Archein

deficts, debt, money, and democracy

2010-12-15T11:50:00.001-08:00

The questions of deficits and debts are not at all black and white. For example, they're gray enough to hold the $14 trillion US debt and leave many well intentioned people arguing whether this is good, bad, or indifferent. There is no formula for how much debt is too much, particularly if you're a nation state, and a nation state that prints their own currency. Now individuals, businesses, or other non-money printing entities find out when debt is too great when they can't pay off what they have and no one will lend you anymore money. However, if you can print your own money, in the end, the only real measure of too much debt is inflation and/or the destruction of the currency.

Deficits and debts are effects with underlying causes. All debt isn't bad, in fact investment debt, that is something which over the course of time will be paid off and creates more wealth is both necessary and good. However, debt created to simply continue an untenable status quo is bad debt, leading eventually to insolvency. And this is the great question of American debt, both public and private. Rob Johnson of New Deal 2.0 has an important talk looking at America's debt question. It accompanied a longer paper he co-authored with Tom Ferguson and that is well worth reading.

In the talk and paper, Johnson makes some important points in discussing the whole US debt question. First, he has asks how much debt is too much and he points to the currently popular notion put out by Rinehart and Rogoff, authors of the book, This Time's Different, that at 90% of debt to GDP, debt becomes detrimental. He's skeptical and gives his reasons. I'd have to agree. While the 90% formula comes from subsequent articles, I read the book and it gives academic writing a bad name. The historical figures beyond fifty years are at best not rigorous and many would have little value. So, if the 90% trigger is based on that, it's at best very soft. Good enough for economics I suppose. Johnson and Ferguson then put out some interesting points on how we account the debt, and these are valid.

Their second point is the more important point of what caused the debt, and here they hit the nail on the head. It is the capture of our politics and government by the moneyed interests of Wall Street and mega-corporations. Most importantly, Johnson points out the problem of the military-industrial complex and its strength due to the fact that for over a half-century now, it has become one of the greatest generators of pork in DC and has protected itself by divvying up the spoils across congressional districts to insure protection. This is an especially timely point as at comes at the fifty year anniversary of Ike's farewell address warning on the military-industrial complex. Unfortunately, the warning went unheeded, and even more unfortunately, Ike set the precedent for American politicians leaving office to lament the mess they had made and complain about an increasingly broken system as they washed their hands of it.

Johnson and Ferguson conclude by focusing on the scourge of money in politics and particularly its impact on our financial system and of course the resulting trillions of dollars the financial crisis added to the debt. Which, directly goes to the question, "Can we grow out of this debt?" To which my answer is no, not until our financial and political systems are fixed. And that "growth" is going to be different than the past century's industrial growth with which we are familiar.

With the help of money poured into the political system over the past 30 years, the financial industry exploded both public and private debt in America to the point where it is no longer simply a debt problem, it is now a money problem. Debt is in many ways money, and what the financial industry has done is created a vast pool of money at the top or tangential to the real economy, requiring ever more money from this financial pool for any given amount of economic activity. It has done this by increasing debt for every economic activity, say for example credit cards for consumption, and at a larger level with securitization releasing what should be illiquid debt, say mortgages, immediately back into the greater liquid money pool. This has tremendously distorted the real economy and made the entire system liquidity junkies, which is provided by the Fed with both cheap interest rates, and as that became insufficient, directly monetizing the debt.

Thus, we get to the point of money creation, and what we have seen first and foremost in the massive debt creation of the past 30 years is an abuse of the money creation monopoly given to the Fed and the banks a century ago. We need to look again at this monopoly and we will find not only is it not necessary, it is detrimental. It has certainly never been democratic. Many aspects of money creation need not go through the banks, the monopoly should be broken, but that would require a rethinking, reforming, and evolving of our political economy.

FDR against payroll tax cut

2010-12-10T07:48:00.000-08:00

Think! Think! It ain't illegal yet.
-- Funkadelic

About six years ago, maybe to the day, I was sitting up in the offices of Dean for America, and someone who had come to the campaign supposedly as a Labor representative came up to me and said, "Let's announce cutting the payroll tax." Now I had heard plenty of bad political ideas up in Burlington, but this one shot straight to the top. It's the political equivalent of suggesting we get a big gun and shoot ourselves in head, the reaction is instantaneous and primal.

I looked up and said, "Do you even know what the payroll tax is?" And then without waiting for an answer shouted, "It's social security. So, let me get this right. For the last month, Richard Gephardt has been pounding the shit out of us from one end of Iowa to the other, saying Howard is going to cut social security. He's doing this because the great vast majority of people who are going to caucus in a few weeks, are above, at, or near retirement age, few with savings, and even fewer with pensions. And you want to announce we're going to cut the funding mechanism for social security?!!!"

That's your big time Democratic presidential politics folks. At that point, it was getting darker and colder up in Burlington by the day. The campaign, which was really quite a beautiful thing, was being heavily infested by the DC leech class. These were people who normally would go with the established front runner, but Trippi and Dean had confused the issue way back in the spring. And by December, if you didn't know better, it seemed Howard was on his way to the nomination, so the leeches were attaching themselves to every campaign orifice. But ho-ho-ho Bubba, we had the last laugh on that one, didn't we?

So, when I heard about Obama's payroll tax cut, and even better it being reported as a Democratic gain, it was like a bad flashback. Yesterday, the Huffingtonpost had a piece making it all so clear stating,

But an array of other Clinton vets has stepped up to handle the sales job on taxes on the Hill and in town. Key names include: Lawrence Summers, Gene Sperling, Ron Klain, Jack Lew and John Podesta. Austan Goolsbee, chairman of the Council of Economic Advisors, is an early Obama advisor, but he's philosophically in tune with the economic views of the Clinton types.

Doesn't that just conjure up the image of the capitol as rotting piece of flesh oozing with maggots?

Make no mistake folks, the payroll tax cut is a direct attack on social security. Greider has a good short piece to the nut, though he's far too kind to the bastards. He quotes Nancy Altman of Social Security Works. I ran across this Altman piece within hours of the payroll tax announcement, as she instantly realized the threat it was. She had a great quote from FDR, which says it all,

"I guess you're right on the economics. They are politics all the way through. We put those pay roll contributions there so as to give the contributors a legal, moral, and political right to collect their pensions and their unemployment benefits. With those taxes in there, no damn politician can ever scrap my social security program. Those taxes aren't a matter of economics, they're straight politics."

People need to think about this a good long while. Much of the creation and structure of social security goes against what gets purported as "liberal" economics and politics today. You're raising taxes in the middle of the Depression? You're making poor people contribute? We need to rethink a lot of things.

oil, economy, and constitutions

2010-12-09T09:02:00.000-08:00

We at the height are ready to decline.
There is a tide in the affairs of men
Which, taken at the flood, leads on to fortune;
Omitted, all the voyage of their life
Is bound in shallows and in miseries.
On such a full sea are we now afloat,
And we must take the current when it serves,
Or lose our ventures.
-- Brutus, Julius Caesar

Little remarked upon has been the price of oil return to $90 a barrel. The last time we saw $90 was two years ago, as oil rapidly retreated from its $147 all time high, with the global economy in full meltdown along side the financial mess. But the more relevant time oil hit $90 was the first, October of 2007, which was the official start of the recession. In watching the American economy sputter and shake as oil climbed mid-decade, the question was at what price does the cheap oil dependent American economy no longer function well? I concluded somewhere around $90 a barrel, which if we're already there, doesn't bode well for vigorous future growth prospects.

Another question is why is oil at $90 a barrel when, as nice piece on Seeking Alpha points out, US oil demand is down 7% from its 2007 historical highs and "developed world is still down 4.5% from its 2007 high, which has led to a substantial increase in global inventories of crude and crude products. We currently have 10% more global inventory of crude products than we did back in 2004 when crude prices started their march higher."

The simple answer to this is dysfunctional commodity markets and the Fed's pumping dollars into a corrupt and dysfunctional financial/banking system. They have to go somewhere, and they're going into equity and commodity markets, creating asset inflation across the planet. Which now acts as a corruption tax on the rest of us, as inflated assets prices are just another way our financial lords extract money from all of us without in anyway providing value to the economy.

We have a dysfunctional/corrupt economy at this point, pretty much in every aspect, and whether its the Fed or the soon to be enacted DC tax cuts, simply pouring money into a dysfunctional/corrupt economy helps matter neither in the short or long run. We have completely missed the high tide of the recent crisis, failing in anyway to change the course our economy has been set on for the last thirty years. Instead we have locked in an economy that works for ever fewer and grows an ever starker line between haves and have-nots -- an untenable position for any republic.

One thing we have seen is the growth of power in the Fed, which has now been institutionalized over the past two years. The most radical element of the tax cuts, and don't kid yourself it's a very radical bill, and may very well, as planned, lead to a short-term funding problem rather quickly. So my suggestion, in two years as the Fed hauls out QE IV, we begin associating the buys with actual programs. So in 2013, as the now perpetual payroll tax cuts cause a short-term funding problem, Ben puts it to the bondholders, "This week's fifty billion is for social security? Yay or Nay?" Ok, I forgot to add we make the bondholders sort of an extra-constitutional senate. And there you have it, as the French say, "voila", a cutting of social security.

So Caesar comes to America, as the old German said, first time tragedy, second time farce.

on empire, reform, and the LADWP

2010-12-07T06:17:00.001-08:00

There it is, take it.
-- W. Mulholland on the first water coursing the Los Angeles Aqueduct

The history of the Los Angeles Department of Water and Power(DWP) is one of the great stories of US history, offering great lessons on many things, now, maybe most importantly on reform. The DWP was created over a hundred years ago to bring water to Los Angeles, without taking water from everywhere else, Los Angeles would have remained a dusty little desert byway. It was started by a man with vision, William Mulholland and his first vision was to take the water that drained from the Eastern Sierras into the Owens Valley and pipe it a couple hundred miles south to Los Angeles. There were two great obstacles. The first was the building of the aqueduct. The second was relieving the current Owens Valley water users of their rights, initiating one of the most under reported wars in American history led by Mr. Mulholland and the DWP against the farmers of the Owens Valley. Today, it's always a hoot to head up to the northern Owens valley, over 300 miles from downtown LA, and run into vast fenced areas marked, "No Trespassing! Property of LADWP".

