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Power User
Posts: 9483

« Reply #550 on: August 21, 2009, 10:03:02 AM »

Big Government, Big Recession
There's no evidence for the theory that state spending has shortened this or any other slowdown.


‘So it seems that we aren’t going to have a second Great Depression after all,” wrote New York Times columnist Paul Krugman last week. “What saved us? The answer, basically, is Big Government. . . . [W]e appear to have averted the worst: utter catastrophe no longer seems likely. And Big Government, run by people who understand its virtues, is the reason why.”

This is certainly a novel theory of the business cycle. To be taken seriously, however, any such explanation of recessions and recoveries must be tested against the facts. It is not enough to assert the U.S. economy would have experienced a "second Great Depression" were it not for the Obama stimulus plan.

Even those who think government borrowing is a free lunch can't possibly believe the government has already done enough "stimulus spending" to explain the difference between depression and recovery.

CNNMoney recently calculated that the stimulus plan has spent just $120 billion—less than 1% of GDP—mostly on temporary tax cuts ($53 billion) and additional Medicaid, food stamps and unemployment benefits. Less than $1 billion has been spent on highway and energy projects. Commitments for the future are much larger, but households and firms can't spend commitments.

Proponents of Big Government can't say we avoided the next Great Depression due to hypothetical stimulus money that is mostly unspent. So they argue it's more important that the federal government merely continued spending and didn't "slash" spending as in the early 1930s. But the federal government didn't slash spending in the early '30s. Federal spending rose by 6.2% in 1930, 7.7% in 1931 and 30.2% in 1932. Since prices were falling, real increases in federal spending were huge during the Hoover years.

President Obama clearly believes Big Government is the antidote to this and perhaps all recessions. At his first news conference in February, the president said, "The federal government is the only entity left with the resources to jolt our economy back to life." Yet that raises a key question: If the U.S. economy could not recover without a big "jolt" of deficit spending, then how did the economy recover from recessions in the distant past, when the federal government was very small?

A 1999 study in The Journal of Economic Perspectives by Christina Romer (now head of the Council of Economic Advisers) found that "real macroeconomic indicators have not become dramatically more stable between the pre-World War I and post-World War II eras, and recessions have become only slightly less severe." Ms. Romer also noted that "recessions have not become noticeably shorter" in the era of Big Government. In fact, she found the average length of recessions from 1887 to 1929 was 10.3 months. If the current recession ended in August, then the average postwar recession lasted one month longer—11.3 months. The longest recession from 1887 to 1929 lasted 16 months. But there have been three recessions since 1973 that lasted at least that long.

The relative brevity of recessions before the New Deal is particularly surprising since the U.S. economy was then dominated by farming and manufacturing—industries far more prone to nasty cyclical surprises than today's service-based economy.

In the late 19th and early 20th centuries, nobody thought the government could or should do anything except stand aside and let the mistakes of business and banking be fixed by those who made them. There were no Keynesian plans to borrow and spend our way out of recessions. And bankers had no Federal Reserve to bail them out until 1913. Yet recessions after the Fed was created soon turned out to be much deeper than before (1920-21, 1929-33, 1937-38) and often more persistent.

It's clear that U.S. history does not support the theory that Big Government means shorter and milder recessions. In reality, recessions always ended without government prodding, long before anyone heard of Keynes and long before the Fed existed. What's more, recessions ended more quickly before the New Deal's push for Big Government than they have in the past three decades. The economy's natural recuperative powers before the 1930s proved superior to recent tinkering by Big Government economists, politicians and central bankers.

The recent experience of other countries provides another way to test the Big Government theory of economic recovery. If it is true that Big Government prevents or cures recessions, then countries where government accounts for the largest share of GDP should have suffered much smaller losses of GDP over the past year than countries where the private sector is dominant.

The chart nearby lists 13 major economies by the size of government spending relative to GDP using OECD figures for 2007 (the U.S. is well above 40% by 2009). Europe's big spenders are at the top, the U.S. and Japan are in the middle, and fiscally frugal countries like China and India are at the bottom.

The last column shows the change in real GDP over the most recent four quarters—ending in the second quarter for the U.S., U.K., Germany, Japan, France, Italy, Sweden and China, but the first for the rest. Four of the five deepest contractions happened in countries with the biggest governments—Sweden, Italy, Germany and the U.K. Japan's government spending in 2007 was about like ours, but Japan's tax rates are far more punitive and the economy has suffered endless "fiscal stimulus" packages. China's central government spent 22% of GDP, but 30%-plus with local government included.

To believe Big Government explains why this extremely long recession was not even longer, we need to find some connection between the size of government and the depth and duration of recessions. There is no such connection in U.S. history, or in recent cyclical experience of other countries.

On the contrary, recessions have become longer as the U.S. government (and the Fed) became larger, more expensive, and more involved in the economy. Foreign countries in which government spending accounts for about half of the economy have also suffered the deepest recessions lately, while economic recovery is well established in countries where government spending is a smaller share of GDP than in the U.S.

In short, bigger government appears to produce only bigger and longer recessions.

Mr. Reynolds is a senior fellow with the Cato Institute and the author of "Income and Wealth" (Greenwood Press, 2006).
Power User
Posts: 15533

« Reply #551 on: August 21, 2009, 02:19:39 PM »

Update--Teetering on the edge of economic collapse
August 21, 1:13 PM · Anthony G. Martin - Columbia Conservative Examiner
From Karl Denninger at the Market Ticker:


As we reported last week in this stunning revelation by some of the nation's top economists, contrary to the mantra of the Obama Administration that the financial stability of the U.S. is growing more secure and that his stimulus program 'is working,' the Federal Reserve and the U.S. Treasury Department have been engaging in covert practices that indicate our economy is in deep trouble, teetering on the edge of collapse.

By monetizing part of the nation's debt by printing more money to cover it and then quickly selling off the bonds at auction, the Fed hopes it can avoid the hyper-inflation that normally ensues with our current economic policies. But it does so at a huge price.  Even more debt is added to the already mind-boggling multi-trillion-dollar national debt that threatens to unravel the entire U.S. economy.

The quote provided above concerning the Treasury's continued practice of auctioning off various notes and bills is an ominous signal that the economy is still very sick and is actually getting sicker.

As Karl Denninger states in the Market Ticker article cited above:

I count $207 billion, coming two weeks after a $250 billion dollar week.

Let's annualize - that would be about $5 trillion a year in annualized issuance.  My-oh-my how long can this continue?

Who knows.  What I do know is that this is absolutely unsustainable, it is approaching 40% of GDP annually, and yet this is what is required to keep all the balls and plates in the air as a direct consequence of our government's decision to sponsor and permit massive financial system fraud to continue.

The world's tolerance for this will eventually end and before it does our government had better have changed their tune and cleaned up the mess, because if that has not taken place first the economic consequences will be catastrophic.

This amounts to sheer insanity.  The Federal Government is playing a game of Russian Roulette with the American economy, and the only question is which pull of the trigger will result in a deadly shot to the nation's core, resulting in a shut-down of banks, financial investment firms, insurance giants, and mortgage corporations.

