one takes away their children, but they do seize homes and cars and other assets. The ancient Hebrew society worked out a solution for recurring debt crises—you can find it in the Bible. Every seven years (in some interpretations, every fifty) the cycle of debt accumulation was erased by a declaration of general forgiveness. This was called the year of jubilee, and Christianity embraced the same moral principles (“forgive us our debts, as we forgive our debtors”). Property was returned to the original owners, and children and slaves were freed. Everyone was redeemed. The economy was freed to start over again. Graeber thinks Judaism’s reform laws were probably influenced by the Babylonians, who issued “clean slate” edicts when excessive debt accumulation threatened social crisis. Graeber notes that nearly every society, ancient and modern, shares moral confusion about debt, with contradictory attitudes. On the one hand, “Paying back money one has borrowed is a simple matter of morality.” On the other hand, “Anyone in the habit of lending money is evil.” Americans share this ambivalence. Here is what Americans can learn from the ancients: severe inequality of wealth and income is not just a question of morality. Inequality is the fundamental source of the disorder that leads to financial crisis and chokes off the economy. Ancient religious principles like the limits on interest rates were a practical way of maintaining balance in economic life. Taking away those rules—as US politicians did when they repealed prudent regulations of banking and finance—in effect authorized the growing inequality that eventually leads to chaos. Modern economists and their supposed “science” generally ignore the ancient wisdom. Most would probably dismiss the connection as folklore. Some economists study inequality and what drives it. Others study financial fragility and macroeconomic volatility. But the two subjects are seldom addressed as underlying cause and effect. Gross concentrations of money at the top help explain why the system eventually stalls out. This is a basic insight that ought to inform the agenda for recovery. Inequality matters.

Economists Michael Kumhof and Romain Rancière wrote a breakthrough paper for the IMF that made the connection between inequality and financial crisis. “The crisis,” they wrote, “is the ultimate result, after a period of decades, of a shock to…two groups of households, investors who account for 5% of the population, and whose bargaining power increases, and workers who account for 95% of the population.” The 5 percent, broadly speaking, lend to the 95 percent, and in so doing gain still greater wealth and power. The shock comes when the creditor class suddenly realizes that the borrowers are drowning in debt and cannot possibly absorb any more. At that point, financial assets connected to consumer debt are dumped and prices crash, much as they did in 2007. The authors add, “To our knowledge, our framework is the first to provide an internally consistent mechanism linking the empirically observed rise in income inequality…and the risk of a financial crisis.” It took three decades of lopsided borrowing to produce the breakdown, Kumhof and Rancière explain, but the ominous trend was evident for years. In the early 1980s the 95 percent had debts equal to about 65 percent of their income. By 2006 that figure had risen to 140 percent. They were devoting so much of their paychecks to making payments on old debt—credit cards, equity lines and mortgages—there was nothing left to make the payments on new debt. Defaults and bankruptcies were already swelling. The collapse came when creditors grasped the danger and started selling off their mortgage bonds and loans to consumers. It seems odd that the financial interests, with their brilliant analysts and high-speed computers, didn’t see the nature of the crisis until it was breaking over their heads. They may have been blinded by the fabulous wealth they were harvesting. Kumhof and Rancière point out that the same ominous combination—a run-up of debt accompanied by gaping inequality—preceded the crash of 1929. Greed may inspire optimism. But why did ordinary debtors fall into this trap? The standard line is that they, too, were blinded by greed, eager for consumer pleasures they couldn’t afford. This is true for some, but the explanation libels most working people. Wage stagnation started in the 1970s and spread widely in the Reagan era. Typically, as incomes faltered, families faced two bad choices—either go deeper into debt or surrender their middle-class standard of living. Naturally, most people tried to hang on to what they had. The responses to this crisis are well-known. People worked more—women and teenagers entered the workforce, family members took two or three jobs. And they borrowed more, paying the bills with credit cards. In these terms, average families were making heroic efforts to maintain their standard of living. They were doomed to fail unless dramatic economic reforms improved their lot. University of California economist Clair Brown predicted nearly two decades ago in her landmark study of American consumption that sooner or later working people would have to retreat to lower levels of consuming. Working harder and borrowing more had sustained them for twenty years, but neither of these remedies was repeatable. At some point the merry-go-round would have to stop. The retreat is now in full flight. Homeownership has declined by 1.1 percent over the past decade. Wages are stagnant or falling. Foreclosures are tearing through communities, and falling home prices are destroying family equity. Americans, as Whalen says, are experiencing the reverse New Deal.

Posted by Brian Schuettler at 11:30 am  

A rag-tag group is standing up

 Coming Social Unrest, The Inherent Disorder of Empires, The Intrusion of UNLAWFUL Authority, The Judeo-Christian Political Coalition, This self-serving arbitrariness, Time For A New Third Party, Unintended Consequences  1 Response »
Oct 152011
 

“So, you can laugh at or disparage the demonstrators all you want. You can call them spoiled, silly or sophomoric. You can single out the fringe and think it’s representative of the whole. But that won’t change the fact that this demonstration has touched a nerve. A rag-tag group is standing up where the government, regulators, media and business elites have rolled-over and played dead. They are shining a light on the financial cancer at the heart of America.”