Ten or so years later, the DWP would add electricity to its mix, and grow to become one of the most powerful public agencies in the country. Today, the DWP is the great heart for the vast empire which is Los Angeles. Now, LA takes water not only from the Eastern Sierras, but the Western, and from the Colorado river too. The majority of its electricity comes from a number of coal plants in Nevada, Utah, and Arizona, while the Department itself evolved into one massive byzantine bureaucracy, fighting off all change and crushing all personalities who attempt reform.

The LA Times has two good stories on the DWP and the tragic state of California politics. In the first, two appointees of LA's hapless Mayor Antonio Villaraigosa bicker so much the DWP hires...wait for it....a psychologist, to try an smooth things over. Old Mulholland must be violently spinning in his grave! For almost twenty years, I've watched the DWP chew up and spit out so-called reformers, at one point I even sat in a couple meetings with a self-proclaimed reformer on the top floor in the chairman's office. He left no impact. And just to show who is in charge, in the second article, the DWP bureaucracy announced forget switching to renewables, coal works just fine.

Los Angeles should be leading the world in solar energy production. When you fly into LAX you should pass over an ocean of roofs making energy. But ask anyone in the solar industry and LA is a dead zone, and that's because of the DWP. The DWP not only controls LA's water and electricity, but they also give to the city itself a share of the revenue, over 6% of its budget, thus making the city itself an ally of the status quo. The DWP represents the problem of entrenched interests, and they can be public or private, for any system that is in need of change. In this particular case of a powerful public agency, whose bureaucracy fights off as a threat all attempts at change.

The DWP is just another example of entrenched power and interests that dominate this country at this point. The Department's history represents a natural order of politics, where a vibrant new creates, gradually institutionalizes, and then eventually grows stagnant, to the point vitality is considered a threat. When things reach such a level, there's no hope of changing the institution itself, instead power must be broken-up, it needs to be distributed, so change can take place. There is no middle ground, no splitting the difference when things have reached such a point. Reform is simply those losing power, and those gaining.

on empire

2010-12-05T11:23:00.000-08:00

Hitler, Churchill, Mussolini, Stalin, Roosevelt--towering figures that the world would never see the likes of again, men who relied on their own resolve, for better or worse, every one of them prepared to act alone, indifferent to approval--indifferent to wealth or love, all presiding over the destiny of mankind and reducing the world to rubble. Coming from a long line of Alexanders and Julius Caesars, Genghis Khans, Charlemagnes, and Napoleans, they carved up the world like a dainty dinner. Whether they parted their hair in the middle or wore a viking helmet, they would not be denied and were impossible to reckon with--rude barbarians stampeding across the earth and hammering out their own ideas of geography. -- Chronicles, Bob Dylan

The American people, to our great credit, have never been imperialists, and the public story fed on the empire was always a version of the satirical quip the ancients used on the Romans, "They conquered an empire defending themselves." But with the fall of the Soviet Union, certain segments of the American "intelligentsia" began to push for an American embrace of, and pride in, empire. This effort was particularly intense after 9/11, but it never moved very far. The Atlantic became a main promoter of imperial propaganda, and Robert Kaplan its hack propagandist in-chief. If you ever read Mr. Kaplan, you will find he's both deeply paranoid and very clever. Amazingly, he has traveled the world being scared witless at pretty much everything he finds. Combined with active tutorial from the great Sith lord himself, Darth Kissinger, Mr. Kaplan became our premier intellectual imperialist. Though he's never had much popular impact, in the great halls of government, far from any democratic interference where the decisions on America's global interests are made, Mr. Kaplan is tragically influential.

So, it's always distressing to see Mr. Kaplan's thinking pop-up, especially in a long op/ed in the Washington Post, where far too many will take it seriously. Mr. Kaplan's piece, as always, is first and foremost a lament for the great days of the Cold War, when one good empire confronted one bad empire. He writes,

Now the other pillar of the relative peace of the Cold War, the United States, is slipping, ...There will be no sudden breakdown on our part, as the United States, unlike the Soviet Union, is sturdily maintained by economic and political freedom. Rather, America's ability to bring a modicum of order to the world is simply fading in slow motion.

He adds,

Currency wars. Terrorist attacks. Military conflicts. Rogue regimes pursuing nuclear weapons. Collapsing states. And now, massive leaks of secret documents. What is the cause of such turbulence? The absence of empire.

Phew, there's so much wrong with this, it's hard to know where to start. As, I stated, Mr. Kaplan's view of the world comes from a very deep, call it an existential fear, those thus frightened are great advocates of order, desperately appealing for its existence even if it's not there. Yes, there was certain "order" to the Cold War world, but to call it orderly is simply crack-pot, just ask South-East Asia, Africa, or Central and great parts of South America. Mr. Kaplan is a great fantasist, but all great empires need their myth-makers.

However, Mr. Kaplan is correct. America's ability to impact the planet to its self-interest is indeed lessening. Most amazingly, it is America's actions of the last 20 years that have most accelerated "the anarchy" Mr. Kaplan most deeply fears. In Mr. Kaplan's eyes, the greatest promoters of our neo-global anarchy are the Chinese and Iranians. He writes,

While the Soviet Union and the United States were both missionary powers motivated by ideals - communism and liberal democracy - through which they might order the world, China has no such grand conception. It is driven abroad by the hunger for natural resources (hydrocarbons, minerals and metals) that it requires to raise hundreds of millions of its citizens into the middle class.

and,

Yes, empires impose order, but that order is not necessarily benevolent, as Iran's budding imperial domain shows. U.S. threats against Iran lack credibility precisely because of our imperial fatigue resulting from Iraq and Afghanistan. Out of self-interest we will probably not involve ourselves in another war in the Middle East - even as that very self-interest could consign the region to a nuclear standoff.

To say these statements are incredulous gives them far too much credit. The statement on the Chinese and natural resources has absolutely zero credibility coming from the capital of nation that is 5% of the world's population and uses 25% of the world's resources. America's policy toward the Mid-East has for seventy years been shaped by one concern and one concern only, and sorry AIPAC, it's oil.

Better is Mr. Kaplan's dread of the American foreign policy establishment's greatest fear, the great Iranian threat. Bureaucracies have long memories. It's amusing to hear Mr. Kaplan talk of Iran's "imperial domain", not since Darius right? But in Mr. Kaplan's mind, Iranian imperial influence extends a foot passed their border in Afghanistan, Iraq, and Turkey -- some empire.

Mr. Kaplan finally gets to the real point of his piece, building a bigger navy, for which he's become a prominent shill over the passed few years. He concludes,

Americans rightly lack an imperial mentality. But lessening our engagement with the world would have devastating consequences for humanity. The disruptions we witness today are but a taste of what is to come should our country flinch from its international responsibilities.

Again, most of the disruptions we're observing today are not from America's lessening our engagement with the world, they are in many instances the results of an over half-century Pax Americana. We need to understand one of history's great lessons, the weight of Rome's imperial conquests eventually crushed the republic. In the last fifty years, the US has shaped global events to a greater extent than any nation, led by great promoters of fear and paranoia like Mr. Kaplan. It has had at best mixed results abroad, but it has been completely detrimental domestically. The United States needs to lessen our engagement with the world and begin worrying about our problems at home, we can start by slashing the military budget and our oil use.

At a time, when for the first time in history, a great number of the people living have some notion we share a relatively small and limited planet, America can help lead a world ordered not on the dominant self-interests of one or two countries, but with an understanding of the mutual common interests of six billion souls.

USA INC

2010-12-02T08:47:00.000-08:00

You pays your money and you takes your choice.
-- Aldous Huxley

In this era of neo-bipartisanship, the one thing we could get Mr. Obama and the new congress to agree on is a re-branding effort. Let's be officially called USA INC. A few decades from now, people will look back at 2008 as the year of the official start of state capitalism. It is the year, mega-corporate dominance became unchallenged. You could pick a couple events of that year that best illustrate the dawning of corporate rule, most importantly the subservience of all our democratic institutions, but the most obvious were the actions of the Fed.

The Fed was giving money to everyone and everybody with some sort of ranking in the Fortune 500, and then some. The big banks, investment banks, foreign banks, foreign governments, GE, and Harley Davidson. Everyone who was anyone got money, all done with no democratic oversight. The most important thing to understand is the precedent the dumping a bunch of money into the system created -- a system of too big to fail. If you're above a certain size, you are now perpetual, there is no ability for the system to correct. Following this precedent, the ECB announced today, it will pump euros, estimates of two trillion and up, to keep the present European system perpetually operating.

Many schools of thought think this will inevitably lead to inflation, but that's never seemed quite right. Mr. Greenspan proved long ago, that you can keep asset prices inflated, while the resulting "trickle" into the economy wouldn't cause larger inflationary pressures. This was especially true if you could keep pressure on wages and deflate manufacturing costs with a massive off-shoring of production to lower wage areas of the planet. In turn, this allows the great pool of money floating in the asset markets to seek greater growth, thus, higher profit areas of the planet, outside the old industrial eras of Europe, the US, and Japan, after all, this is very much still an industrial capital system.

With all the dumping, or if you prefer transference of money by the central banks to the top of the system, the trick for state capitalism in avoiding inflation is to keep too much of the money from seeping to the bottom. In Europe, as demonstrated by Ireland and Greece, this is done by cutting the public sector, the social safety net, and increasing unemployment. In the US, it has been done with high unemployment and what will soon be with Mr. Obama and the new Congress a no doubt vigorous cutting of government spending.

I couldn't figure out how this was all working and where it leads to, but Ames in an email last night gave me the precedent from Russia in the 90s stating,

Well maybe Russia offers an explanation. Let me think: in the 90s, especially 92-96 or so, something like this happened: Almost everyone's wages went to worthless, everyone's savings and pensions were definitely worthless, connected banks and industrial outfits and bankers wound up getting shitloads of Central Bank-printed rubles pumped their way, and an oligarchy class grew out of that, but at the same time, there was so little PHYSICAL money in most parts of the country that by the mid-90s, barter was I believe more common than money for goods. This went on until Putin took power, or shortly after he took power (and oil started rising too). He rationalized the corruption.