A concrete example of just how precarious the economy really is lies in General Electric's renewed financial woes.  GE benefited handsomely from the Obama bailout plan, receiving multi-billions of taxpayer dollars for which it reciprocated by overtly supporting Obama's 'green initiative' and promoting his agenda on its television networks--NBC, MSNBC, and CNBC.

Even after gobbling up our tax dollars, GE is still in trouble and is rumored to be looking for another handout from Obama and company, courtesy of the taxpayers.

This is not to mention that one of the largest banks in the South, Colonial Bank of Alabama, was seized by the FDIC last week and is thus the largest single bank failure so far this year.

And look out for auto repossessions to go through the roof when all of those that Obama and the Dems enabled to buy a car through the 'cash for clunkers' program suddenly discover in a few months they cannot afford that new vehicle.

We can also look for the jobless rate to spike significantly in August.

Take evasive action, secure your finances, and batten down the hatches.  We are nowhere near the end of this mess, and the worst may be yet to come.
Power User
Posts: 15533

« Reply #552 on: August 21, 2009, 03:11:27 PM »

China reduces holdings in US debt 
China wants to establish a new global currency regime
China reduced its holdings of US government debt by the largest margin in nearly nine years in June, according to data from the US Treasury.

China holds more US government debt than any other country and cut its holdings of US securities by more that 3% in June, said the BBC's Chris Hogg.

Japan and the UK - second and third largest holders of US debt - increased their holdings over the same period.

China's holding of US debt is about 7% higher than at the turn of the year.

Inflation fear

In recent months the US government's budget deficit has widened thanks in part to the Obama administration's costly stimulus plan.

Our correspondent in Shanghai says that China is worried about this, and fears the stimulus efforts will fuel inflation in the US, reducing the value of the dollar.

This would then erode the value of the debt China holds in the US currency.

In June, China cut its holdings of US securities by about $25bn, a fall of 3.1%.

'Dollar alternative'

The sales were made as the US treasury secretary was visiting Beijing to try to reassure the Chinese that their investment in his country's government debt is safe.

In 2008, the Chinese increased their holdings in US debt by 52% over 12 months.

"China has said it would like to establish an alternative to the US dollar as the world's favoured currency for foreign exchange reserves," said our correspondent.

"So far there is no evidence that there is a suitable alternative. But these figures suggest they are exploring ways to diversify their investments where they can."
Power User
Posts: 15533

« Reply #553 on: August 21, 2009, 05:10:44 PM »

Obama to raise 10-year deficit to $9 trillion
Fri Aug 21, 2009 5:54pm EDT
By Jeff Mason

WASHINGTON (Reuters) - The Obama administration will raise its 10-year budget deficit projection to approximately $9 trillion from $7.108 trillion in a report next week, a senior administration official told Reuters on Friday.

The higher deficit figure, based on updated economic data, brings the White House budget office into line with outside estimates and gives further fuel to President Barack Obama's opponents, who say his spending plans are too expensive in light of budget shortfalls.

The White House took heat for sticking with its $7.108 trillion forecast earlier this year after the Congressional Budget Office forecast that deficits between 2010 and 2019 would total $9.1 trillion.

"The new forecasts are based on new data that reflect how severe the economic downturn was in the late fall of last year and the winter of this year," said the administration official, who is familiar with the budget mid-session review that is slated to be released next week.

"Our budget projections are now in line with the spring and summer projections that the Congressional Budget Office put out."

The White House budget office will also lower its deficit forecast for this fiscal year, which ends September 30, to $1.58 trillion from $1.84 trillion next week after removing $250 billion set aside for bank bailouts.

Record-breaking deficits have raised concerns about America's ability to finance its debt and whether the United States can maintain its top-tier AAA credit rating.

Politically, the deficit has been an albatross for Obama, a Democrat who is pushing forward with plans to overhaul the U.S. healthcare industry -- an initiative that could cost up to $1 trillion over 10 years -- and other promises, including reforming education and how the country handles energy.


Republicans have pounced on Obama for planning to spend too much when deficits are so high, and the issue is likely to loom large in next year's Congressional elections.

Obama, who has promised to halve the deficit by the end of his four-year term and likes to remind constituents he inherited a $1.3 trillion deficit from former President George W. Bush, says bringing down healthcare costs is critical to long-term deficit reduction.

Treasury markets have been worried all year about the mounting deficit. The United States relies on large foreign buyers such as China and Japan to cheaply finance its debt, and they may demand higher interest rates if they begin to doubt that the government can control its deficits.

"It's one of those underlying pieces of news that is liable to haunt the bond market at some point in the future," said Kim Rupert, managing director of global fixed income analysis at Action Economics LLC in San Francisco, referring to the revised 10-year deficit projection.

Many economists think it is unlikely the government can curtail spending, which means taxes would have to go up to cover the rising costs of providing retirement and healthcare benefits to aging Americans.

Higher taxes, which could slow economic growth, are also a major concern of voters on both sides of the political divide. Obama has promised not to raise taxes on Americans making less than $250,000 a year.

(Additional reporting by Butron Frierson in New York; editing by Chris Wilson)
Power User
Posts: 9483

« Reply #554 on: August 21, 2009, 09:18:23 PM »

Scary data, Obama's own estimates are $9.1 trillion starting 2010 (up $2 trillion today while leaving for Martha's Vineyard) plus this year's new debt...and that is without healthcare?? Who can comprehend new debt into the tens of trillions much less find someone in a position to lend it.

The Fed is printing the paper money first and selling bonds second.  If one of us financed major debt with float, we would be guilty of a federal felony of check kiting. With Madoff, they called the same thing a Ponzi scheme.

We can follow the Mexican example where the nuevo peso in place of a thousand old pesos; as they did, we will need a new dollar $ign to signify the new, devalued American currency.  sad
Power User
Posts: 15533

« Reply #555 on: August 21, 2009, 09:22:48 PM »

If people are seeing "green shoots" it's more likely putrefaction rather than growth.
« Reply #556 on: August 25, 2009, 11:02:12 AM »

You Will Have Ben Bernanke to Kick Around

Tim Cavanaugh | August 25, 2009, 6:26am

Federal Reserve Chairman Ben Bernanke is expected to get reappointed at 9 o'clock this morning. In honoring the man who in 2006 was still talking about solid fundamentals and a soft landing in the real estate market, and who predicted growth in the second half of 2007, President Obama will express gratitude on behalf of all the peoples of Planet Earth, with special praise for Bernanke's leadership "through one of the worst financial crises that this nation and this world have ever faced."

Got it? Not just this nation but this world. Self-dramatization buffs take note: This recession dwarfs not only the Panic of 1837 and the Great Depression, but the South Sea Bubble, Egypt's seven-year famine in the Book of Genesis, and whatever killed the Mayans. We're all heroes, just for being here, dammit!

The great missed opportunity is not economic (given that Larry Summers was in serious contention as a Bernanke replacement, the move may in fact be a blessing), but political. In the wake of the health care debacle, Americans are feeling the kind of misgivings not felt since Britney Spears woke up to Jason Alexander. Obama has demonstrated his fondness for announcing grand schemes in a golden cloud of "understand one things" and "let there be no doubts," but he has provided no evidence that he has an interest in the nuts-and-bolts job of keeping his customers satisfied. This is the moment for the president to give up the illusion of vision and start creating the illusion of results.