Jim Rickards, Occupy Wall Street

Posted by Brian Schuettler at 5:20 pm  

Missteps to Mayhem

 A State of Distress, AIG and all that....., Analysis & Commentary, “the Greenspan doctrine”, Banks - Crisis Discussion, Bilderbergers 1 USA 0, Collateral Damage, TARP fruit loops, The American Financial Oligarchy, The Arrogance of Power, The Consequences of Greed, The End of American Capitalism As We Know It? - Discuss, The excellent adventures of Ben Bernanke, The Financial Elite, The Great American Heist, The Growing American Fascist State, The Importance of Strategic Planning, The Inherent Disorder of Empires, The Intrusion of UNLAWFUL Authority, The Suffering Poor, This self-serving arbitrariness, Time For A New Third Party, Unemployment Catastrophe, Unindicted Co-Conspiritors, Unintended Consequences, We Have Become Beggars To The World, Who Guarantees the Guarantor?-You Do!, Who owns Congress-Still!  No Responses »
Oct 102011
 

Inside the Doomsday Machine with the outsider who predicted and profited from America’s financial Armageddon.

by Michael Burry, MD’97

 

I worry about the future of a nation that would refuse to acknowledge the true causes of the crisis. A historic opportunity was lost. America instead chose its poison as its cure, and the second “Greatest Generation” would never be born.

Today I expect the U.S. government to attempt continuing an easy money policy into the next presidential term—past the meat of the foreclosure crisis, and past the corporate and public financing humps that are upcoming. Junk bonds, incredibly, again are at all-time highs. Quantitative easing seems to be working for now. But this is an invalid validation of what America is doing, a Pyrrhic gamble. As we continue to debase our currency, Bernanke says he is not printing money. Yet I receive an email every day from the Fed saying we just bought another $7 billion or $8 billion in treasuries, monetizing the debt. The scope and breadth of quantitative easing raise severe questions about the Treasury’s needs.

Government borrowing of money for the purpose of injecting cash into society, bailing out banks, brokers and consumers, is an easy decision for a population that has not yet learned that short-sighted easy strategies are the route to long-term ruin. We never quite achieved the catharsis necessary to stoke a deep reevaluation of our wants, needs and fears.

Importantly, the toxic twins—fiat currency and an activist Fed—remain even more firmly entrenched with the financial reforms of last year. The Federal Reserve, having acquired new powers of regulation, has insisted that nothing in the field of economics or finance was of any help in predicting the crisis—period, no more comments. It’s a worthless conclusion that guarantees we’ll make the same mistake again and again.

We need better leaders, but frankly this isn’t going to happen. A problem cannot be solved if it is never acknowledged.

Taxes need to be raised, spending needs to be cut, and loopholes need to be shut if we are to have any hope of returning to a stable base. Home ownership should not be a policy of the U.S. government. The banking system needs substantial reform and bank breakups. Glass–Steagall needs a second run in a strong form. And 22.5 million public workers have no business unionizing against the taxpayer. The list of things that won’t happen—but should happen—goes on and on.

By 2020, interest expense on our national debt could very well exceed $1 trillion. All personal income taxes collected in the U.S. in one year do not total $1 trillion. Our country’s math is scary big, but even scarier is that it simply doesn’t work…

Read the rest here.

Posted by Brian Schuettler at 6:19 pm  

Always the Bankers’ Whore

 A Growing List Of One Term Presidents, A Moral Question - Not A Political One, The American Financial Oligarchy, The Arrogance of Power, The Democrats Blew It Again, The End of American Capitalism As We Know It? - Discuss, The Financial Elite, The Great American Heist, The Growing American Fascist State, The Inherent Disorder of Empires, The Intrusion of UNLAWFUL Authority, The Judeo-Christian Political Coalition, The Obama OMG magic factory, The Suffering Poor  No Responses »
Oct 092011
 

Obama’s New Populist Fakery

by MICHAEL HUDSON

The seeds for President Obama’s demagogic press conference on Thursday were planted last summer when he assigned his right-wing Committee of 13 the role of resolving the obvious and inevitable Congressional budget standoff by forging an anti-labor policy that cuts Social Security, Medicare and Medicaid, and uses the savings to bail out banks from even more loans that will go bad as a result of the IMF-style austerity program that Democrats and Republicans alike have agreed to back.

The problem facing Obama is obvious enough: How can he hold the support of moderates and independents (or as Fox News calls them, socialists and anti-capitalists), students and labor, minorities and others who campaigned so heavily for him in 2008? He has double-crossed them – smoothly, with a gentle smile and patronizing pattern talk, but with an iron determination to hand federal monetary and tax policy over to his largest campaign contributors: Wall Street and assorted special interests. The Democratic Party’s Rubinomics and Clintonomics core operators, plus smooth Bush Administration holdovers such as Tim Geithner, not to mention quasi-Cheney factotums in the Justice Department.

President Obama’s solution has been to do what any political demagogue does: Come out with loud populist campaign speeches that have no chance of becoming the law of the land, while more  quietly giving his campaign contributors what they’ve paid him for: giveaways to Wall Street, tax cuts for the wealthy (euphemized as tax “exemptions” and mark-to-model accounting, plus an agreement to count “income” as “capital gains” taxed at a much lower rate).

Obama’s New Populist Fakery – Hudson

Posted by Brian Schuettler at 8:53 am  

Is It Still Capitalism?