The result though was that assets bubbled out of control a few times and collapsed spectacularly twice plus once somewhat spectacularly in 1995, before Yeltsin stole the '96 election (which sparked the big final bubble of that era). Inflation for consumer goods was a nagging problem, but that was largely because a) Russian industry collapsed and everything was imported, and b) the government rolls grew massively with bureaucrats who all wet their beaks at every stage of the distribution/sale. Still, I think inflation was kept in check from total hyperinflation by a classic monetarist policy, in fact that was the condition of each succeeding World Bank/IMF loan: that the money wasn't distributed to the people, only to the financial system.

OK, yes, a bit more extreme then where we are, but all the processes are the same. I guess the lesson here is state capitalism will end the same way as state communism did, with eventual systemic insolvency due to an inability to correct though the protecting and institutionalizing of an unsustainable status quo.

We need to get on a different path, the future lies in part with restoring and reforming this republic.

Ireland and our political economy

2010-11-30T07:56:00.000-08:00

Whalen recommended this very excellent piece on Ireland in the NYRB, it really should be read. It contains a couple of very important points and thoughts that are as relevant for the United States as for Ireland. First, it gives a great description of the distorting power of bubbles, in this case the Irish housing bubble. The piece gives these figures,

Many counties have more ghost estates than Leitrim—Cork has ninety of them—but Leitrim emerges as Ireland’s champion when empty houses are compared to the number of the local population. NIRSA’s director Rob Kitchin calculates that 2,945 homes were built in Leitrim between 2006 and 2009 when the growth trend suggested that only 588 would be needed—an oversupply of around 400 percent.

In 2006, at the height of the boom, construction accounted for almost a quarter of Ireland’s GDP and occupied a fifth of the workforce...Bank lending for construction and real estate rose from €5.5 billion in 1999 to €96.2 billion in 2007—an increase of 1,730 percent—while house prices doubled in the six years to 2006.

That folks is a bubble. It distorts the economy, and, depending on its size, can do so on a massive scale. Thus after it pops, no amount of money poured into the system is going to reflate it. In a related note, the Case-Shiller index released today, shows US housing prices continuing to fall across the country.

Secondly, the piece does a nice job explaining the culpability and complicity of the Irish political class in creating the bubble. Now, this doesn't in anyway absolve the fraudulent actions of the bankers, but it does show again, despite the protestations of the Greenspans, Bernankes, Summmers, Geithners, Clintons, and Obamas, we know enough about money to prevent bubbles. It takes an active and forceful regulatory environment, limits on size and scope, enforcement against fraud, and limits on leverage.

Finally, the piece concludes with just an excellent paragraph on what wrong with the Irish political economy, but could just as well be applied to the US:

It was a little too good to be true that Ireland could go from the pre-modern to the post-modern without ever fully creating the structures and habits of a modern democracy. Large chunks of classic democracy were missing—the shift from religious authority to public and civic morality; the idea that the state should operate objectively and impersonally rather than as a private network of mutual obligations; the notion of the law as a universal and neutral check on everyone’s behaviour, whatever their status…. Plonking a hyper-charged globalised economy on top of such an underdeveloped system of political governance and public morality was always likely to create an unbearable strain.

While, you can argue one way or other about whether the Irish ever developed a rule of law, a de-clanning of politics, and a vibrant public and civic morality, there is no doubt the US at some point had moved in these directions. It also can be said, the plonking a hyper-charged globalised economy on top of the US political economy ripped asunder all these things. It has not just been labor arbitraged by corporate globalization, but government regulation, the rule of law, and maybe most important of all, public and civic morality.

At the end of the 19th century, Oscar Wilde quipped, "America is the only country that went from barbarism to decadence without civilization in between." But being very much a product of contemporary Europe, the vibrant democratic public and civic morality at the bottom of much of American society at that time, would have been lost on him, just as today it is lost on us. If we are to have self-government, we have to renew and revive our public and civic morality. Know one thing, it is not comprised of listening to presidents, or watching 30 second ads, or voting every couple of years, it is the actions we take on daily basis and the motives behind them. You've been given a clear view of the greedy violent rabble who have floated to the top of this decaying republic, each day, they do more to secure their reign. They will only be stopped by a concerted effort of the American people, defining and reviving self-government for the 21st century.

debts, assets, and other confusions

2010-11-27T22:59:00.000-08:00

They have learned nothing and forgotten nothing.
-- Talleyrand on the Bourbon Restoration

Martin Wolf has a piece in the FT that both gets to the heart of financial matters, while inadvertently showing the insolvency of our economic thinking. In the end, Mr. Wolf's piece is a defense of fiscal spending in reaction to deflation. In so doing, he makes the case, but confusedly, of the importance of understanding the difference between assets and debt. Wolf writes,

But the time has come to look at the longer-run implications. This is particularly important when one considers fiscal consolidation. On this I make a simple point: it is not just about debt; it must also be about assets.

Mr. Wolf's argument is confused because, at a financial level, debts and assets these days are in many instances the same thing, accounted for differently in separate books. Mr. Wolf attempts correctly, but not convincingly to offer a little clarification stating,

Yet governments should not sacrifice the future to the pressures of the present. What is the sense of cutting spending today if the result is a poorer country tomorrow? This point turns on its head the refrain that we should at all costs avoid burdening the future with additional debt. We should indeed avoid burdening the future with unproductive debt. Yet productive debt is not a burden, but a blessing.

The problem here, and it is a big one, is matters of finance and money are not integrated into modern economic philosophizing. That Mr. Wolf, who understands finance better than 99% of those writing on economic matters, is maybe confused, reveals how conventional thinking on such matters offers little help in extracting us from the problems the world finds itself mired.

The greatest argument for those advocating more fiscal stimulus is there is no inflation, but inflation is not the only symptom of a malfunctioning or dysfunctional financial/monetary/economic system. Insolvency is also an important measure. In a functioning market system, insolvency at the individual and business level are important mechanisms for balancing the system. However, insolvency at industry wide levels, such as banking or housing, or at a national level, are signals of much greater problems, problems not simply corrected by pouring in more money.

Mr. Wolf's piece once again ignores, as does almost all modern economic analysis, the problems of financial bubbles. They are first and foremost a problem of the financial/monetary system, and secondly, depending on their size and length, tremendously distort the underlying real physical economy. In all cases, bubbles are manifestations of unsustainable practices. They create unproductive debt. Thus, the dichotomy Mr. Wolf addresses between productive and unproductive debt is important and key to understanding our future, but more difficult to discern after large bubbles. Wolf continues, seeming to not really believe the distinction. He states,

Yet, in the short run, with demand below capacity, even borrowing that raises current consumption would be better than leaving resources idle. The fact that some residents (future taxpayers) may then have to pay a little more to other residents (bondholders) is surely a second order issue.

Much of this "demand below capacity" and "idle resources" are results of the preceding unsustainable bubbles, simply attempting to blow them back up is not only impossible, but detrimental. This is not a matter of "future taxpayers" paying more to other "resident(bondholders)", it is indenturing the future to a bankrupt past. With this statement, Mr Wolf could very well be accused of being plain disingenuous, particularly in relation to the reality of the Irish, where the Irish government, leaving aside any argument on fiscal policy, is indebting the future to pay-off the bad loans of English and German banks. But it gets worse, Mr. Wolf inadvertently revealing the true insolvency of much of our economic priesthood states,

Some insist loudly that one cannot solve a problem caused by too much debt by piling on more debt. But that is wrong. In the US and UK, net debt is close to zero: thus, debt is not a burden on society as a whole, but an obligation of some residents to others. As Nobel-laureate Paul Krugman points out, debt matters only because of who the debtors are. If, for example, debtors suffer an unexpected loss in net wealth or are forced suddenly to repay, the impact on the economy is bound to be fiercely contractionary. If the state can borrow, to offset this effect, it should do so. That would not impose an overall burden on a society, since net debt would remain close to zero. If it also raised GDP above what it would otherwise be, that would surely be a very good thing.

Phew, invoking Krugman and his Nobleness in defense shows without a doubt the lack of needed critical thinking, though it demonstrates the ahistorical thinking of our economic priesthood. First, from a current accounts balance perspective, arguing that US "net debt" is zero is incredulous -- it's accounting gimmickry -- of course something at which we do excel. Secondly, the question of solvency from a national perspective, concerning what the debt is comprised, is an important for the US, and really who cares about the British? History is littered with nations, Mr. Wolf's old Britannia for one, who continued to add to their debts, a better word being liabilities, in an attempt to sustain the unsustainable, leading eventually to national insolvency. Yet, Mr. Wolf wants to disregard these problems in lieu of the great magic elixir of our industrial capital priesthood, growth, "a raised GDP".

Mr. Wolf is right, the difference between debt and assets is key, but in a system where the accounting of debts and assets is completely confused, in fact where all debt is simply notched as someone else's asset, it is problematic. Where a financial system i completely removed from the real economy, combined with a political system that is eminently corrupt, the further wanton dumping of money into the system will only create greater distortions and future hardship. For example, all dumping of money into the US economy furthering our oil addiction, whether it's infrastructure supporting the internal combustion engine or military misadventures across the Mid-East, is not just bad debt, but destructive liabilities, though this might not seem the case to collar counties of Maryland and Virginia.

The problem is the American political economy is so distorted and so corrupt to not be able to tell the difference between good and bad debt, in fact, it favors bad debt. That is why talking about simply dumping more money into the system, without a corresponding discussion of reforming our financial, corporate, political and government systems is not simply detrimental, but destructive. We can begin a healthy discussion on the future in deciding what debt is going to be destroyed and how the losses are going to be accounted. Afterwords, we can have a better understanding what future good debt looks like. Without doing this, all the talk of throwing more money at our problems is nothing more than an a desperate attempt by a decadent and corrupt aristocracy and its servants to keep in place a failed status quo.

irish and cantona

2010-11-22T08:46:00.000-08:00

'Red' Will' Danaher, "So, the IRA's in this too, huh?"

Hugh Forbes, "If it were 'Red Will' Danaher, not a scorched stone of your fine house be standing."