My advice: After the vacation that should have been in Hawaii, come back and fire Treasury Secretary Tim Geithner. Then announce that Bernanke will not be reappointed. Then announce that you've called together an international team of ninja economists and financial titans -- I mean stellar people, blue ribbon right down to their white shoes -- to craft a better, smarter Stimulus II (actually Stimulus IV or V, but who's counting?). Then spend the fall doing photo-opps with small business owners and chambers of commerce around the country, vowing to get this economy moving again -- for real American working families and such.

Nobody will be fooled, any more than anybody outside the Beltway is fooled by the "signs of life" and "green shoots" flapdoodle the Administration and its stooges keep ladling out. But they'll appreciate the gesture. And with luck we may see just one more big money dump rather than the methodical destruction of the federal budget.

Most people recognize that the economy is out of the president's control. They just don't like seeing Washington and Wall Street use this supposed disaster as an excuse to loot and pillage. This is a bigger political problem than Obama seems to understand.
« Reply #557 on: August 28, 2009, 09:35:30 AM »

Worse and Worser

By Randall Hoven
The Congressional Budget Office came out with an update to its predictions of the federal budget this week.  For some reason, the CBO did not title its report "Hell In A Hand Basket."

It is difficult to put all these predictions into easily understandable apples-to-apples comparisons.  But I will try.  One thing that messes up the understanding is that the White House or Treasury comes out with predictions as well the CBO, and usually at about the same time, so that there are always multiple estimates of about the same things.

Here is my tip for getting a grip on such predictions: ignore all predictions coming from the Obama administration.  To keep things simple and within an order of magnitude of the truth, stick with CBO estimates.  Not that the CBO is perfect, but (a) it is more accurate than anything coming from Obama, and (b) its predictions are apples-to-apples comparable to each other.

In March, the CBO came out with a report that included predictions for two different scenarios: a "baseline" scenario and an "Obama budget" scenario.    It also updated that report in June.  In August, the CBO updated only one of those predictions, its "baseline" one.  (Format note: the embedded links here are directly to pdf versions of the CBO reports.  In the first two reports, look for Table 1-1.  In the August report, look for Table 1.)

The CBO's "baseline" is an estimate of what will happen if Congress does nothing new and just lets existing law continue.  If tax breaks expire, Congress lets them expire, etc.  The CBO also assumes discretionary spending will go up merely at the pace of inflation.  The "baseline" is not quite what Bush left for Obama, since it includes legislation passed already, such as the $787 B stimulus and the $410 FY 2009 reconciliation budget, both passed in 2009 under Obama.

The CBO's "Obama" estimate is based on Obama's proposals being adopted, rather than continuing with the current law.  Obama's proposals are documented in his budget, originally submitted February 26 and updated May 7.  This budget is not yet law; it is what Congress is considering right now.  Also, this budget includes neither Obamacare nor Cap & Trade.

In order to compare all these predictions, each full of numbers and assumptions, I provide only the predictions of the cumulative deficit over 2010-2019.

"Baseline" from March report:  $4.441 trillion.

"Obama budget" from March report:  $9.270 trillion.

"Baseline" from June report: $4.441 trillion.

"Obama budget" from June report:  $9.139 trillion.

"Baseline" from August report:  $7.137 trillion.

Note a few things.  First, Obama's budget would more than double the long-term deficit, from $4.4 T to about $9.2 T, when estimated apples-to-apples.  Secondly, the baseline estimate has gone up $2.7 T, or 61% just between June and August.  Third, we do not have such an updated estimate for Obama's budget.

If CBO would re-do its estimate for Obama's budget like it did for the baseline case, we could expect the 2010-2019 cumulative deficit to be $12 T to $15 T if Obama gets his way -- before Obamacare or Cap & Trade or anything else new.

Let's be clear here.  If Congress from here out does nothing but maintain the dreaded status quo, we are on an unsustainable budget path.  A path of structural deficits never going below $500 B or 3% of GDP in any year from now on.  A path that leaves us with a public debt of about 67% of GDP from 2011 on, or a level not seen since Truman was paying off World War II.

That's the good news.  The bad news is if Obama gets his way.  If he does, essentially double everything: annual deficits more like $1 trillion or 6% of GDP every year.  Debt held by the public will reach at least 80% of GDP, if not 90% or more.

You need to note something else about all this.  We are talking 2010 and beyond.  Obama expects our current recession to end this year.  Most economists expect the same thing.  Years from 2010 on are expected to be post-recession years.  To be explicit, that means that even Keynesians would say fiscal stimuli are not needed in those years.

Yet we spend like crazy, non-stop, that entire time!  This is not about fixing the current recession.

Critics (e.g., the Washington Post) always like to remind us of Cheney's quote, "Reagan proved deficits don't matter."  I don't think Cheney meant just any deficits, but deficits of limited size and duration.  Size and endurance matter.

In Reagan's eight years, 1981-88, the deficit averaged 4.2% of GDP, with the worst year being 6.0%. Under George W. Bush, 2001-2008, the deficit averaged 2.0% of GDP, with the worst year being 3.6%.

Now let's look at CBO's forecast of Obama's deficits for 2009-2016.  The average deficit will be 6.3% of GDP, with a worst case of 13% and a best case of 3.9%.  And these are the rosy predictions, the June predictions -- before being updated in August as the baseline scenario was.

Do you get the size and endurance differences?  Obama's average will be worse than Reagan's worst single year.  Obama's best will be worse than Bush's worst single year.  Obama's average will, in fact, be worse than any year since 1930 except for World War II.  That means unprecedented in peacetime.

What's more, the numbers under Obama never get better.  The picture doesn't clear up with the end of this recession.  The deficit will be 5.6% of GDP, and the public debt 82% of GDP (unprecedented in peacetime), in 2019.  But again, those are the rosy numbers.

Obama's budget is now being considered by Nancy Pelosi's House and Harry Reid's Senate.  Do you think the tweaks they make to Obama's budget will increase or decrease the deficit?  Obama's budget did not include health care reform.  The health care bill currently being considered (H.R. 3200) was estimated to add $1 trillion to the 2010-2019 cumulative deficit, per the CBO.

Things were bad in 2008.  What Obama did early ($787 B stimulus, $410 B reconciliation, $350 B TARP part II) made them worse.  What he put in his February budget would make them even worse.  What he proposed after that budget (health care reform with a public option, cap and trade emissions legislation) would make them yet worse again.

Every single proposal from this President makes the budget outlook worse.  Much worse.  Unprecedented in peacetime worse.  Third World basket case, debtor-nation, worse.  Can we get anything from this man that is not a 1,000 page piece of legislation that costs $1 trillion and needs a new czar?

Let's grant, for the sake of argument, that Obama was handed a terrible situation.  He was made captain of a ship that was leaking and close to sinking.  But instead of patching the leaks, he is taking an ax to everything.  He says we can't live with the status quo.

Can we please not save this country by destroying it?

Randall Hoven can be contacted at or  via his web site,

Correction: The text above has been corrected. The average deficit of the Reagan years was 4.2%,  not 2.4% as first stated.