 Libertarianism - the Debate, The American Financial Oligarchy, The Austrian School of Economics, The Democrats Blew It Again, The Economics of Schumpeter, The excellent adventures of Ben Bernanke, The Financial Elite, The Growing American Fascist State, The Importance of Strategic Planning, The Inherent Disorder of Empires, The Intrusion of UNLAWFUL Authority, The Judeo-Christian Political Coalition, The Obama OMG magic factory, The Sorry State Of American Manufacturing, The Suffering Poor, Unindicted Co-Conspiritors, We Have Become Beggars To The World, Who Guarantees the Guarantor?-You Do!, Who owns Congress-Still!  1 Response »
Oct 082011
 

Of Time and Marshmallows
by J. Grayson Lilburne on January 15, 2010

It seems that central banks, and the interventionist state in general, are inducing the squandering of capital at a rate that may prove fatal to civilization. We are plummeting fast into what Ludwig von Mises called the “Crisis of Interventionism”, and the only way out of it is through a widespread rediscovery of sound economics among the educated public.

In particular, it is imperative that as many people as possible gain as firm an understanding as possible of how central banks induce capital consumption. As Mises teaches us, this is done primarily through manipulation of the rate of interest. So, to understand how the Federal Reserve and its junior-partner central banks are literally destroying society, one must delve into the mystery of interest.

Posted in Catholic Social Teaching, Christian Economic Theory, Christian Freedom, Church & State

Posted by Brian Schuettler at 9:50 am  

Wisdom never ages

 A Moral Question - Not A Political One, The Inherent Disorder of Empires  No Responses »
Sep 102011
 

“In careless ignorance they think it civilization, when in reality it is a portion of their slavery…To ravage, to slaughter, to usurp under false pretenses, they call empire; and where they make a desert, they call it peace.” Tacitus, Agricola

H/T to Jesse http://jessescrossroadscafe.blogspot.com/

Posted by Brian Schuettler at 9:51 am  

The Decline of Manufacturing in America: A Case Study

 Our phony middle class, Patience is a virtue...Delusion is a vice, Pig-Headed Economic Policy May Still Lead to Disaster, Political Chaos, Small Business-Bedrock of America, Smaller Can Be Better, The End of American Capitalism As We Know It? - Discuss, The excellent adventures of Ben Bernanke, The Financial Elite, The Growing American Fascist State, The Inherent Disorder of Empires, The Sorry State Of American Manufacturing, Time For A New Third Party, Unemployment Catastrophe, Unintended Consequences, Wage Deflation, Who owns Congress-Still!  1 Response »
Sep 052011
 

One frequent and frustrating line that often crops up in the comments section of this blog is that American labor has no hope, it should just accept Chinese wages, since price is all that matters. That line of thinking is wrongheaded on multiple levels. It assumes direct factory labor is the most important cost driver, when for most manufactured goods, it is 11% to 15% of total product cost (and increased coordination costs of much more expensive managers are a significant offset to any cost savings achieved by using cheaper factory workers in faraway locations). It also assumes cost is the only way to compete, when that is naive on an input as well as a product level. How do these “labor cost is destiny” advocates explain the continued success of export powerhouse Germany? Finally, the offshoring,/outsourcing vogue ignores the riskiness and lower flexibility of extended supply chains.

This argument is sorely misguided because it serves to exculpate diseased, greedy, and incompetent American managers and executives. In the overwhelming majority of places where I lived in my childhood, a manufacturing plant was the biggest employer in the community. And when I went to business school, manufacturing was still seen as important. Indeed, the rise of Germany and Japan was then seen as a due to sclerotic American management not being able to keep up with their innovations in product design and factory management.

But if you were to ask most people, they’d now blame the fall of American manufacturing on our workers, which serves to shift focus from the top of the food chain at a time when they’ve managed to greatly widen the gap between their pay and that of the folks reporting to them.

Let me give you an all too typical example of how American management has contributed to the demise of our industrial competitiveness, namely, the former Mead Corporation paper mill in Escanaba, Michigan, which is now part of NewPage, owned by Cerberus.
Read the Rest…

The Decline of Manufacturing in America: A Case Study – 09/05/2011 – Yves Smith

Posted by Brian Schuettler at 8:17 pm  

FREE WILL

 Coup d'etat in America, Obama's Hypocrisy, Smaller Can Be Better, Sub-Prime anytime, TARP fruit loops, The American Financial Oligarchy, The Arrogance of Power, The Consequences of Greed, The End of American Capitalism As We Know It? - Discuss, The Financial Elite, The Great American Heist, The Growing American Fascist State, The Inherent Disorder of Empires, The Intrusion of UNLAWFUL Authority, The Judeo-Christian Political Coalition, The Obama OMG magic factory, The Suffering Poor, Time For A New Third Party, Unindicted Co-Conspiritors  1 Response »
Aug 282011
 

A lot of people have asked why New York Attorney General Eric Schneiderman is going after the banks as aggressively as he is. It’s almost unbelievable that one lone elected official, who happens to have powerful legal tools at his disposal, is doing something that no one with any serious degree of power has done. So what is the secret? What kind of machinations is he undertaking that no one else has been able to do? I’ve known Schneiderman for a few years, back when he was a state Senator working to reform the Rockefeller drug laws. And my answer to this question is pretty simple. He wants to. That’s it. Eric Schneiderman is investigating the banks because he thinks it’s the right thing to do. So he’s doing it. This guy has thought about his politics. He wrote an article about how he sees politics in 2008 in the Nation, and in his inaugural speech as NY AG he talked about the need to restore faith in both public and private institutions. Free will still counts for something, apparently. In all the absurdly stupid punditry, the simple application of free will to our elected officials goes missing. Yeah, Obama got money from Wall Street. But Obama is choosing to pursue a policy of foreclosures and bank bailouts not because of any grand corporate scheme. He just wants to. He thinks it’s the right thing to do, and he’s doing it. If you don’t think it’s the right thing to do, then you shouldn’t be disappointed in him any more than you might have been disappointed in Bush. Obama is not trying to do the opposite of what he’s doing, he’s not repeatedly suckered by Republicans, and he isn’t naive or stupid. Obama is simply doing what he thinks is right. So is Eric Schneiderman. So is Tom Miller. So are any number of elected officials out there. In positions of power, the best expression I heard is that “up there the air is thin”. That is, you have enormous latitude, if you want to use it. Power can be wielded creatively and effectively on behalf of whatever it is the wielder wants. Now of course there are constraints, plenty of them. Smart politicians spend their time working to maximize the constraints they want to impose and weakening the ones they want to overcome. But the basic Reaganite liberal argument defending supplication towards Obama these days is that Obama is “disappointing”. In this line of thought, powerful corporate interests and Republicans are preventing him from enacting what his real agenda would be were he unfettered by this mean machine. Eric Schneiderman, who is in a far less powerful position as New York Attorney General, shows that this is utter hogwash. Obama is who he is, and anyone who thinks otherwise is selling something.