Michaleen Flynn, "A beautiful sentiment."
-- John Ford's, The Quiet Man

There's no denying this world is full of prejudice. And if you spent some time in non-industrial areas of this planet, you'd find one of the greatest prejudices is against rural farming folks from city slickers. South America, Africa, Indonesia, you hear the urbanites level similar charges, "lazy and stupid." Amongst renown political thinkers, in Europe and America, where rural life has mostly disappeared, you'd be hard pressed to find a good word for farmers over the past couple centuries, most took Marx's view of the "idiocy of rural life." Probably, the greatest exception was Jefferson, and there is many reasons for this, but one of the biggest was Jefferson's view that a small farm provided the population the economic power and independence they needed to be democratic citizens. But Jefferson's yeoman farmer republic passed from scene well over a century ago, and in the industrial age, America never found too great an answer to replace the elegance of Jefferson's small farm economic democracy. Maybe unions, but workers quickly replaced farmers in prejudice, and in the last four decades as Wall Street and the bankers sold-off American industry, it was met with little opposition, particularly from the servants class which replaced it.

The Irish were well behind much of the continent and the US in industrialization, in fact, it's been the last several decades that the nation really began to industrialize. So, we can look at Sinn Fein's little late response to banking events as maybe a remnant of a still slower rural life, but they certainly make up for it with a little Irish flair and it looks like the government will fall.

But this begs the question, what's the excuse for no American response to our banking crimes? How long the list brothers and sisters if we were to charge "economic treason," filled with the most illustrious Democrats and Republicans of the past several decades. How do we begin the long road to justice? How do we begin the discussion on reforming democracy, and what in the 21st century is the Jeffersonian equivalent of the yeoman farm, providing economic independence necessary for democratic citizenry?

The Guardian has a piece(tx yves) on football legend Eric Cantona calling for an organized banking panic. The whole concept has a beauty in its turning on its head the historical view of panics. It also can start people questioning what really is banking and how is it reformed so that its decision making is much more widely spread across society? How do we make banking more democratic? One can judge from the response of the spokeswomen for the French Banking Federation that it makes officialdom nervous:

"My first reaction is to laugh. It is totally idiotic," she told the Observer. "One of the main roles of a bank is to keep money safe. This appeal will give great pleasure to thieves, I would have thought."

But what of the thievery that is modern banking mademoiselle? Isn't it all our responsibility to not be victims? And understand brothers and sisters, the first reaction to any establishment against a threat is to make it ridiculous, "to laugh." Mr. Cantona is on to something.

Check out Move your Money for an American effort.

odds and sods

2010-11-19T07:58:00.000-08:00

Twenty years or so ago, I was introduced to the Internet in an article in Rolling Stone interviewing Mitch Kapor, who had taken about evangelizing for it. I was instantly smitten as soon I plugged-in and have remained so. I've been increasingly concerned in recent years as the distributed networking power of the Net has been pushed aside with the development of new information monopolists, Tim Wu has an excellent must read piece in the WSJ on the trend. I mostly attribute this to our inability to break from our industrial capital economic models, but still have great faith that will be done. I've been more concerned in the last six years of the incessant naval gazing of much of the thinking of those building the Net, they need to begin looking beyond the Net and at the greater world.

Nonetheless, I spend far too much time drifting the Net. Youtube is the greatest time sink, especially for those with a pop-music bent. For the five on this list concerned about such things, I found an amazing piece of pop-trivia from the late 70s, the Jam doing Eton Rifles and Joy Division doing Transmission on the same TV show -- good era for pop-music. But it brings up the question on the entire value of pop. We know one thing, it's way overvalued in this society. People are well over-compensated in all aspects and given far much too respect for something that at best rises to a measure of triviality. A couple years ago, a good friend and I were discussing the value of pop, and I asked, "In a hundred years what do you think of the last fifty years of pop culture will be remembered?" He replied without hesitation, "Nothing." I think that's about right, yet the little purple man is still absolutely right, "but life, it ain't nothing, unless it's got that pop."

However, our addiction to pop is by no means harmless. It for example has been very detrimental to our politics, creating an era of political dwarfs. If you ask who in the last fifty years of American politics will still be influential in a century, there's only one answer, Martin Luther King, and he will only be remembered in the larger context of the lessons of the mass democratic movement for civil rights, that is, if they become institutionalized, which at present seems a more remote possibility than ever. More representative of our era is Mr. Bernanke, who today makes one of the most reactionary speeches of American politics in recent years, and that's saying something. He blames the Chinese, calls for more debt enslavement, and completely ignores Wall Street's and corporate globalization's roles in creating the problems face, while placing the Fed into a public political position that it has avoided for a hundred years. Is it any wonder Mr. Krugman has become the Fed's strongest backer?

Yet, oddly enough hope arises from the strangest places, in this case Man U football legend Eric Cantona. Mr. Cantona has come out publicly promoting "Bank Mutiny Day" in Europe.(tx zerohedge). Mr Cantona comes up with the most eloquent description of democratic politics and democratic action I've heard in many years in reference to gaining back control of our lives from the banks:

"We don't pick up weapons to kill people, to start the revolution... the revolution is really easy to do nowadays. What is the system? The system revolves around the banks. It's based on the power of the banks... so it must be destroyed starting with the banks. This means that the 3 million people with their placards on the street... they go to the bank, withdraw their money from the banks and these ones collapse. 10 million people and the banks collapse and there is not real threat, a real revolution. We must go to the bank. In this case there would be a real revolution. It's not complicated. You simply go to the bank in your country and withdraw your money. If there are enough people withdrawing their money, the system collapses. No weapon, no blood, or anything like that.

As one of the fad-four said, "Power to the people, right on."

the irish and the banks

2010-11-17T22:12:00.000-08:00

Was it for this the wild geese spread
The grey wing upon every tide;
For this that all that blood was shed,
For this Edward Fitzgerald died,
And Robert Emmet and Wolfe Tone,
All that delirium of the brave?
Romantic Ireland's dead and gone,
It's with O'Leary in the grave.
-- WB Yeats

If you took the the couple weeks in the build-up of the Irish crisis and transposed them onto a time-line this spring of the Greek "crisis", you'd get almost day by day similarity. Credit spreads widen, denial, talk of bailout, more denial, more bailout talk, admission of problem, then the bailout. But there's some important differences between the Irish troubles and the Greeks. The Irish government has no immediate need for money. And while the Greek problem was as much about bailing-out French and German banks as the Greek government, the Irish problem is very much about the Irish banks, though it's also very much about Portugal, Spain, and really the whole Eurozone. Funny enough, it's the FT that has the best piece on the whole affair stating:

Ireland’s basic problem is that it now has to choose between its own sovereign solvency and the solvency of its banks. Other European countries – in and out of the eurozone – may soon face the same choice. In such a world, keeping banks afloat with public capital risks sinking the sovereign – and with it, the whole banking system.

Dublin has cash to get by for another half a year. There is something absurd about pressuring Ireland to borrow money from Europe in order to calm markets enough to lower yields for Spain and Portugal, whose refinancing needs are more acute. If this were the only consideration, the sovereigns most immediately at risk should be told to tap the European financial stability facility.

But the most urgent problem is not the solvency of the Irish state; it is the solvency of the Irish banking system (though Dublin has spared no effort to assimilate the latter to the former). If Irish banks collapse – and if one falls it will not fall alone – it may well trigger bank failures across a continent that remains full of institutions whose earlier stress tests were remarkably stressless. Right now, this kind of contagion should scare Europe’s leaders even more than the spectre of sovereign defaults.

So, let's understand, nothing's been fixed in the banking system over the past couple years, and that goes double for the big banks in the United States. Yet, the idiocy of throwing more and more money at the banks, further indenturing the future is the only thing the effete and corrupt political classes of Europe and the US can think to do. The FT puts it very succinctly,

Saving the banking system, however, is not the same as bailing out extant institutions; nor should taxpayers give up even more of their blood to the walking dead. Yet this is what Ireland is being asked to do – borrow money from the EFSF to raise the banks’ equity. Doing so would be an insult to the Irish people (whose incomes will be mortgaged to pay the loan back) and a gratuitous one at that: it defies logic to claim that adding to Dublin’s debt will seduce markets back to Irish sovereign bonds.

Forcing the FT to the conclusion that was inevitable two years ago,

So Ireland – and Europe – must confront the prospect of an inevitable string of bank restructurings. Giving away more capital now will weaken states’ ability to deal with the problem when there is no more time to be bought.

Preparations must now be made for dealing with a run on banks by depositors or wholesale lenders. Countries that have yet to put in place special insolvency regimes – Ireland included – must do so without delay. They must allow states swiftly to take control of banks so as to keep operations going during a panic and quickly allocate losses by forcibly restructuring wholesale debt or converting it into equity. Paradoxically, Ireland’s reliance on wholesale funding may make it easier to force losses on creditors.

I'd say let the restructuring begin, but we're not quite there yet, after all Mr. Bernanke's just warming-up the money transistors. So, let's start thinking about destroying the bad debt and breaking up the big banks. When that's done, we can actually start thinking about an effective monetary and fiscal policy, but to do that we'll need to think a little harder about what a 21st century economy looks like. It doesn't much resemble the last three decades of the 20th.

It would be nice to see the Irish force the issue here and if they need any encouragement, they should contemplate those nice English offer to help with a few more billion pounds of debt. I hear they're a little nostalgic for Eire.

California Republic

2010-11-16T12:38:00.001-08:00

Chris Whalen is on tech/ticker saying California is going to default. The interview is well worth watching. Whalen says California will either default or "start issuing its own currency again." It might be better not as either/or, but, and/both proposition, that is, default and begin issuing some sort of California currency -- the state and municipalities get in some aspect of the money creation business. The real and important point Whalen hits on is how are we going to begin restructuring all the world's bad debt, meaning bondholders are going to have to take haircuts, and just as importantly, we're going to have to fundamentally reassess how much of our economy works, this is imperative, and must go along with any notion of restructuring.

I didn't hear the words "default" or "California currency" come out of the former/future governor's mouth over the course of the campaign. But it's something he should give great thought, once again California could provide leadership for the world, this time getting the bankers to begin toeing the line. After all, default and local currencies, call it sound money, those are radically conservative notions, something a good Jesuit could appreciate.

politial economy

2010-11-12T07:36:00.000-08:00

Take a look where you're livin'
You got the Army on the street
And the RUC dog of repression
Is barking at your feet
Is this the kind of place you wanna live?
What we need is
An Alternative Ulster, grab it, change it's yours
Get an Alternative Ulster, be an anti-security force
Alter your native land
-- SLF

Well another day, another European nation going under, this time the Irish. It's all a bit too predictable at this point. CDS spreads widen and the Germans make noises there will be no more bailouts. Certainly not a bet I'd take, they didn't set up that bailout mechanism last spring not to use it. So, after centuries of putting up with the barbaric English, the Irish will now be in servitude to the bankers, in ten years we can ask them which is worse. Meanwhile, over in Asia at the G20 meeting, our global elite show they are completely incapable of changing direction. If ever I've seen a politician dead in the water it's Mr. Obama, take the under on 2012. The only greater show will be to watch the Zombies that are the Republican party and see how much flesh they can devour before the American people take their heads off.