Page Printed from: at August 28, 2009 - 10:34:05 AM EDT
Power User
Posts: 9483

« Reply #558 on: August 28, 2009, 10:18:27 AM »

I don't know if Krugman formally advises the administration or is just their chief apologist in the media. Forget about Cheney allegedly saying Reagan proved deficits don't matter, this Nobel prize winner thinks 10 trillion is good but more would be better. 

At the heart of the differences in philosophy is the belief in government intervention, a never-ending so-called Keynesian stimulus of demand, versus a supply side view that if government reduced its role of crowding out the private sector in terms of taxing, spending and regulating, the economy would flourish faster, freer and stronger, without all the man-made 'business cycles'.

Could have run this in 'Humor/WTF' but I swear to God this is his column...

Till Debt Does Its Part

Published: August 27, 2009

So new budget projections show a cumulative deficit of $9 trillion over the next decade. According to many commentators, that’s a terrifying number, requiring drastic action — in particular, of course, canceling efforts to boost the economy and calling off health care reform.

The truth is more complicated and less frightening. Right now deficits are actually helping the economy. In fact, deficits here and in other major economies saved the world from a much deeper slump. The longer-term outlook is worrying, but it’s not catastrophic.

The only real reason for concern is political. The United States can deal with its debts if politicians of both parties are, in the end, willing to show at least a bit of maturity. Need I say more?

Let’s start with the effects of this year’s deficit.

There are two main reasons for the surge in red ink. First, the recession has led both to a sharp drop in tax receipts and to increased spending on unemployment insurance and other safety-net programs. Second, there have been large outlays on financial rescues. These are counted as part of the deficit, although the government is acquiring assets in the process and will eventually get at least part of its money back.

What this tells us is that right now it’s good to run a deficit. Consider what would have happened if the U.S. government and its counterparts around the world had tried to balance their budgets as they did in the early 1930s. It’s a scary thought. If governments had raised taxes or slashed spending in the face of the slump, if they had refused to rescue distressed financial institutions, we could all too easily have seen a full replay of the Great Depression.

As I said, deficits saved the world.

In fact, we would be better off if governments were willing to run even larger deficits over the next year or two. The official White House forecast shows a nation stuck in purgatory for a prolonged period, with high unemployment persisting for years. If that’s at all correct — and I fear that it will be — we should be doing more, not less, to support the economy.

But what about all that debt we’re incurring? That’s a bad thing, but it’s important to have some perspective. Economists normally assess the sustainability of debt by looking at the ratio of debt to G.D.P. And while $9 trillion is a huge sum, we also have a huge economy, which means that things aren’t as scary as you might think.

Here’s one way to look at it: We’re looking at a rise in the debt/G.D.P. ratio of about 40 percentage points. The real interest on that additional debt (you want to subtract off inflation) will probably be around 1 percent of G.D.P., or 5 percent of federal revenue. That doesn’t sound like an overwhelming burden.

Now, this assumes that the U.S. government’s credit will remain good so that it’s able to borrow at relatively low interest rates. So far, that’s still true. Despite the prospect of big deficits, the government is able to borrow money long term at an interest rate of less than 3.5 percent, which is low by historical standards. People making bets with real money don’t seem to be worried about U.S. solvency.

The numbers tell you why. According to the White House projections, by 2019, net federal debt will be around 70 percent of G.D.P. That’s not good, but it’s within a range that has historically proved manageable for advanced countries, even those with relatively weak governments. In the early 1990s, Belgium — which is deeply divided along linguistic lines — had a net debt of 118 percent of G.D.P., while Italy — which is, well, Italy — had a net debt of 114 percent of G.D.P. Neither faced a financial crisis.

So is there anything to worry about? Yes, but the dangers are political, not economic.

As I’ve said, those 10-year projections aren’t as bad as you may have heard. Over the really long term, however, the U.S. government will have big problems unless it makes some major changes. In particular, it has to rein in the growth of Medicare and Medicaid spending.

That shouldn’t be hard in the context of overall health care reform. After all, America spends far more on health care than other advanced countries, without better results, so we should be able to make our system more cost-efficient.

But that won’t happen, of course, if even the most modest attempts to improve the system are successfully demagogued — by conservatives! — as efforts to “pull the plug on grandma.”

So don’t fret about this year’s deficit; we actually need to run up federal debt right now and need to keep doing it until the economy is on a solid path to recovery. And the extra debt should be manageable. If we face a potential problem, it’s not because the economy can’t handle the extra debt. Instead, it’s the politics, stupid.    - Paul Krugman, NY Times
The $10 trillion estimate is low UNLESS there is a change of government.  What is the cost of the new, permanent debt when interest rates hit 15% or 20% and GDP growth is at 0.00?  - Doug
Power User
Posts: 15533

« Reply #559 on: August 28, 2009, 10:55:27 AM »

Australian Broadcasting Corporation



Broadcast: 11/03/2004

Krugman calls on Bush to reign in the red

TONY JONES: Well, the US is not just labouring under a record trade deficit, there are warnings tonight that its budget deficit could precipitate a Latin American style financial crisis.

Influential economist Paul Krugman says the US will face a severe downturn before the end of the decade unless the $500 billion fiscal debt is rectified.

In his latest book, The Great Unravelling, the Princeton University economist is calling on President Bush to abandon his program of trillion dollar tax cuts, otherwise, he claims, there may not be enough funds to pay for the waves of baby boomers who will soon retire.

I spoke to Paul Krugman a short time ago.

TONY JONES: Paul Krugman, history proved your predictions right over the Asian financial crisis.

You're now warning essentially that the engine of the world economy, the United States itself, is heading for a South American style financial crisis.

What's the evidence for that?

PROFESSOR PAUL KRUGMAN, PRINCETON ECONOMIST: Well, basically we have a world-class budget deficit not just as in absolute terms of course - it's the biggest budget deficit in the history of the world - but it's a budget deficit that as a share of GDP is right up there.

It's comparable to the worst we've ever seen in this country.

It's biggest than Argentina in 2001.

Which is not cyclical, there's only a little bit that's because the economy is depressed.

Mostly it's because, fundamentally, the Government isn't taking in enough money to pay for the programs and we have no strategy of dealing with it.

So, if you take a look, the only thing that sustains the US right now is the fact that people say, "Well America's a mature, advanced country and mature, advanced countries always, you know, get their financial house in order," but there's not a hint that that's on the political horizon, so I think we're looking for a collapse of confidence some time in the not-too-distant future.

TONY JONES: When you say the not-too-distant future, what does that mean?

We know there may be a crisis in paying, for example, in social security...

PROFESSOR PAUL KRUGMAN: What I envision is that at some point, we have about 10 years now until the baby boomers hit the United States.

The US even more than other advanced countries has a welfare state that's primarily a welfare state for retirees.

We have the huge bulge in the population that starts to collect benefits and earn the next decade.

If there isn't a clear path towards fiscal sanity well before that, then I think the financial markets are going to say, "Well, gee, where is this going?"

I think, where in that 10 years the crunch comes, I don't know.

I think there's a real possibility that next year or one or two years from now, when they see that actually the same irresponsible tax cuts as the solution to everything continue, we might have a crisis that soon but more likely towards the end of the decade.