READ THE REST –

Matt Stoller: Power Politics – What Eric Schneiderman Reveals About Obama

Posted by Brian Schuettler at 8:11 pm  

We need an FDR, not a toadie for the oligarchy

 A Growing List Of One Term Presidents, A Moral Question - Not A Political One, A State of Distress, Bilderbergers 1 USA 0, Coming Social Unrest, Constitutional Questions, Consumption Ran the Old Economy, Coup d'etat in America, Death of the Dollar, Dismal Science-Ignorant Scientists?, Economic Analysis Isn't Science, FDR, Greenspan is kind of stupid, HEY AMERICA-STICK 'EM UP!, It Is Supposed to be a Republic!, Let's Call What It Is - DEPRESSION, Obama Bingo, Obama's Hypocrisy, Our phony middle class, Patience is a virtue...Delusion is a vice, Pig-Headed Economic Policy May Still Lead to Disaster, Political Chaos, Rational Behavior, Read and Weep Entries, TARP fruit loops, The American Financial Oligarchy, The Consequences of Greed, The Democrats Blew It Again, The Dollar's Demise, The End of American Capitalism As We Know It? - Discuss, The excellent adventures of Ben Bernanke, The Financial Elite, The Great American Heist, The Growing American Fascist State, The Importance of Strategic Planning, The Inherent Disorder of Empires, The Intrusion of UNLAWFUL Authority, The Judeo-Christian Political Coalition, The Obama OMG magic factory, The Sorry State Of American Manufacturing, The Suffering Poor, Time For A New Third Party, Unemployment Catastrophe, Unintended Consequences, We Have Become Beggars To The World, Who owns Congress-Still!  2 Responses »
Jul 242011
 

“On the eve of a national election, it is well for us to stop for a moment and analyze calmly and without prejudice the effect on our Nation of a victory by either of the major political parties.

The problem of the electorate is far deeper, far more vital than the continuance in the Presidency of any individual. For the greater issue goes beyond units of humanity—it goes to humanity itself.

In 1932 the issue was the restoration of American democracy; and the American people were in a mood to win. They did win. In 1936 the issue is the preservation of their victory. Again they are in a mood to win. Again they will win.

More than four years ago in accepting the Democratic nomination in Chicago, I said: “Give me your help not to win votes alone, but to win in this crusade to restore America to its own people.”

The banners of that crusade still fly in the van of a Nation that is on the march.

It is needless to repeat the details of the program which this Administration has been hammering out on the anvils of experience. No amount of misrepresentation or statistical contortion can conceal or blur or smear that record. Neither the attacks of unscrupulous enemies nor the exaggerations of over-zealous friends will serve to mislead the American people.

What was our hope in 1932? Above all other things the American people wanted peace. They wanted peace of mind instead of gnawing fear.

First, they sought escape from the personal terror which had stalked them for three years. They wanted the peace that comes from security in their homes: safety for their savings, permanence in their jobs, a fair profit from their enterprise.

Next, they wanted peace in the community, the peace that springs from the ability to meet the needs of community life: schools, playgrounds, parks, sanitation, highways—those things which are expected of solvent local government. They sought escape from disintegration and bankruptcy in local and state affairs.

They also sought peace within the Nation: protection of their currency, fairer wages, the ending of long hours of toil, the abolition of child labor, the elimination of wild-cat speculation, the safety of their children from kidnappers.

And, finally, they sought peace with other Nations—peace in a world of unrest. The Nation knows that I hate war, and I know that the Nation hates war.

I submit to you a record of peace; and on that record a well-founded expectation for future peace—peace for the individual, peace for the community, peace for the Nation, and peace with the world.

Tonight I call the roll—the roll of honor of those who stood with us in 1932 and still stand with us today.

Written on it are the names of millions who never had a chance—men at starvation wages, women in sweatshops, children at looms.

Written on it are the names of those who despaired, young men and young women for whom opportunity had become a will-o’-the-wisp.

Written on it are the names of farmers whose acres yielded only bitterness, business men whose books were portents of disaster, home owners who were faced with eviction, frugal citizens whose savings were insecure.

Written there in large letters are the names of countless other Americans of all parties and all faiths, Americans who had eyes to see and hearts to understand, whose consciences were burdened because too many of their fellows were burdened, who looked on these things four years ago and said, “This can be changed. We will change it.”

We still lead that army in 1936. They stood with us then because in 1932 they believed. They stand with us today because in 1936 they know. And with them stand millions of new recruits who have come to know.

Their hopes have become our record.