The problem is we, and I mean all of us, are still in denial, we need to change. The consumptive insanity that is America has to change and the great dream of corporate globalization, that the world can live like consumer America has to be dropped. But we're not doing that, we're, and again I mean all of us, instead are doing everything we can to hold on to no longer sustainable past. The Fed pumps dollars into the global financial system to keep the illusion alive, that all that bad debt can be paid off, further indenturing the future. Meanwhile on the other side of, call it the Bernanke-Krugman reality spectrum, we have the shout for more fiscal stimulus, which without a complete change in direction from the last thirty years will be about as effective as Mr. Bernanke's quantitative easing.

What we are witnessing in Europe and the US is an increasing divergence of wealth and the vast majority. Instead of a recognition that the political economy of the past thirty years, and one should argue the political economy of the past hundred, can no longer provide for the majority, we get in national economies a continued squeezing of the bottom and middle, while the top floats above in a global bubble induced by the world's central banks. The one thing we've learned about financial bubbles is they don't cause inflation, they pop, leaving a lot of worthless debt. This one will too, but how long? Place your bets, though one thing about this life is the irrational can last a lot longer than anyone would conceive reasonable.

When we get to the point where we understand we don't have to uphold our insolvent power structures, that there are indeed alternative healthier realities, the future can once again be filled with opportunity.

on trade

2010-11-07T11:53:00.000-08:00

"You going to liberate us girls from male, white, corporate oppression?"
Tell em like it is, Fear of a Female Planet
Fear baby
Let everybody know
-- Sonic Youth

When speaking of economics, one very old and fundamental element is trade. From prehistoric times, societies/cultures traded. Egyptians, Babylonians, Chinese, Greeks, Phoenicians, Romans, Aztecs, and Incas, all had great trading networks. Trade is in no way a development of industrial capitalism or more recently of corporate globalization, it is far older. However, many of the myths, theories, and practices valuing modern trade developed over the past two-hundred years. Particularly a wrong-headed doctrine that all trade is good, which can traced back to the particular place and time when private international merchants were attempting to break-up the monopolies of state mercantilism. Over the past fifty years, the world, and particularly the United States went completely to the other extreme, abdicating all state power on trade to Wall Street and global mega-corporations to the detriment of both the United States and the rest of the world.

Greider has a good piece in The Nation laying out some of the fundamental issues involved, particularly:

Washington must also change the rules for how American business and finance operate. Only in America do multinationals get to behave like free riders, with no strings attached. They harvest public money as subsidies and investment capital, they are protected by US armed forces and diplomacy, and they are rescued when they get into trouble. It is a one-way relationship, and the American public knows it.

US corporations and banks remain free to move jobs and production whenever and wherever corporate strategy dictates, regardless of the consequences for the economy. Government can stop this by forcing them to serve the broader national interest. This is not as radical as it may sound. Every other leading industrial nation does it, one way or another. They impose limits on corporate strategy, either in formally binding ways or through political and cultural pressure, to ensure that good jobs and the best value-added production remains at home.

The whole piece is well worth reading, but I have serious doubts the Democratic arm of the DC political class will turn against Wall Street and the entrenched corporate globalization doctrine. In fact I'd bet against it, industrial labor is dead in America, and the issue for the remnant service and government employee unions isn't high. For many reasons, I see a neo-America First movement coming much more naturally out of an increasingly radicalized "nativist" Republican base, but that remains to be seen.

In either case, we need a much different view of trade in the 21st century. One taking a much closer look not just at the national implications, but the impacts on locality. An understanding that industrial technologies have rolled over local diversity and advantages, creating an unsustainable and increasingly volatile global homogeneity. Underlying the entire, present corporate globalization system is one thing, cheap oil, and the world has no more cheap oil(tx yves). The US can lead the world developing new, healthy and sustaining global trade by announcing we're going to heavily tax our oil imports. As Greider concludes,

All these suggestions are deeply disruptive to global commerce, and, yes, many would raise prices for Americans. But the country's predicament is a historic emergency that cannot wait for market solutions. The United States must, in effect, decide that its role as Goliath is over. It's time to act like a nation again rather than as the global overseer.

housing

2010-11-05T10:53:00.000-07:00

My new house
You should see my house
My new house
You should see my new house
According to the postman
It's like the bleeding Bank of England
My new house
Could easily crack a mortal in it
-- The Fall

So, the National Realtors Association released a housing report(tx calculated risk) today stating:

The Pending Home Sales Index,* a forward-looking indicator, slipped 1.8 percent to 80.9 based on contracts signed in September from an upwardly revised 82.4 in August. However, the index remains 24.9 percent below a surge to 107.8 in September 2009 when first-time buyers were jumping into the market to take advantage of the initial deadline for the tax credit last November.

Whatever other number you want to look at about the economy, housing remains key. Housing was the center of the bubble and it continues to deflate, and from every historical precedent, it's going to continue to deflate, no matter how many times Mr. Bernanke presses ctrl-alt-shift-$. Currently 25% of people are underwater in their mortgages, and estimates of 40% within two years. Which means all the losses the banks are hiding are going to only grow larger. Now remember, the whole housing bubble was created to, literally, paper over the great imbalances in the American economy that had developed over several decades, most significantly, the stagnation of wages. Which is also why all the cries of dumping ever greater amounts fiscal stimulus into the economy without a serious look at correcting these imbalances is just as much crack-pipe policy as they're smoking at the Fed.

We should stop the foreclosures, write down the mortgages so people can stay in their houses, and make the banks and bondholders take the losses, breaking up and recapitalizing where necessary. That ain't going to happen, which is why if you think 2010 was bad for incumbent elected officials, you ain't seen nothing yet.

election

2010-11-03T08:13:00.000-07:00

To dance beneath the diamond sky with one hand waving free
Silhouetted by the sea, circled by the circus sands
With all memory and fate driven deep beneath the waves
Let me forget about today until tomorrow
-- R. Zimmerman

Never underestimate the power of the American people. I mean goddamn, to Lazarus-like raise from the grave the rotted decrepit corpse of the Republican party and make it appear full of life and vigor, if even for one night, is quite the trick. What does that say about our pathetic Democratic party? Well, it's a confirmation that the Democrats regained power on the cheap in 2006 and 2008. There was no great rethinking or years organizing from the ground-up. No, just a fat and happy Democratic DC political class waiting for the public to become completely exhausted by 30 years of Republican rule, so the Democrats could get back and divvy up the spoils of an increasingly corrupt and dysfunctional political economy. But remember, even that was difficult. The DC Democrats had to be dragged kicking and screaming by Howard Dean and the Internet crowd to oppose the wars, which was the determining factor in the 06 election and a major determinate in 08. Once in, that was quickly forgotten.

No doubt the Republicans will make the same mistake in misinterpreting these most recent results. This was the ultimate "none of the above" election, with the Republicans playing the part of none. What will come next? Our completely broken and corrupt politics will now turn to focus on who will next wear the purple, but come on folks, think about it. Nixon, Carter, Reagan, Bush I, the Clintons, Bush II, and Obama, the real question should be why would we want to elect another president?

We have no functioning politics in this country. I'm afraid we can continue down this path of swapping out one failed lot for the other for a long time, with one continuity, the bipartisan looting of America by our political class, Wall Street, and the mega-corporations. Our politics needs fundamental reform. Our economy needs fundamental reform. This is only going to be accomplished by us all coming together and figuring out what political economy is in the 21st century and then implementing the change. The first step is understanding we have a problem, things can't continue the way they are, nor are they going back to how they were. That is where we are.

politics, economy, and banks

2010-10-27T10:18:00.001-07:00

New York, New York big city of dreams
And everything in New York ain't always what it seems
You might be fooled if you come from out of town
But I'm down by law, I know my way around
Too much, too many people, too much
- Grandmaster Flash and the Furious Five

In a piece that illustrates when you're reading the NYT, sometimes you need to check to see if you accidentally clicked over to The Onion, David Leonhardt has a "timely" piece on how the economy is hurting Obama and the Dems. Two punchlines,

On the evening of Dec. 3 last year, the Bureau of Labor Statistics sent an advance copy of the next morning’s jobs report to the White House...It showed that job losses had all but stopped in November, after nearly two years of big declines. White House aides exulted. Christina Romer, a top economist, brought a copy of the numbers to the Oval Office, and President Obama embraced her. A photograph of the moment, with a Christmas tree off to the side, was hung in the office of the Council of Economic Advisers. The good news — and the optimism — would continue for the next few months.

and,

“The health care bill alone is the most significant and far-reaching piece of domestic social policy in my lifetime,” says Neera Tanden, the 40-year-old chief operating officer of the liberal Center for American Progress, who worked in the Clinton and Obama administrations and was a top official in Hillary Clinton’s campaign. In all, Ms. Tanden added, “It is hard to see a more productive session of Congress in decades.”

Well, as Dems are finding out, "productive" is in the eye of the beholder, while Ms. Tanden didn't seem to get the memo the Dems weren't running on their "most significant and far-reaching piece of domestic social policy."

Meanwhile, the complete capitulation concerning any real financial reform, where the Dems proved themselves for all who honestly care to look the servants of Wall Street and the big banks, continues to be a drag on any sort of economic revival. The WSJ has an excellent piece how the banks all posted profits this quarter by raiding their reserves against bad loans, because of course the housing market is getting better, right? The piece states,

The biggest U.S. banks virtually doubled their collective earnings in the third quarter just by injecting $8.1 billion into net income from funds they had set aside to cover loan losses.
There are 18 commercial banks in the U.S. with at least $50 billion in assets, and together they earned an adjusted $16.8 billion in the third quarter. Of those profits, nearly half, or 48%, were from drawing down what bankers call loan-loss reserves, according to an analysis by Dow Jones Newswires. A year ago, the same 18 banks earned $6.2 billion in quarterly profits; at that time, they added more than $7.8 billion to the same reserves, a move that reduced their profits. The analysis omits a $10.4 billion noncash charge to earnings that Bank of America Corp. disclosed during the third quarter.