TONY JONES: Let me ask you this - just in the short-term, given today's policy settings and the ones that are going to prevail, we assume, through the election period, what's likely to happen to interest rates?

PROFESSOR PAUL KRUGMAN: Right now, long-term interest rates, short-term interest rates, I think, are going to stay where there are, which is not far above zero, right through the election and probably beyond because that's directly under the control of the Federal Reserve.

The economy is weak for the time being.

Job creation is essentially non-existent.

Long-term interest rates which should reflect all these things are actually quite low right now and it's an interesting thing when you try to talk to people in the bond market, why, you ask, doesn't the deficit worry you?

Don't you wonder that there's going to be a financing crunch?

And they say: "Well, we believe that next year Bush or whoever is in the White House is going to get responsible."

And you ask them: "What evidence do you have for that?"

And they say: "Well, I don't know but it's always happened before."

So right now again, the bond market is reflecting the credit built up in previous responsible governments.

TONY JONES: Actually the bond market's quite interesting because for the present moment there seems to be a huge influence on the US economy from the Asian central banks.

Is that risky?


Although, I'm not sure that it's particularly riskier than a lot of other things. But yeah, we have this, I didn't say this, but we've got twin deficits.

We've got a huge budget deficit and an equally large current account deficit.

And if you ask, "How are we financing the current account deficit?", well that's a story.

A few years ago it was foreigners investing in the United States.

It was Daimler buying Chrysler, it was people investing in the strength of the US economy.

These days it's Asian central banks buying up US Government debt because they're trying to keep their currencies weak against the dollar and this can't go on forever.

TONY JONES: Your detractors - and there are quite a few of them on the Republican side of the equation - they're accusing you of scare mongering?

PROFESSOR PAUL KRUGMAN: The first thing to say is to look at what some of those same people were saying in the middle of the Clinton years when the deficit was substantially smaller as a proportion of GDP and they were carrying on about what a bad thing it was.

The other thing is the comparison.

The only time post war that the United States has had anything like these deficits is the middle Reagan years and that was with unemployment close to 10 per cent.

A lot of that was a cyclical thing which would go away when the economy recovered.

Also the baby boomers were 20 years younger than they are today.

If you look at the actual fiscal situation, it's much, much worse than it was even at its worst during the Reagan years. One way to say this is we have social security which is a retirement program which viewed on its own is running a surplus.

If you take that out of the budget then we're running at a deficit of more than 6 per cent of GDP and that is unprecedented.

TONY JONES: One of your fiercest critics, Donald Luskin, seems to fear you because of your very credibility and your plausibility.

As he puts it, you're the most "dangerous liberal commentator in the United States".

He says he once admired you but now he actually runs a website called the Krugman Truth Squad?


Well, look this is good.

Something I used - let them hate as long as they fear.

I think the point is, let me quote Harry Truman: "I give them the truth and they think it's hell."

I don't think I've been saying anything that isn't quite straight forward.

It's just arithmetic but it's been stuff that a lot of, very few journalists have been willing or able to say.

TONY JONES: It's a bit more than arithmetic though, isn't it?

Would you agree with the proposition that you're slowly transforming yourself, in a way, from a pure economist into also something of a political activist?

PROFESSOR PAUL KRUGMAN: Well, yeah, I mean, it's not what I intended. But I came in writing as a journalist, writing occasional columns in the 90s, mostly about economical fears with a political tinge.

I came to the New York Times intending to do pretty much the same thing.

But then it became clear very early on that the President of the United States was irresponsible and dishonest on matters economic and it turned out that what I learned there was true of other kind of policies as well.

So, I was forced, if you like, just by the arithmetic of understanding how the budget works into a much broader critique of this really kind of scary thing that's happening to my country.

TONY JONES: Let's look a little bit at that broader critique that you outline in The Great Unravelling, your new book.

You claim that President Bush is part of the radical right and that America has become a revolutionary power.

How did you come to those conclusions?

PROFESSOR PAUL KRUGMAN: If you look at the policies and in a variety of areas, they're not within the range of normal partisan divides.

That is, Republicans always want lower taxes and Democrats a bigger state.

There are always disagreements about how strong environmental policies should be, but we're really way outside that now.

We're talking about repeated tax cuts in the face of enormous deficits and in the face of war.

Never done that before.

We're talking about a shift towards unilateralist foreign policy.

We've just gone to war without significant allies other than the UK to destroy weapons that didn't exist.

This is something that's kind of unique.

We're seeing a radical breakdown of the separation of church and state in a lot of policy issues.

This is something that's really outside normal politics and then if you just look at the political history, where do these people come from - you discover that there is a network of think tanks, organisations, funding sources, radical activists - which really, it's more than just an ordinary swing of the political pendulum.

If you like, the vast right-wing conspiracy isn't a theory, it's quite clearly visible to anyone who takes a little care to do his home work.

TONY JONES: One of those think tanks, of course, is the Heritage Foundation which was set up in a way to boost a series of ideological positions on the economy, on the social front and is now, you say, virtually running, to some degree, a lot of economic policy and one of the things they say, for example, is that social security and Medicare are violations of basic principals?


Heritage is central.

Heritage is in the middle of everything.

Almost every - if you like, the WAPs, the policy types such as they are, as opposed to the politicos - but the WAPs in this administration are almost all connected with Heritage or American Enterprise Institute but one or both of those.

And Heritage very clearly in its letters to fund raisers reminds them that our goal is to get rid of these programs, that we need to get rid of the legacy of the new deal on the great society and that means social security and Medicare.

TONY JONES: Now here's another quote from your book: "A revolutionary power does not accept the legitimacy of the state."

PROFESSOR PAUL KRUGMAN: There's a very hardline view.

There was actually a kind of revealing moment recently - Bush gave an interview, was more or less dragooned into an interview on Meet The Press and the interviewer said: "Well, what if you lose the election?"

And he said: "I'm not going to lose the election."

And the interviewer said: "But what if you do lose?"

He said: "I'm not going lose the election."

The possibility that they just would not regard it as a legitimate thing if someone else were to take power.

Quite a few people as part of the Republican movement have said that God chose Bush to be President.

I don't know whether they would accept the idea that mere mortal men should choose for him not to be President for another four years.

TONY JONES: You also link the personal fortunes of George Bush and Dick Cheney to what you called the epidemic of corporate malfeasance.

Are you suggesting that, in a way, their business ethics somehow leaked out into the rest of the corporate world or that they're just representative of it?

PROFESSOR PAUL KRUGMAN: Oh no, they're representative of it.

Let's be clear.

Most of the explosion of corporate malfeasance really took place during the 90s.

It took place with Clinton in the White House, which is not to say that he caused it.

In fact, you could say a lot of it happened despite some mild efforts on the part of Clinton to stop it.

But the point is that you ask when Bush says, "I want to reform corporations," is he credible?

Well, you have to look back and say, "Gee his own personal fortune arose, in large part, through deals that look an awful like Enron."

TONY JONES: Nor do you spare Alan Greenspan, the chairman of the Fed Reserve.

I always thought under the Clinton years or during the Clinton years he was the steady hand on the tiller.