We have not come this far without a struggle and I assure you we cannot go further without a struggle.

For twelve years this Nation was afflicted with hear-nothing, see-nothing, do-nothing Government. The Nation looked to Government but the Government looked away. Nine mocking years with the golden calf and three long years of the scourge! Nine crazy years at the ticker and three long years in the breadlines! Nine mad years of mirage and three long years of despair! Powerful influences strive today to restore that kind of government with its doctrine that that Government is best which is most indifferent.

For nearly four years you have had an Administration which instead of twirling its thumbs has rolled up its sleeves. We will keep our sleeves rolled up.

We had to struggle with the old enemies of peace—business and financial monopoly, speculation, reckless banking, class antagonism, sectionalism, war profiteering.

They had begun to consider the Government of the United States as a mere appendage to their own affairs. We know now that Government by organized money is just as dangerous as Government by organized mob.

Never before in all our history have these forces been so united against one candidate as they stand today. They are unanimous in their hate for me—and I welcome their hatred.

I should like to have it said of my first Administration that in it the forces of selfishness and of lust for power met their match. I should like to have it said of my second Administration that in it these forces met their master.

The American people know from a four-year record that today there is only one entrance to the White House—by the front door. Since March 4, 1933, there has been only one pass-key to the White House. I have carried that key in my pocket. It is there tonight. So long as I am President, it will remain in my pocket.

Those who used to have pass-keys are not happy. Some of them are desperate. Only desperate men with their backs to the wall would descend so far below the level of decent citizenship as to foster the current pay-envelope campaign against America’s working people. Only reckless men, heedless of consequences, would risk the disruption of the hope for a new peace between worker and employer by returning to the tactics of the labor spy.

Here is an amazing paradox! The very employers and politicians and publishers who talk most loudly of class antagonism and the destruction of the American system now undermine that system by this attempt to coerce the votes of the wage earners of this country. It is the 1936 version of the old threat to close down the factory or the office if a particular candidate does not win. It is an old strategy of tyrants to delude their victims into fighting their battles for them.

Every message in a pay envelope, even if it is the truth, is a command to vote according to the will of the employer. But this propaganda is worse—it is deceit.

They tell the worker his wage will be reduced by a contribution to some vague form of old-age insurance. They carefully conceal from him the fact that for every dollar of premium he pays for that insurance, the employer pays another dollar. That omission is deceit.

They carefully conceal from him the fact that under the federal law, he receives another insurance policy to help him if he loses his job, and that the premium of that policy is paid 100 percent by the employer and not one cent by the worker. They do not tell him that the insurance policy that is bought for him is far more favorable to him than any policy that any private insurance company could afford to issue. That omission is deceit.

They imply to him that he pays all the cost of both forms of insurance. They carefully conceal from him the fact that for every dollar put up by him his employer puts up three dollars three for one. And that omission is deceit.

But they are guilty of more than deceit. When they imply that the reserves thus created against both these policies will be stolen by some future Congress, diverted to some wholly foreign purpose, they attack the integrity and honor of American Government itself. Those who suggest that, are already aliens to the spirit of American democracy. Let them emigrate and try their lot under some foreign flag in which they have more confidence.

The fraudulent nature of this attempt is well shown by the record of votes on the passage of the Social Security Act. In addition to an overwhelming majority of Democrats in both Houses, seventy-seven Republican Representatives voted for it and only eighteen against it and fifteen Republican Senators voted for it and only five against it. Where does this last-minute drive of the Republican leadership leave these Republican Representatives and Senators who helped enact this law?

I am sure the vast majority of law-abiding businessmen who are not parties to this propaganda fully appreciate the extent of the threat to honest business contained in this coercion.

I have expressed indignation at this form of campaigning and I am confident that the overwhelming majority of employers, workers and the general public share that indignation and will show it at the polls on Tuesday next.

Aside from this phase of it, I prefer to remember this campaign not as bitter but only as hard-fought. There should be no bitterness or hate where the sole thought is the welfare of the United States of America. No man can occupy the office of President without realizing that he is President of all the people.

It is because I have sought to think in terms of the whole Nation that I am confident that today, just as four years ago, the people want more than promises.

Our vision for the future contains more than promises.

This is our answer to those who, silent about their own plans, ask us to state our objectives.

Of course we will continue to seek to improve working conditions for the workers of America—to reduce hours over-long, to increase wages that spell starvation, to end the labor of children, to wipe out sweatshops. Of course we will continue every effort to end monopoly in business, to support collective bargaining, to stop unfair competition, to abolish dishonorable trade practices. For all these we have only just begun to fight.

Of course we will continue to work for cheaper electricity in the homes and on the farms of America, for better and cheaper transportation, for low interest rates, for sounder home financing, for better banking, for the regulation of security issues, for reciprocal trade among nations, for the wiping out of slums. For all these we have only just begun to fight.

Of course we will continue our efforts in behalf of the farmers of America. With their continued cooperation we will do all in our power to end the piling up of huge surpluses which spelled ruinous prices for their crops. We will persist in successful action for better land use, for reforestation, for the conservation of water all the way from its source to the sea, for drought and flood control, for better marketing facilities for farm commodities, for a definite reduction of farm tenancy, for encouragement of farmer cooperatives, for crop insurance and a stable food supply. For all these we have only just begun to fight.

Of course we will provide useful work for the needy unemployed; we prefer useful work to the pauperism of a dole.