Finally, Chris Whalen has a must read piece on how until we restructure and reform the financial sector, we will have no economic vitality. Whalen writes,

Because President Barack Obama and the leaders of both political parties are unwilling to address the housing crisis and the wasting effects on the largest banks, there will be no growth and no net job creation in the U.S. for the next several years. And because the Obama White House is content to ignore the crisis facing millions of American homeowners, who are deep underwater and will eventually default on their loans, the efforts by the Fed to reflate the U.S. economy and particularly consumer spending will be futile. As Alan Meltzer noted to Tom Keene on Bloomberg Radio earlier this year: "This is not a monetary problem."

Forget Treasury Secretary Tim Geithner lying about the relatively small losses at American International Group (AIG), the fraud and obfuscation now underway in Washinton to protect the TBTF banks and GSEs totals into the trillions of dollars and rises to the level of treason. And the sad part is that all of the temporizing and excuses by the Fed and the White House will be for naught. The zombie banks and GSEs alike will muddle along until the operational cost of servicing bad loans engulfs them. Then they will be bailed out -- again -- or restructured.

Make no mistake folks, there's a criminal element atop our financial industry, who operate with both the complicity and culpability of much of our political class. Until we reform our politics and the financial industry, we will not have economic vitality. And we will not have reform, until it is demanded and undertaken by the American people. That is where we are.

American Conservative

2010-10-22T09:36:00.001-07:00

When the president does it, that means it's not illegal. - Richard M. Nixon

One of the great things about being one of our masters of the universe is the rule of law doesn't apply to you. If you'r master of the universe, by definition you are the law. It's also really helpful when those supposedly in charge of upholding the law adopt a policy of accommodation. If you can get away with ignoring the law, especially if you made a profit in so doing, it's justified. The past is the past is now official policy for our political class, whether it's holding accountable those who actively misled the country to war or for those who collapsed the financial system and everything in between. However, the growing foreclosure fiasco may make clear to us all there's real value in the rule of law. Again, Yves Smith has been way ahead on this issue and should be read. While Chris Whalen has a nice piece on Bloomberg TV(tx credit writedowns), succinctly explaining the issues, calling the foreclosure fiasco a cancer on the financial system, well worth watching.

We need to quit talking about money in aggregate, such as deficits, debt, GDP, and start talking about what it really represents. There's a lot of bad money out there and we need to get rid of it. In order to do this, for example restructuring the underwater mortgages now representing over a quarter of all mortgages, we need to know what exactly money represents, not abstractly, but concretely. If money was created fraudulently, it's not valid and those who were involved in the fraud need to go to jail, not from a sense of spite, guilt or revenge, but a sense of justice, an understanding of the necessity of the rule of law.

Yesterday, I read one of the most amazing thoughts I've read in the main stream medium in quite a long time. In a LAT book review of one of the members of Pakistan's Bhutto clan, the reviewer writes of Pakistan,

Though this memoir is undeniably intimate, it also offers a political glimpse into a corrupt Pakistan. Government without checks and balances.

Checks and balances. For Pakistan it remains a radical notion, for us it's a conservative one, a practice more important to the success of the American economy than any fairy tale told by our free-market priesthood. While the processes and structures of checks and balances need some updating for the 21st century, it is something for which we can all proudly agree to be American conservatives.

put-backs

2010-10-21T11:18:00.000-07:00

You gonna fuck on me?! -- Mr. Leslie Chow

Boy, it's weird out there in financeland, and no doubt we ain't seen nothing yet. Bloomberg reported the other day something that's still a headscratcher. PIMCO, Blackrock and the NY Fed allied together to begin a process of trying to get Bank of America to repurchase(put-backs) some of the garbage mortgages they sold, so that BofA, not PIMCO, Blackrock, or NY Fed, would be stuck with losses, and folks BofA nor the rest of the big banks can take too many losses without the house of cards that has been built in the last two years comes a tumblin, sucking more money out you, the taxpayer's pocket. Yves Smith points out the process itself would take years, but this needs close watching, as it sure looks peculiar.

First and foremost peculiar is the involvement of the NY Fed trying to make one of its weakest wards take losses. Now, you might ask what the NY Fed is doing with a bunch of bad mortgage securities, well they got them from the Bear Sterns and AIG, which is part of the garbage and losses the Treasury never accounts when they put out their latest piece of propaganda on how the bank bailouts haven't cost tax payers any money. The WSJ succinctly describes this peculiar situation in the following way,

Why is the New York Fed suddenly joining a revolt against the banking system it has worked for two years to shore up? Why is Bank of America a target? Did Pimco and BlackRock gain an advantage in their valuation of the mortgage-backed securities because they are advisers to the New York Fed?

And what kind of discussions did the two companies and regional Fed bank have before going after Bank of America? The answer: none, according to people close to the Fed.

Ho-ho-ho! The piece concludes,

Yet for an American public leery of the ties between government and Wall Street, the new front in the battle over bad mortgages raises a valid question: Just whose interests are the parties involved in the case fighting for?

On Monday, regulators move to run banks they regulated on Friday. Investors sue banks that own them. The government has a policy to prop up a systemically important industry, and then one of its arms drives a hard bargain with one of its weaker links.

Wall Street is much closer to the Jersey Shore than it seems.

Remember, PIMCO came out a few months ago saying some of the bad debt out there needed to be destroyed, and this would seem PIMCO's first shot at trying to define what's good and what's bad money, and they've taken on the most unseemly allies. In a related piece, the Post has an article stating Fannie and Freddie are going to need at least another 200 billion dollars, again money the Treasury never points to when it says the bailouts worked.

Finally, the Irish are deciding what's good and bad money, and they might finally make the bond-holders take some hits. Over the next few years, it's going to be a big fight to decide what's good and what's bad money, and make no mistake, in the immortal words of Mr. Chow, it's all about who is gonna be fucked on.

deflation, technology, and political economy

2010-10-18T14:16:00.000-07:00

In the modern industrial era, there have been three great deflationary periods. The post American Civil War/Populist era, the Depression era, and the Japanese for the past two decades. Deflation remains not very well understood. Each era has some similarities but also great differences. Money definitely plays a role, but how much as cause, opposed to effect, is very much open to debate. At this point, money as prime cause dominates economic thinking. However, massive societal and/or global deflations represent much greater problems than questions on the quantity of money. They represent fundamental imbalances and changes in an economy, driven in large part by technological change. Just as those of the past, our present deflation challenges will not be met without addressing these greater issues of political economy.

The greatest barrier to a more encompassing and valuable understanding of deflation is the almost complete dominance of monetary thinking in all things economic. There hasn't been a great episode of deflation in the United States since the Depression. In the 1970s, once accepted thinking on deflation was supplanted, when it proved ineffectual in meeting the challenges of America's greatest inflationary era. Into the breach stepped monetarism, and for the past 30 years monetary thinking has been not simply dominant, but dictatorial in its rule. How this came about is both important and easier to understand in a political economic sense than a pseudo-scientific economic sense. At the center of the story stands one of American history's greatest and most destructive propagandists, Milton Friedman.

With a revisionist view of the causes of the Depression, Mr. Friedman rose to fame in the early 1960s . He laid all blame at the feet of the Fed. He writes,

The Fed was largely responsible for converting what might have been a garden-variety recession, although perhaps a fairly severe one, into a major catastrophe. Instead of using its powers to offset the depression, it presided over a decline in the quantity of money by one-third from 1929 to 1933 ... Far from the depression being a failure of the free-enterprise system, it was a tragic failure of government.

Lucky for Milton, he had no deflation for the next 40 years to prove his theories wrong. However, it is necessary to understand Mr. Friedman's political objectives, which he states in the last sentence, and they are key to understanding how an obscure academic from the University Chicago could become a major political figure riding a cockamamie revisionist theory of the Depression. Friedman's real objective was political, to loose the power of Wall Street and the mega-corporations, briefly constrained by reforms of the New Deal era. With financial backing from these entities, Mr. Friedman, his allies, and followers gained academic, media, and political power, fundamentally redefining and restructuring political economy in the United States over the past thirty years. Nonetheless, despite his overwhelming success in all these areas, when it comes to deflation, Mr. Friedman's thinking still offers few solutions.

It's easy to see how one can honestly misconstrue money as the greatest factor in deflation, but this is both a historical misreading of events and just as importantly a graver barrier to necessary solutions. One thing the three great deflations have in common; they were preceded by great financial bubbles. However, these bubbles were much more than simple rises in the quantity of money, they represented great underlying distortions of the economy, both as attempts to keep a no longer sustainable status quo, and heralding a rise of new economic structures driven by the adaption of new technology, requiring much bigger fixes than simple money manipulation.

This important dichotomy can best be represented by two men. First, Milton Friedman's greatest disciple, Alan Greenspan, who wrote in 1998,

"While asset price deflation can occur for a number of reasons, a persistent deflation in the prices of currently produced goods and services -- just like a persistence a increase in these prices -- necessarily is, at its root a monetary phenomenon."

As opposed to former Bank of Japan Governor Hayami, who in 2001, with ten years of deflationary experience wrote,

"At a time when prices decline on account of productivity gains based on rapid technological innovation, a forceful reduction in interest rates with a view to raising prices may amplify economic swings."

In these three deflationary eras, these technological innovations have taken various forms and proved as important as money in defining the era. For example, in his seminal work on democracy and America, The Populist Moment, Lawrence Goodwyn writes,

In not the slightest way did silver address the accelerating movement toward industrial combination. As John D. Rockefeller has conclusively demonstrated in the course of creating the Standard Oil Trust, railroad networks were a central ingredient both in the combination movement itself and the political corruption that grew out of monopoly.

Money was an essential element to the Populist enterprise, but it was not alone, nor might it be argued, the greatest. The Populists were very much at war with the rail roads, which in the 1870s and 1880s were completely destructing established American agrarian life. It is imperative to point out, the Populists' concerns were not against rail technology, but how it was controlled. In fact, in the Populists' famous 1892 Omaha Platform, the rail road plank is third, ahead of the finance question:

Third.—We believe that the time has come when the railroad corporations will either own the people or the people must own the railroads, and should the government enter upon the work of owning and managing all railroads, we should favor an amendment to the Constitution by which all persons engaged in the government service shall be placed under a civil-service regulation of the most rigid character, so as to prevent the increase of the power of the national administration by the use of such additional government employees.