You seem to refer to him these days as a partisan hack?

PROFESSOR PAUL KRUGMAN: Well, here's a special case.

I mean, the governor of the central bank has a terribly important job, enormous responsibility and power.

He's not an elected official.

This is an agreement that we've all reached - that this is a good thing to do because monetary policy is too easily politicised.

Best to have it in a technocrat.

In his role as a technocrat Greenspan has done a good job, not as stellar a job as his admirers will tell you but he's done a very good job.

There's an obligation that goes with this which is to stand above and outside the political fray.

Greenspan did that during the 90s.

But no sooner was Bush in office than Greenspan threw his weight behind tax cuts.

He actually went to Congress and argued that we need tax cuts because otherwise we're going to run excessively large budget surpluses and pay down our debt too quickly.

Which he shouldn't have done in the first place.

This was violating the role.

Then, of course, when it turned out to be completely wrong.

Instead we've plunged from surpluses into huge deficits, he has now said, "Well, I don't think we should rescind the tax cut, instead we need to talk about cutting social security benefits."

That's injecting himself into politics in a very partisan fashion.

TONY JONES: You essentially claiming the Fed is no longer independent?

PROFESSOR PAUL KRUGMAN: Well Mr Greenspan is acting as a partisan figure.

He is acting as somebody who is doing whatever he can to support the agenda of this right-wing movement that is now running a large part of the Government.

I think that the star at the Fed is as good as ever.

My belief is that if you were to promote one of the other governors to chairman of the Fed we would be back to business as we've had it before.

I don't think everybody has been corrupted but I do think that Mr Greenspan has gone very far - basically has abused in his position, in a way, that's no longer recoverable.

TONY JONES: We will have to leave it there.

Paul Krugman, we thank you very much for taking the time to come and join us tonight.


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« Reply #560 on: August 28, 2009, 12:02:35 PM »

GM, Who could have imagined this intellectual giant was criticizing deficits just as we grew out from under economic disaster that followed the stock crash of 2000 and the attacks of 9/11/01.  As said about the Clintons, they lie with such ease!

Bush deficits were all about spending, not tax cuts.  An economist should know that Bush did not 'cut taxes', he cut tax rates and revenues surges beyond all projections.

2003  1,782,532,000,000  Federal revenues as Krugman sounded his alarm
2004  1,880,279,000,000   5.6% increase in revenues, in spite of lower rates
2005  2,153,859,000,000  14.6% increase - The surge goes to double digits!
2006  2,407,254,000,000  11.5% increase - Double digit revenue increases continue as tax cuts remain firmly in place.
Jan. 2007 Pelosi-Reid-Obama take over majorities in congress, promise to end tax cuts.  Economic growth ends after setting a 52 month consecutive job growth record and surpassing federal revenue forecasts by hundreds of billions of dollars.

Same for the 1980's, rates slashes - revenues doubled.
1980:   $517 Billion
1990 $1.032 Trillion

Same for the 1990's.  Slow growth until the (Clinton)-Gingrich capital gains rate cuts of 1995.  Revenues surged, budget balanced.

Professor Krugman, the problem is the SPENDING, stupid.

ps. I meant to include this link with my numbers, straight from Obama's office.  These charts are hard to find through google.
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« Reply #561 on: August 28, 2009, 02:47:04 PM »

John Adams said this?  We may as well pack it in and go home:

"Remember," said John Adams, "democracy never lasts long. It soon wastes, exhausts and murders itself. There never was a democracy yet that did not commit suicide."   

Fatal Flaw of Democracies
by  Patrick J. Buchanan


"We just can't afford it!"

Not long ago, every America child heard that, at one time or another, in the home in which he or she was raised.

"We just can't afford it!" It may have been a new car, or two weeks at the beach, or the new flat-panel TV screen.

Every family knew there were times you had to do without. Every father and mother has had to disappoint their kids with those words. Why is it that what parents do many times a year politicians seem incapable of doing: saying no.

How many times in the last decade have the political leaders of either party stood up and declared, "No, we cannot afford this."

Consider. Friday, the White House conceded that the deficits over the next 10 years will total $2 trillion more than they had reported just months ago. Instead of $7.1 trillion, we will run $9 trillion in deficits.

Meanwhile, the White House demands a new entitlement -- health care coverage for 47 million uninsured who can't afford it or refuse to buy it -- that will cost at least $1 trillion over 10 years. Can we afford this -- now?

"We can't afford not to," comes the retort. This is "a core ethical and moral obligation," says Barack Obama.

But is it not a core ethical and moral obligation not to debauch the currency in which most of the hard-earned wealth of the American people is invested? Yet, as Warren Buffett writes in The New York Times, collapse of the dollar and the end of its days as the world's reserve currency is what we are risking.
Government expenditures are running at 185 percent of revenue, which is like the lone family breadwinner earning $50,000 a year, while the family spends $92,500 a year. With families that do that, it is not too long before the credit cards are cut off, the mortgage is called in and the family Chevy is repossessed.

According to those same White House figures, this year's deficit will be closer to $1.6 trillion than the $1.8 trillion previously projected. Now, there are only three basic ways to finance that deficit.

The first is by borrowing the savings of one's own citizens, thus consuming the seed corn of the private economy. The second is by borrowing from abroad. The third is by having the Fed, "through a roundabout process," writes Buffett, "printing money."

Assume the Treasury borrows most of the savings of the American people this year, say, $500 billion. Then Uncle Sam is able to persuade Beijing to buy another $500 billion in Treasury bonds. The Fed must still run the printing presses to create another $600 billion.

How long before our Chinese, Japanese and OPEC creditors conclude that the Americans are depreciating their currency, and dump their U.S. Treasury bonds, or demand a higher rate of interest to cover the risks of their dollar-denominated assets sinking in value?

Can anyone believe the dollar can even retain its present diminished purchasing power if we run $9 trillion in deficits over 10 years? How long before producers conclude the same and start to demand more dollars for their goods -- and inflation takes off?

As Buffett argues, even when the U.S. economy returns to full employment, the new tax revenue it would throw off cannot close a deficit of that size. One must either slash spending or raise taxes to balance a budget where the feds are spending a fourth of gross domestic product.

But how do we cut spending when the five largest items in the budget -- Social Security, Medicare, Medicaid, interest on the debt and national defense -- are untouchables and growing faster then the 3 percent to 4 percent a year a full-employment economy can manage?

Are we going to cut veterans benefits, spending on our crumbling infrastructure or education, when Obama is promising every kid a college degree? Are we going to cut funds for Afghanistan and Iraq, and risk losing both wars? Are we going to cut foreign aid after Hillary Clinton has been touring Africa telling one and all America is here to stay?

How about cutting funds for food stamps and the Earned Income Tax Credit? Good luck. How about PBS and the National Endowment for the Arts? Just try it.

Does either party have any plan to cut federal spending from today's near 28 percent of GDP to the more traditional 21 percent?

George W. Bush didn't even try, and Obama is making that Great Society Republican president look like Ron Paul.

When a democracy reaches a point where the politicians cannot say no to the people, and both parties are competing for votes by promising even more spending or even lower taxes, or both, the experiment is about over.