Here and now I want to make myself clear about those who disparage their fellow citizens on the relief rolls. They say that those on relief are not merely jobless—that they are worthless. Their solution for the relief problem is to end relief—to purge the rolls by starvation. To use the language of the stock broker, our needy unemployed would be cared for when, as, and if some fairy godmother should happen on the scene.

You and I will continue to refuse to accept that estimate of our unemployed fellow Americans. Your Government is still on the same side of the street with the Good Samaritan and not with those who pass by on the other side.

Again—what of our objectives?

Of course we will continue our efforts for young men and women so that they may obtain an education and an opportunity to put it to use. Of course we will continue our help for the crippled, for the blind, for the mothers, our insurance for the unemployed, our security for the aged. Of course we will continue to protect the consumer against unnecessary price spreads, against the costs that are added by monopoly and speculation. We will continue our successful efforts to increase his purchasing power and to keep it constant.

For these things, too, and for a multitude of others like them, we have only just begun to fight.

All this—all these objectives—spell peace at home. All our actions, all our ideals, spell also peace with other nations.

Today there is war and rumor of war. We want none of it. But while we guard our shores against threats of war, we will continue to remove the causes of unrest and antagonism at home which might make our people easier victims to those for whom foreign war is profitable. You know well that those who stand to profit by war are not on our side in this campaign.

“Peace on earth, good will toward men”—democracy must cling to that message. For it is my deep conviction that democracy cannot live without that true religion which gives a nation a sense of justice and of moral purpose. Above our political forums, above our market places stand the altars of our faith—altars on which burn the fires of devotion that maintain all that is best in us and all that is best in our Nation.

We have need of that devotion today. It is that which makes it possible for government to persuade those who are mentally prepared to fight each other to go on instead, to work for and to sacrifice for each other. That is why we need to say with the Prophet: “What doth the Lord require of thee—but to do justly, to love mercy and to walk humbly with thy God.” That is why the recovery we seek, the recovery we are winning, is more than economic. In it are included justice and love and humility, not for ourselves as individuals alone, but for our Nation.

That is the road to peace.”

Franklin D. Roosevelt
Madison Square Garden, October 31, 1936

http://jessescrossroadscafe.blogspot.com/2011/07/fdr-speech-1936.html

Posted by Brian Schuettler at 10:43 am  

The New ‘Let Them Eat Cake’ – Taibbi

 The End of American Capitalism As We Know It? - Discuss, The excellent adventures of Ben Bernanke, The Financial Elite, The Geithner Resignation Watch, The Great American Heist, The Growing American Fascist State, The Habits of Hedge Funds, The Importance of Strategic Planning, The Inherent Disorder of Empires, The Intrusion of UNLAWFUL Authority, The Joy of Being A Bank, The Judeo-Christian Political Coalition, The Suffering Poor, Time For A New Third Party  1 Response »
Jul 162011
 

If you think your local Andy Griffith is a greedy pig because he retired in his forties and built an addition to his garage with your tax money, try hanging out with a guy who eats $400 crabs, throws himself $5 million parties where he is serenaded by Rod Stewart and Patti Labelle (who sang “Happy Birthday”), and then compares the president to Hitler when word leaks out that he might have to pay taxes at the same rate as a firefighter or a kindergarten teacher.

But America never gets to meet that guy, because all of those parties are invite-only, and the only reporters that go tend to do so with kneepads on — like the extraordinary Andrew Ross Sorkin, who as Sirota notes, predictably wrote a slurpilicious “In Defense of Schwarzman” piece after the event (his thesis, to the extent that I could make it out, seemed to be that there are even bigger assholes than Schwarzman). As a result, the popular outrage gets steered toward state employees greedily living off their own pensions, not toward the truly deserving targets hiding in the Hamptons and Gstaad and St. Tropez.

Posted by Brian Schuettler at 11:16 am  

The Rise of the Wrecking-Ball Right

 A Moral Question - Not A Political One, A State of Distress, BANK RESERVES FOR TBTF, Bilderbergers 1 USA 0, Constitutional Questions, Coup d'etat in America, Deleveraging, Devaluation, Dismal Science-Ignorant Scientists?, Economic Analysis Isn't Science, Federal Reserve-Discussion, Figures don't lie but Liars can figure, Goldman: Underwriter or Undertaker?, Greenspan is kind of stupid, HEY AMERICA-STICK 'EM UP!, History of Finance, Insolvency, Integrity and Responsibility, Is The Market Rally Real?, IT'S ALL ABOUT POWER AND MONEY, Jacksonian Democracy, Moral Hazard, Obama's Hypocrisy, Objectivism, Our phony middle class, Patience is a virtue...Delusion is a vice, Political Chaos, Regulatory Failures, Robert Reich, Small Business-Bedrock of America, Smaller Can Be Better, Subsidiarity, TARP fruit loops, The American Financial Oligarchy, The Big Fat Greek Question, The Consequences of Greed, The Democrats Blew It Again, The Dollar's Demise, The End of American Capitalism As We Know It? - Discuss, The excellent adventures of Ben Bernanke, The Financial Elite, The Geithner Resignation Watch, The Growing American Fascist State, The Habits of Hedge Funds, The Importance of Strategic Planning, The Inherent Disorder of Empires, The Intrusion of UNLAWFUL Authority, The Judeo-Christian Political Coalition, The Obama OMG magic factory, The Sorry State Of American Manufacturing, The Suffering Poor, Time For A New Third Party, Truth In Charity, Unemployment Catastrophe, Unindicted Co-Conspiritors, Unintended Consequences, USA Is the New Japan, Wage Deflation, We Are All Cooked, We Are All Guilty, We Have Become Beggars To The World, Who owns Congress-Still!  1 Response »
Jul 162011
 

One would have thought the last few years of mine disasters, exploding oil rigs, nuclear meltdowns, malfeasance on Wall Street, wildly-escalating costs of health insurance, rip-roaring CEO pay, and mass layoffs would have offered a singular opportunity to explain why the nation’s collective well-being requires a strong and effective government representing the interests of average people.