Note, importantly, how the Populists were so very concerned with newly concentrated power in turning control of the rail roads over to the federal government, they insisted on a constitutional amendment to check and balance it. Unlike, many of their 21st century progeny, 19th century American citizens understood the democratic imperative of decentralized political power. Though, they found federal control a necessary solution to the rail road problem, they nonetheless remained greatly aware and disconcerted by the idea. However the essential point is the Populists understood the importance of technology in creating their problems, thus included it in the solutions.

Fifty years later, technology played a tremendous role in the Depression's deflation. By the 1920s, the United States was rapidly changing with the implementation of mass electricity, broadcast media, and the automobile. The New Deal's political economy solutions, including establishment of unions, the great electrification projects, and the regulation, in retrospect, the very awful regulation of broadcast media by the federal government, all played as important roles as financial reform in getting the United States out of the Depression. Today, we have new technologies, most importantly the networked microprocessor, fundamentally changing our political economy, particularly in helping foster the control necessary for corporate globalization. This process has greatly contributed to deflationary/stagnant economic environments in Japan, the US, and Europe. The role corporate globalization has played, especially in the development of China and other parts of East Asia, and the resulting impact on the Japanese export economy has not been given nearly enough attention as a cause of Japan's two-decades deflation problems.

In short, deflation is not simply a monetary problem, and thus will not simply be solved with monetary solutions. We need massive financial and monetary reform in this country and across the planet, but they alone will not be sufficient to meeting the challenges facing our greater political economy. We need to fundamentally restructure our entire political economy.

slouching toward bethlehem

2010-10-14T12:27:00.000-07:00

The best lack all conviction, while the worst
Are full of passionate intensity.
-- W. B. Yeats

In 1999, Mr. Bernanke wrote a piece called, Japanese Monetary Policy: A Case of Self-Induced Paralysis?. It lays out perfectly well our dominant Monetarist's thinking on Japan's popped financial bubble and the following decade long, now decades long "slump". The paper exactly lays out the response Mr. Bernanke has thus far taken in response to America's popped financial bubble. More importantly, it reveals the next steps Mr. Bernanke appears ready to undertake. It is a very rational, though quite radical piece, with a very irrational conclusion -- if dumping a bunch of money onto the financial system hasn't worked, the solution is to dump more.

Mr. Bernanke begins,

I tend to agree with the conventional wisdom that attributes much of Japan’s current dilemma to exceptionally poor monetary policy-making over the past fifteen years.

He then proceeds,

Having pushed monetary ease to its seeming limit, what more could the BOJ do? Isn’t Japan stuck in what Keynes called a “liquidity trap”?

He answers,

I will argue here that, to the contrary, there is much that the Bank of Japan, in cooperation with other government agencies, could do to help promote economic recovery in Japan....far from being powerless, the Bank of Japan could achieve a great deal if it were willing to abandon its excessive caution and its defensive response to criticism.

Japan must continue the same actions, only more. Mr. Bernanke then lays out what these actions must be, and they are important because they are the actions the Fed has undertaken in the US with little impact. Now, Mr. Bernanke prepares to up the ante.

In the 1990's, the Bank of Japan dropped interest rates from 6.5% to less than 1%. In 1999, when Mr. Bernanke wrote his paper, interest rates had been below one percent for five years. This was also accompanied by Japan's version of "pretend and extend", where the banks and corporations did not have to account for the bad loans on their books. In short, it was the exact same policy the Fed and Treasury have undertaken here, with very similar results. While, Mr. Bernanke acknowledges one of the great problems Japan faced was lack of demand, despite all the present and historical evidence to the contrary, he advocates greater monetary action will solve the demand problem.

Bernanke's first suggestion is in the realm of traditional central banking, mixed with a call for active propaganda. The bank must keep interest rates at zero and then propagate a high inflation target. He simply dismisses the idea that a central bank has no real ability to meet any given inflation target, as long as it's a solid number he states, it will work.

His second action, now familiar to the US and the rest of the world, is devalue the currency. He writes,

Through its effects on import-price inflation (which has been sharply negative in recent years), on the demand for Japanese goods, and on expectations, a significant yen depreciation would go a long way toward jump-starting the reflationary process in Japan.

Noting currency policy is not under the aegis of a central bank, Mr. Bernanke writes,

On legal authority, it is true that technically the Ministry of Finance (MOF) retains responsibility for exchange-rate policy. (The same is true for the U.S., by the way, with the Treasury playing the role of MOF. I am not aware that this has been an important constraint on Fed policy.)

And there you have it. In the monetarist's mind and no doubt Wall Street's and the banker's, legality is simply a technicality. All power should in fact lie with the Fed, banks, and financiers, and of course, that is exactly what has happened over the course of the last couple decades.

Next, Mr. Bernanke gives his argument against such currency manipulation being viewed hostilely by other nations,

The “political constraints” argument is that, even if depreciation is possible, any expansion thus achieved will be at the expense of trading partners—-a so-called “beggar-thy-neighbor” policy. Defenders of inaction on the yen claim that a large yen depreciation would therefore create serious international tensions...Moreover, the economic validity of the “beggar-thy-neighbor” thesis is doubtful, as depreciation creates trade—-by raising homecountry income—-as well as diverting it. Perhaps not all those who cite the “beggar-thy-neighbor” thesis are aware that it had its origins in the Great Depression, when it was used as an argument against the very devaluations that ultimately proved crucial to world economic recovery.

Again, this is essential to understanding the Fed's actions today. It is the monetarists' revisionism of the Depression era currency turmoil. An important point to make is the devaluations of the 30s took place against an "objective" standard, gold. Today, there is no objective standard, all money is relative, though by devaluing the dollar, the defacto global reserve standard, you're not simply devaluing a currency, you're devaluing the reserve standard itself. In short, the currency turmoils of the 30s were indicative of the great global imbalances developed over decades. Currency turmoil was more an effect, than a cause, and in the end was not solved by further currency manipulations. But when you wield a monetary hammer, every problem looks like a nail.

Mr. Bernanke's final action is one he already has undertaken and is about to expand, Quantitative Easing II, in which the Fed buys government and corporate debt to inject more money into the financial system. Mr. Bernanke writes,

In thinking about nonstandard open-market operations, it is useful to separate those that have some fiscal component from those that do not. By a fiscal component I mean some implicit subsidy, such as would arise if the BOJ purchased nonperforming bank loans at face value, for example (this is of course equivalent to a fiscal bailout of the banks, financed by the central bank). This sort of money-financed “gift” to the private sector would expand aggregate demand for the same reasons that any money-financed transfer does. Although such operations are perfectly sensible from the standpoint of economic theory, I doubt very much that we will see anything like this in Japan, if only because it is more straightforward for the Diet to vote subsidies or tax cuts directly. Nonstandard open-market operations with a fiscal component, even if legal, would be correctly viewed as an end run around the authority of the legislature, and so are better left in the realm of theoretical curiosities.

This is the nut. Here Mr. Bernanke lays out extra-constitutional actions, that far from "theoretical curiosities", he aggressively implemented two years ago, loading up the Fed's balance sheets with garbage paper from the banks. As these actions proved both illegal and insufficient, he is about to embark on a new endeavor, having been met with no rebuke, in fact, he was reconfirmed in his position by the President and the Senate.

The Fed's policies are blowing bubbles in financial markets across the planet, this in turn is further removing the financial markets from the realities of the physical economy. This most likely can go on for quite a long time, but the longer it continues, the more volatile the financial system will become, causing further and further destruction to the real economy, and it must be noted, the rule of law. We need to take new actions. First, people need to go to jail. Second, we need to start writing bad money off the books, not continue creating more of it. We need to restructure the financial system and the big banks need to be broken up. We can take all the excess housing and commercial real estate and use it to create new local "savings and loans", actively controlled by local public entities and private interests, which can only invest in local activities.

There comes a time in history, where the establishment's actions seem to be quite insane. It is a continuing of the actions of the past, despite the obvious fact they aren't working. This recognition is met not with change, but a doubling up on the same actions hoping for different results. Welcome to the Fed's funhouse.

Rule, Britannia, rule of law, and rule of insolvency

2010-10-13T08:24:00.000-07:00

The nations, not so blest as thee,
Must, in their turns, to tyrants fall;
While thou shalt flourish great and free,
The dread and envy of them all.
"Rule, Britannia! rule the waves:
"Britons never will be slaves."
-- James Thomson

Martin Wolf has a nice piece on the Fed's currency war. However, some of his conclusion are at the very least debatable. Wolf writes,

Aggressive monetary policy by reserve-issuing advanced countries, particularly the US, is an element in both processes. The cries of pain now heard around the world, as markets push currencies up against the dollar, partly reflect the uneven impact of US policy. Still more, they reflect the stubborn unwillingness to accept the needed changes, with each capital recipient trying to deflect the unwanted adjustment elsewhere.

To put it crudely, the US wants to inflate the rest of the world, while the latter is trying to deflate the US. The US must win, since it has infinite ammunition: there is no limit to the dollars the Federal Reserve can create. What needs to be discussed is the terms of the world’s surrender: the needed changes in nominal exchange rates and domestic policies around the world.

"The US must win" and " has infinite ammunition", states Mr. Wolf. Phew, whatever happened to the Brits? Note to America: loss of empire not need be accompanied by lost of dignity. Though you wouldn't understand that from the English. Remember Tony Blair and "New Labour", you'd be one of the few. His famous incessant pandering to our modern Millard Filmore, and then more infamously his being led by the leash into Iraq by W and Cheney. Oh Britannia!

The Brits are completely tied to the US at this point economically, so writing from London, Mr. Wolf's perspective is understandable. After all, what do the English have to offer the Chinese? Fish and chips? Debauched royalty as tourist attraction? If they want that, the Chinese can restore their own. While Europe, particularly the Germans must be sighing relief the Brits never got in the Euro, "Ve have Spain, Greece, and the Italians. Nein, Nein, Nein, Englanders!" To prove the point, Germany's central banker was here yesterday saying no more ECB purchases of dead beat governments' bonds.