"Remember," said John Adams, "democracy never lasts long. It soon wastes, exhausts and murders itself. There never was a democracy yet that did not commit suicide."     

Mr. Buchanan is a nationally syndicated columnist and author of Churchill, Hitler, and "The Unnecessary War": How Britain Lost Its Empire and the West Lost the World, "The Death of the West,", "The Great Betrayal," "A Republic, Not an Empire" and "Where the Right Went Wrong."

    Reader Comments: (248)
And in 1787, when old Benjamin Frankliln cam doddering out of the Constitutional Convention, someone asked him, "What kind of government did you give us?" and old Ben replied, -- "A Republic -- IF YOU CAN HOLD IT."

Old Ben seemed to believe that the triumph of Democracy was NOT inevitable, but that it depended on the caliber of its citizenry to uphold it.

And according to his colleague John Adams, the necessary caliber of its citizenry needs to be sober, wise, and virtuous.

America is indeed "tolerant." But is it wise and virtuous?

And if America's citizenry does not measure up to the calber of citizenship that is equired to sustain democracy, can democracy be sustained?

Benjamin Franklin doubted it. So too do I.

It's a shame, in a way, because the ULTIMATE blame for thse problems is WE THE PEOPLE. It is WE THE PEOPLE who demand more services than we can afford. It is WE THE PEOPLE who picked Obama Osama and his ilk - and who likewise picked both of the George Herbert Hoover Bushes who did nothing to rein in spending.

Special interests have learned that the power is in the Federal Government, and they will crucify a politician that tries to cut down their government largess. The same with voters.

Voters don't want to tighten their belts. Don't cut my farm subsidies, don't cut my welfare, don't cut my federal contract, don't cut my medicare.

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« Reply #562 on: August 29, 2009, 07:52:27 AM »

So This Is Hope 'n' Change?
In May, when the federal deficit was projected to be $7 trillion over the next decade, President Barack Obama was asked, "At what point do we run out of money?" His reply was actually rather candid: "Well, we are out of money now," he said. Last Friday, the administration adjusted its deficit projection -- upwards, of course. The White House now says the number will reach $9 trillion, including $1.6 trillion this year and $1.5 trillion next year. So much for The One's promise to end the years of "borrow and spend" budgeting.

The Congressional Budget Office simultaneously projected a deficit of $7 trillion over the next decade, a lower number because the CBO considers only current law, not White House proposals. The Wall Street Journal reports that "these deficit estimates are driven entirely by more domestic spending and already assume huge new tax increases. CBO predicts that debt held by the public as a share of GDP, which was 40.8% in 2008, will rise to 67.8% in 2019 -- and then keep climbing after that. CBO says this is 'unsustainable,' but even this forecast may be optimistic."

Among the problems with the White House estimate is that it depends, in part, on raising $640 billion through the cap-and-tax bill as well as another $200 billion in international business taxes. Both bills face opposition in the Senate, even from some Democrats. And these new taxes aren't guaranteed to produce more federal revenue. Instead, we can count on cap-and-tax to depress the economy, resulting in less revenue. The White House already expects unemployment to hit 10 percent this year.

The CBO estimate, meanwhile, is based on the ridiculous premise that Congress will hold spending to the rate of inflation. The Journal remarks, "CBO actually has overall spending falling between 2009 and 2012, which is less likely than an asteroid hitting the Earth." The CBO also assumes that all of the Bush tax cuts will expire, even those for lower and middle class families.

Finally, the president's crown jewel, ObamaCare, projected to cost at least $1 trillion over the next 10 years, is entirely omitted from the deficit estimate because Obama pledges that it won't add to the deficit. Next, he'll be trying to sell us some oceanfront property in Arizona.
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« Reply #563 on: August 29, 2009, 08:26:54 AM »

Well that certainly does sound like we are headed for a collapse.

It doesn't even seem as though number One would mind.
He doesn't believe in our system as it was anyway.
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« Reply #564 on: August 29, 2009, 10:15:26 AM »

Also worth noting is that borrowing constitutes 40% of spending this year!!!  shocked shocked shocked
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« Reply #565 on: August 30, 2009, 10:38:14 AM »

n Uncomfortable Choice
by John Mauldin
August 28, 2009   
In this issue:
An Uncomfortable Choice
What Were We Thinking?
Frugality is the New Normal
And Then We Face the Real Problem
The Teenagers Are in Control
Choose Wisely
Argentina, Brazil, Uruguay, New Orleans, Detroit, and More

We have arrived at this particular economic moment in time by the choices we have made, which now leave us with choices in our future that will be neither easy, convenient, nor comfortable. Sometimes there are just no good choices, only less-bad ones. In this week's letter we look at what some of those choices might be, and ponder their possible consequences. Are we headed for a double-dip recession? Read on.

An Important Announcement
But first, I want to make a very important announcement. There are not many times in a career when you can say that something new has been created in the financial services industry and that you have been a part of it. But now I can say that and, I must admit, with a little pride in helping to bring a new creation into the world.

For years, Steve Blumenthal and I have shared a passion for bringing Absolute Return Strategies to all investors, not just the wealthy and institutional investors.

I want to introduce you to a new mutual fund, one that is different than the typical long-only equity mutual fund. My friends and partners at CMG have created a mutual fund that is comprised of 9 different trading strategies, a "fund of trading strategies," so to speak; and it's one that I believe will be strategically suitable for the economic environment that I think we face. And, as a mutual fund, it is open to all investors.

You can learn more about it by reading a report I have prepared, entitled "How to Deal with Volatility in Extraordinary Markets - Introducing the CMG Absolute Return Strategies Fund." Simply click here.

If you are an investment advisor or broker, you especially should read about this new fund and contact CMG directly for more information and reports. Full disclosure: as a consultant to the Advisor to the fund, my investment advisory firm does participate in the fees. And be sure and read all the disclosures and risk factors in the document.

And now, let's look at the choices we face.

An Uncomfortable Choice
As our family grew, we limited the choices our seven kids could make; but as they grew into teenagers, they were given more leeway. Not all of their choices were good. How many times did Dad say, "What were you thinking?" and get a mute reply or a mumbled "I don't know."

Yet how else do you teach them that bad choices have bad consequences? You can lecture, you can be a role model; but in the end you have to let them make their own choices. And a lot of them make a lot of bad choices. After having raised six, with one more teenage son at home, I have come to the conclusion that you just breathe a sigh of relief if they grow up and have avoided fatal, life-altering choices. I am lucky. So far. Knock on a lot of wood.

I have watched good kids from good families make bad choices, and kids with no seeming chance make good choices. But one thing I have observed. Very few teenagers make the hard choice without some outside encouragement or help in understanding the known consequences, from some source. They nearly always opt for the choice that involves the most fun and/or the least immediate pain, and then learn later that they now have to make yet another choice as a consequence of the original one. And thus they grow up. So quickly.

But it's not just teenagers. I am completely capable of making very bad choices as I approach the end of my sixth decade of human experiences and observations. In fact, I have made some rather distressing choices over time. Even in areas where I think I have some expertise I can make appallingly bad choices. Or maybe particularly in those areas, because I have delusions of actually knowing something. In my experience, it takes an expert with a powerful computer to truly foul things up.