The Rise of the Wrecking-Ball Right

Posted by Brian Schuettler at 10:53 am  

Non-Objective Law Is Smothering the Recovery

 A State of Distress, “the Greenspan doctrine”, Back to the basics, Consumption Ran the Old Economy, Coup d'etat in America, Dismal Science-Ignorant Scientists?, Economic Analysis Isn't Science, Greenspan is kind of stupid, HEY AMERICA-STICK 'EM UP!, History of Finance, Investment in Infrastructure Is A Win/Win, Investment Strategies, Is Goldman Sachs Evil?, Is The Market Rally Real?, It starts with a foundation, Our phony middle class, Patience is a virtue...Delusion is a vice, Pig-Headed Economic Policy May Still Lead to Disaster, TARP fruit loops, The American Financial Oligarchy, The End of American Capitalism As We Know It? - Discuss, The Great American Heist, The Growing American Fascist State, The Importance of Strategic Planning, The Inherent Disorder of Empires, The Intrusion of UNLAWFUL Authority, The Obama OMG magic factory  No Responses »
Jul 102011
 

Howard Gold recently noted that the economy’s failure to thrive is a refutation of the work of two dominant 20th-century economists: John Maynard Keynes and Milton Friedman.

Keynes was the great advocate of massive government spending as an economic “stimulus,” which President Obama tried as his first act in office, and which failed to produce the expected “multiplier effect” that was supposed to boost the economy. So this was a failure of the economics of the left. But what about Friedman? While Friedman is usually remembered as one of the great economic defenders of the free markets–which in some ways, he was–he was also one of the chief advocates of monetarism, which promoted the notion that the central planners at the Federal Reserve could manipulate the economy by adjusting the money supply. And as Gold points out, Fed Chairman Ben Bernanke was a self-confessed adherent of Friedman’s theories. So along with the Keynesian stimulus, we got an even bigger monetary stimulus from the Fed, and we got it twice: QE1 and QE2. Yet this also failed to produce the expected multiplier effect.

There is some legitimate mystery as to why. I have inveighed against all forms of bailouts and stimulus, arguing that every dollar pumped into the economy by the government eventually destroys more than a dollar of private economic activity. But the key word is eventually. Money pumped into the economy by the Fed usually goes into “bubbles” of malinvestment, putting the capital to an unproductive use (like building houses that people can’t afford) and creating destructive inflation over the long term. But we would still expect that a tsunami of cheap credit from the Fed would create some short-term credit expansion, even if we have to pay for it later on.

Yet this credit expansion hasn’t happened. The Fed has extended the banks trillions of dollars in easy money, but this hasn’t produced a commensurate expansion of lending. Why not?

The answer is a larger refutation of the theories of monetarist stimulus. The Great Recession demonstrates that the money supply is not the ultimate driver of the economy. The ultimate driver is very simple: has the government created a safe climate for investment?

The Obama administration and the Democratic Congress have done the opposite. They have created a hostile climate for investment, and they have done so through one measure that is directly smothering the economic recovery: the Dodd-Frank financial reform bill. Dodd-Frank has injected a lethal dose of uncertainty into the very heart of the financial sector–and we’re only halfway through the worst of this effect.

The problem is not any specific provision of Dodd-Frank. The problem is the lack of specific provisions. Despite being more than 2,300 pages long, which would be more than enough space to spell out a comprehensive system of regulation in exacting, concrete detail, this is not what Dodd-Frank did. Instead, as the New York Times noted last year when it passed, the bill “is short on the details necessary for enforcement. Enactment has set off a scramble by financial regulators to write the rules needed to put the bill’s broad framework into practice.”

“Richard Murray, chairman of the US Chamber of Commerce’s Center for Capital Markets and Competitiveness, says the burden placed on regulators is unprecedented. ‘It’s a law comprised of goals and objectives much like the preliminary blueprints for the design of a very complex building,’ he said at a July 27 chamber conference on the bill.

“He noted that the law calls for 530 rulemakings, 60 studies, and 90 reports to Congress. ‘The wiring and the piping and the internal decor that will become financial regulation will emerge from that process,’ he said.

A financial consultant quoted in the article described the bill as a “blank slate,” while another provided the best analogy: we’re in “the eye of the storm”: “We have been through a great amount of legislative work…. Now we have to wait for the regulations.”

A year later, we’re still there. Just last week, House Democrats were urging regulators to speed up work on giving actual meaning to the Democrats’ vaporous legislation. This probably won’t help because “much of Dodd-Frank remains tied-up with regulatory agencies that must abide by a standard process laid out by the Administrative Procedures Act, which mandates a string of proposal requirements, commentary periods, and economic impact analyses before new regulations go into effect. Agencies like the Consumer Financial Protection Bureau, FDIC, and Office of the Comptroller of the Currency still need to finalize half of the approximately 387 rules needed to execute Dodd-Frank-related provisions.”

So it will be at least another year at the least before bankers and investors find out what laws they are living under. And it gets worse: the provisions that are yet to be decided are not minor details but go the very heart of the financial industry.