I guess the biggest question is, has Mr. Wolf read Mr. Bernanke's book, though maybe even Mr. Bernanke hasn't read his own book. Ben's concluded revisionism of the currency turmoils of the late 1920s and 1930s, was the best thing would have been a coordinated devaluation of all currencies. However, by devaluing the global reserve standard--the dollar--Mr. Bernanke is causing the rise of almost every other currency, which is a funny kind of coordinated devaluation. Now what will be even funnier is its hard to see how the rise of a significant number of global currencies will not lead to further global contraction, and thus...wait for it... renewed fleeing to the dollar as a perceived safe haven. Just ask the Japanese how that works. Still, being the largest economy on the planet, America, as Mr. Wolf understands, can throw its weight around, but how it "wins", might not be as expected.

On the "homeland" front, the mortgage fraud fiasco grows. Understand this is an example of the deterioration of the rule of law in this country, particularly regarding the banks and Wall Street. It's been great fun with the bailouts and zero interests rates instigated by the banks' and Wall Street's massive fraud. No one went to jail. Each time the law is not upheld, leads only to more transgressions. Again, Yves Smith is doing bang-up job covering this and she was on it well before everyone, so read Yves.

Since we've replaced the rule of law with the rule of "markets", insolvency remains justices' great arbitrator. Chris Whalen gave an excellent report on the problems foreclosures will cause the banks, concluding,

The U.S. banking industry is entering a new period of crisis where operating costs are rising dramatically due to foreclosures and defaults. We are less than ¼ of the way through the foreclosure process. Laurie Goodman of Amherst Securities predicts that 1 in 5 mortgages could go into foreclosure without radical action.

Rising operating costs in banks will be more significant than in past recessions and could force the U.S. government to restructure some large lenders as expenses overwhelm revenue. BAC, JPM, GMAC foreclosure moratoriums only the start of the crisis that threatens the financial foundations of the entire U.S. political economy.

The largest U.S. banks remain insolvent and must continue to shrink. Failure by the Obama Administration to restructure the largest banks during 2007‐2009 period only means that this process is going to occur over next three to five years –whether we like it or not. The issue is recognizing existing losses ‐‐not if a loss occurred.

Impending operational collapse of some of the largest U.S. banks will serve as the catalyst for re‐creation of RFC‐type liquidation vehicle(s) to handle the operational task of finally deflating the subprime bubble. End of the liquidation cycle of the deflating bubble will arrive in another four to five years.

on money

2010-10-12T08:02:00.000-07:00

Lots of interesting reading if you have any interest in money. The Fed's accomplished in a couple years what many of America's foes have tried for decades: a global questioning on the value of the pax dollar. The Fed's flooding the planet with dollars is certainly creating exciting results. The stock market is up, the bond market is up, commodity markets are up, and emerging markets are exploding higher. In fact, everything seems to be churning up except for American real estate and the American economy, but that just gets Wall Street more excited because it means the Fed's going to keep pumping.

Remember, the Fed put itself in this situation over the past three decades using loose money policies, combined with the financialization of the economy, which required ever looser money policies, especially after the biggest bubble pop two years ago. The Fed's policies have for the banks and Wall Street become one of perpetual profit, there are no losses, except those that can be shifted to the public. The real solutions are simple, but politically nonviable for a government controlled by Wall Street and the banks. Losses must be taken and the financial sector must be shrunk by at least half. As Chris Whalen says in his latest piece,

...the horrible damage that the Bernanke Fed is inflicting upon real American in order to bail out the large Wall Street banks. And the irony is that all of this damage and sacrifice by Dianna and tens of millions of American individuals and businesses who depend upon interest income to survive will be for naught. The Big Banks will have to be restructured...

But the Fed will continue, and this will continue cracking the foundations of global finance. The FT has a nice piece about the last few decades process of globalizing finance. And Michael Hudson has a real good piece on the war launched by the Fed in a failed attempt to save Wall Street and the big banks. Hudson writes,

“Quantitative easing” is a euphemism for flooding economies with credit, that is, debt on the other side of the balance sheet. The Fed is pumping liquidity and reserves into the domestic financial system to reduce interest rates, ostensibly to enable banks to “earn their way” out of negative equity resulting from the bad loans made during the real estate bubble.

The problem is that U.S. quantitative easing is driving the dollar downward and other currencies up, much to the applause of currency speculators enjoying a quick and easy free lunch. Yet it is to defend this system that U.S. diplomats are threatening to plunge the world economy into financial anarchy if other countries do not agree to a replay of the 1985 Plaza Accord “as a possible framework for engineering an orderly decline in the dollar and avoiding potentially destabilizing trade fights.” The run-up to this weekend’s IMF meetings saw the United States threaten to derail the international financial system, bringing monetary chaos if it does not get its way. This threat has succeeded for the past few generations.

Nations are fighting back, the Thais just announced a tax on foreign capital flows, and the Brazilians did the same. But this is all a losing game, for the entire corporate globalization endeavor has been an American game, with our financial system and political class selling-out the American people for a little more lucre.If the Fed and Wall Street want to blow the whole thing up in the name of saving it, nothing or no one can stop them. And this business can go on for a lot longer than anyone believes at this point

There's a breath of hope about ending the lunacy from none other than the Irish. The FT writes(tx yves) the Irish are "opening the door to renegotiation with senior bondholders." Time to get the bad money off the books folks. And then the question, what's good money? The Pax Americana is over, whether its next year or in thirty, so the dollar's reign is at an end too, and that will be better for no one more than America. We need to rethink currencies, local currencies in conjunction with some sort of global money standard, based on the real physical economy such as energy, grains, industrial outputs, Keynes had over fifty things in his monetary "tabular standards." Frankly, that's the easy part, the question is how do you institutionalize it, under what entities? The Fed, or IMF, or World bank, no thanks! We need a rethink on the whole idea of global "order". If we weren't all so caught up trying to save the failed past, it'd be some pretty exciting times for opportunities on creating the future.

hack politics

2010-10-10T07:28:00.000-07:00

Gonna be a twister to blow everything down
That ain't got the faith to stand its ground
Blow away the dreams that tear you apart
Blow away the dreams that break your heart
Blow away the lies that leave you nothing but lost and brokenhearted
-- The Promised Land

Well, the storm for the Dems seems to be whipping-up stronger. The WSJ has a piece about the cracking Northeast and Northwest and if you follow faulty conventional political wisdom, they're supposedly liberal Democratic bastions. They write,

Republican challengers are suddenly threatening once-safe Democrats in New England and the Northwest, expanding the terrain for potential GOP gains and raising the party's hopes for a significant victory in next month's elections.

Republican advances in traditionally Democratic states, including Connecticut, Oregon and Washington, may not translate into a wave of GOP victories. But they have rattled local campaigns and forced the Democrats to shift attention and money to races they didn't expect to be defending.

OK, you hopeless argue the WSJ is just Rupert's rag, another medium for the foul Australian to destroy the United States. That may very well be true, but I'll point you to Jerome Armstrong over at MyDD, and no one has ever accused Jerome of being anything but a good Democrat, Jerome writes,

I step away for a few days, and then look at the polling, and its even worse. And then I read Democratic partisans actually putting in print predictions that Democrats will retain both bodies of Congress (Donna Brazille, Bob Shrum). What are they high on?

The Hotline poll numbers are toxic city for Democratic House incumbents. A slew of 30's and a few scattered low 40's. These are incumbents folks! Anything under 50% and they are 95% out the door.

Well, people like Bob Shrum and Donna Brazille have become very wealthy over the last couple decades destroying the Democratic party. That's their job. They've come to understand it doesn't matter what they say, or if the Dems win or lose, life for them just keeps getting better, thus they can get high on pretty much anything they choose.

Anyway, if Dems lose 60 plus in House, hard to see how they hold the Senate. OK, there's no fun in scaring Democrats. I said a year ago 2010 was no 1994, and it ain't, and to go completely hack, 2012 ain't no way 1996. But we have a lot bigger problems than worrying about which half of our failed political class wins elections, we need a new politics. So, Democrats, in the coming dark nights, remember the wisdom of the Good Doctor, fear is just another word for ignorance.

career opportunities and whigs

2010-10-08T10:18:00.000-07:00

They’re gonna have to introduce conscription
They’re gonna have to take away my prescription
If they wanna get me making toys
If they wanna get me.... well hell, I got not choice
Career opportunities the ones that never knock
Every job they offer you is to keep you out the dock
Career opportunities, the ones that never knock
Career opportunities ain't never gonna knock
-- Career opportunities

The new jobs report was out and the economy to no one's surprise is still not creating jobs. But lets be honest for a second here, the servant's economy has for the majority been producing shit jobs for a couple decades now. Which get's to the bigger problem -- left, right and center -- all talk of the economy is about getting back to where it was, not only is that not going to happen, but there were tremendous problems there. To really talk about "fixing" the economy, we need to talk about changing it, because it's never going to be fixed without changing it. So for example, you want jobs, lets talk about the 40 hour workweek. Oh, the unison cries of horror that arise across the political spectrum, getting to the even larger point. America is conservative in a very weird way. There's great nobility in a genuine conservatism, sometimes change isn't the right thing. But American conservatism, and this cuts across the political spectrum is conservative of many things which a few decades ago, or at most a century ago, didn't even exist. It's weird Bubba.

In such times, one must be very wary of dismissing people, because good ideas can come from strange places. Such is this case with Tony Blankley's nice little piece entitled, "Which Party Dies?". Blankley goes back to the 1850s, to the last death of a great American party, the Whigs, writing,

The New York Times has written in explaining why the political parties have lost the confidence of the public: "Their machinery of intrigue, their shuffling evasions, the dodges, the chicanery and the deception of their leaders have excited universal disgust, and have created a general readiness in the public mind for any new organization that shall promise to shun their vices."

The New York Evening Post, in explaining the same condition has written that the people "saw parties without any difference contending for power, for the sake of power. They saw politics made a profession, and public plunder an employment. ... They beheld our public works the plaything of a rotten dynasty, enriching gamblers, and purchasing power at our expense."
The dates of those articles were November and December 1855.

Remember, the Whigs controlled the Congress and presidency in 1852, by 1856 the Whigs no longer existed. The advantage toward extinction lies with neither party at this point, while the major question, and difference, today, is it a survival advantage or disadvantage that the parties only exist in name? If we're going to fix our economy, we have to fix our politics, and as far as that rotted state of affairs, there's absolutely nothing to be conservative about.