Dodd-Frank formalized the institution of “too big to fail” for companies that are considered large enough to pose a “systemic risk” to the financial sector. In return, these companies are subjected to stringent new requirements intended to prevent them from failing. But it is still not clear which companies will be regarded as “systemically important” and which will not, so hundreds of big financial firms are living under the cloud of restrictive regulation. And to make things worse, Federal Reserve Governor Daniel Tarullo suggested a few weeks ago that systemically important banks should have their capital requirements raised from 7% to as much as 14%.

That’s just a wee, tiny little detail that nobody has quite worked out yet.

Capital requirements are the heart of the investment banking business. They determine, directly and mathematically, how much credit bankers can extend. A 7% requirement means that if your bank has $700 million in its own assets, you can lend up to $10 billion of your depositor’s money. But if the capital requirement is raised to 14%, you can only lend $5 billion. Double the capital requirement and you halve the credit.

And what happens if regulators can’t make up their mind, so no one can tell whether their capital requirements will be doubled or not? Everyone sits on their extra cash, just in case. No wonder the economy is just lying there, flopping and gasping like a fish in the bottom of a bass boat.

Dodd-Frank is a monument to the modern practice of anti-legislation. This has been the pattern of the left’s expansion of the regulatory state for decades, but the Obama administration and Democratic leaders in Congress have raised it to an art form. They pass giant, 2,000-page epics which still manage not to spell out any concrete details. What does the legislation do, instead? Mostly, it lays out an organizational chart of regulators and then empowers these unelected bureaucrats to dictate all of the actual details.

Dodd-Frank is not legislation but the abdication of legislative power. In effect, Congress has given up writing laws and instead vested that power in unelected bureaucrats appointed to executive-branch agencies.

Some details may never be fleshed out. One analysis of Dodd-Frank concludes:

“You will soon find that the regulations themselves are secondary to the new measuring stick called ‘unfair or deceptive acts or practices.’ Under the new environment, being in compliance with regulatory requirements is only a piece of the puzzle. That’s the black and white piece so to speak. You will also have to meet the grey matter test of unfair or deceptive acts or practices…. No matter how you slice it, just about any particular act or practice can fall within the grey area of someone’s interpretation.

Why create a system of such mind-boggling, stultifying uncertainty? I will evoke the “Law of Intended Consequences.” They did it on purpose. The goal of Dodd-Frank was to shift the blame for the financial crisis to the private sector. As the analysis I just quoted notes: “The battle cry for unfair and deceptive acts and practices is born from the mortgage crisis as many consumer and community groups cried foul play after the mortgage bubble burst.” In other words, don’t blame the mortgage bubble on the politicians who agitated for easy credit and for the reckless expansion of Fannie Mae and Freddie Mac–you know, a couple of guys named Dodd and Frank. No, blame the banks, and then come up with a system to punish those wicked bankers and bring them more fully under the government’s yoke.

That the goal is to exact revenge on the bankers is given away by a nasty little “clawback” provision that allows the government to seize the previous two years of a banker’s pay if he is deemed to be “responsible” for an institution’s failure. It’s an excellent way to increase the risks and decrease the rewards of going into the banking business. Yet when a banker sets out to make decisions about how to run his business successfully, he never knows when a regulator will choose to change his capital requirements or decide that his acts or practices are unfair or deceptive. So if the goal was the bring bankers under the control of bureaucrats, mission accomplished.

But this is not a good way to revive the economy or ensure the nation’s financial health. By overturning the rule of law, Dodd-Frank’s non-legislation legislation has created crippling uncertainty in the heart of the financial sector, neutralizing the Fed’s monetary stimulus and smothering the economic recovery.

Non-Objective Law Is Smothering the Recovery – Robert Tracinski, RCM

Posted by Brian Schuettler at 7:07 pm  

WAVE GOODBYE TO THE DOLLAR

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Jun 112011
 

BEN BERNANKE’S speech on Tuesday got all the attention, but the speech later that day by Bill Dudley, head of the New York Fed, is more intriguing. In it he analyses the macroeconomic origins of the global imbalances that precipitated the crisis and prescribes the policy path forward.

He does so in logical, crisp and accessible language. Mr Dudley is, however, still a central banker, which means he must be translated, especially when it comes to the delicate subject of the dollar. In a nutshell, Mr Dudley tells us that aggressively easy monetary policy is essential to both the cyclical recovery and to a structural rebalancing of the American economy away from consumption and toward exports. This process will go more smoothly for everyone if emerging market economies (EMEs) cooperate and let their exchange rates appreciate (i.e. let the dollar fall), but absent such cooperation, don’t expect the Fed to change course.

Mr Dudley starts with some striking statistics. EMEs now account for 38% of world GDP, up from 23% in 1990, and 59% of world growth in the 2000s, up from 25% in the 1980s. Since 2007, the BRICS’ GDP has risen 31%; the G7’s, just 1%.

He retells the familiar story of how global imbalances bred the financial crisis, but with a twist. In the past, the Federal Reserve and Mr Bernanke (here and here) have denied culpability for the credit bubble, blaming instead the influx of excess savings from EMEs into developed-world assets. Mr Dudley, in effect, says both bear the blame:

[T]he combination of rapid gains in production capacity and relatively repressed consumption in the EME world helped foster a global deficiency of demand relative to supply. In these circumstances, the United States and many other industrialized economies had to sustain domestic demand at elevated levels in order to achieve “full employment” and prevent deflation. For the United States, the consequence was elevated consumption facilitated by asset price inflation, easy underwriting standards for credit and structural budget deficits.

 

Posted by Brian Schuettler at 5:15 pm  
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