Of course, sometimes I get it right. Even I learn, with enough pain. And sometimes I just get lucky. (Although, as my less-than-sainted Dad repeatedly intoned, "The harder I work the luckier I get.")

Each morning is a new day, but it is a new day impacted by all the choices of the previous days and years. Tiffani and I have literally interviewed in depth well over a hundred millionaires, and talked anecdotally with hundreds over the years. I am struck by how their lives, and those of their families, come down to a few choices. Sometimes good choices and sometimes lucky choices. Often, difficult ones. But very few were the easy choice.

What Were We Thinking?
As a culture, the current mix of generations, especially in the US, has made some choices. Choices which, in hindsight, leave the adult in us asking, "What were we thinking?"

In a way, we were like teenagers. We made the easy choice, not thinking of the consequences. We never absorbed the lessons of the Depression from our grandparents. We quickly forgot the sobering malaise of the '70s as the bull market of the '80s and '90s gave us the illusion of wealth and an easy future. Even the crash of Black Friday seemed a mere bump on the path to success, passing so quickly. And as interest rates came down and money became easier, our propensity to acquire things took over.

And then something really bad happened. Our homes started to rise in value and we learned through new methods of financial engineering that we could borrow against what seemed like their ever-rising value, to finance consumption today.

We became Blimpie from the Popeye cartoons of our youth: "I will gladly repay you Tuesday for a hamburger today."

Not for us the lay-away programs of our parents, patiently paying something each week or month until the desired object could be taken home. Come to think of it, I am not sure if my kids (15 through 32) have ever even heard of a lay-away program, not with credit cards so easy to obtain. Next family brunch, I will explain this quaint concept. (Interestingly, I heard about a revival of the concept on CNBC radio, coming back from dropping Trey off at school this morning. Everything old is new again.)

As a banking system, we made choices. We created all sorts of readily available credit, and packaged it in convenient, irresistible AAA-rated securities and sold them to a gullible world. We created liar loans, no-money-down loans, and no-documentation loans and expected them to act the same way that mortgages had in the past. What were the rating agencies thinking? Where were the adults supervising the sand box?

(Oh, wait a minute. DThat's the same group of regulators who now want more power and money.)

It is not as if all this was done in some back alley by seedy-looking characters. This was done on TV and in books and advertisements. I remember the first time I saw an ad telling me to call this number to borrow up to 125% of the value of my home, and wondering how this could be a good idea.

Turns out it can be a great idea for the salesmen, if they can package those loans into securities and sell them to foreigners, with everyone making large commissions on the way. The choice was to make a lot of money with no downside consequences to yourself. What teenager could say no?

Greenspan keeping rates low aided and abetted that process. Starting two wars and pushing through a massive health-care package, along with no spending control from the Republican Party, ran up the fiscal deficits.

Allowing credit default swaps to trade without an exchange or regulations. A culture that viscerally believed that the McMansions they were buying were an investment and not really debt. Yes, we were adolescents at the party to end all parties.

Not to mention an investment industry that tells their clients that stocks earn 8% a year real returns (the report I mentioned at the beginning goes into detail about this). Even as stocks have gone nowhere for ten years, we largely believe (or at least hope) that the latest trend is just the beginning of the next bull market.

It was not that there were no warnings. There were many, including from your humble analyst, who wrote about the coming train wreck that we are now trying to clean up. But those warnings were ignored.

Actually, ignored is a nice way to put it. Derision. Scorn. Laughter. And worse, dismissal as a non-serious perpetual perma-bear. My corner of the investment-writing world takes a very thick skin.

The good times had lasted so long, how could the trend not be correct? It is human nature to believe the current trend, especially a favorable one that helps us, will continue forever.

And just like a teenager who doesn't think about the consequences of the current fun, we paid no attention. We hadn't experienced the hard lessons of our elders, who learned them in the depths of the Depression. This time it was different. We were smarter and wouldn't make those mistakes. Didn't we have the research of Bernanke and others, telling us what to avoid?

In millions of different ways, we all partied on. It wasn't exclusively a liberal or a conservative, a rich or apoor, a male or a female addiction. We all borrowed and spent. We did it as individuals, and we did it as cities and states and countries.

We ran up unfunded pension deficits at many local and state funds, to the tune of several trillion dollars and rising. We have a massive, tens of trillions of dollars, bill coming due for Social Security and Medicare, starting in the next 5-7 years, that makes the current crisis pale in comparison. We now seemingly want to add to this by passing even more spending programs that will only make the hole deeper.
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« Reply #566 on: August 30, 2009, 10:40:32 AM »

Frugality is the New Normal
I could go on and on, but I think you get the point. The time for good choices was a decade ago. It would have been more difficult at the time, so that is not what we did. And now we wake up and are faced with a set of choices, none of them good.

Reality is staring back in the mirror at the American consumer, and especially the Boomer generation. The psyche of the American consumer has been permanently seared. We are watching savings beginning to rise and consumer spending patterns change for the first time in generations. Even as the authorities try to prod consumers back into old habits, they are not responding. Borrowing and credit are actually falling. Banks, for whatever reason, now want borrowers to actually be able to pay them back. Go figure.

Frugality is the new normal. We are resetting the underpinnings of a consumer-driven society to a new level. It will require a major overhaul of our economy. The normal drivers of growth - consumer spending, business investment, and exports - are all weak, and it is only because of massive government spending that the second quarter was not as bad as the two previous quarters and that the coming quarter will be positive.

But what then? How long can we continue with 10%-plus GDP deficits? We have an economy that is in a Statistical Recovery, fueled by government largesse. In the real world, we are watching unemployment rise, and it is likely to do so through the middle of next year. Deflation is in the air. Capacity utilization is near all-time lows. Housing numbers are only bouncing because of the government program of large tax credits for first-time home buyers and lower home prices. It will be years before construction is significant.

We will be faced with a choice this fall and early next year. If you take away the government spending, the potential for falling back into a recession is quite high, given the underlying weakness in the economy. A few hundred billion for increased and extended unemployment benefits will not be enough to stem the tide. There will be a groundswell for yet another stimulus package. Another 10% of GDP deficit is quite likely for next year.

As I (and Woody Brock) have made very clear in these e-letters, deficits that are higher than nominal GDP cannot continue without dire consequences. Good friend Richard Russell writes today:

"The US national debt is now over $11 trillion dollars. The interest on our national debt is now $340 billion. This is about at 3.04% rate of interest. In ten years the Obama administration admits that they will add $9 trillion to the national debt. That would take it to $20 trillion. Let's say that by some miracle the interest on the national debt in 10 years will still be 3.09%. That would mean that the interest on the national debt would be $618 billion a year or over one billion a day. No nation can hold up in the face of those kinds of expenses. Either the dollar would collapse or interest rates would go through the roof."

That would be at least 30% of the national budget. How would your household do, paying that much as interest? How can you operate when interest payments are 30% or more of the budget? Do you borrow to pay the interest? And the Obama administration openly admits to deficits of over a trillion a year for the next ten years, under very rosy growth assumptions. Anyone outside of Washington and rosy-eyed economists think we will grow 4% next year? I am not seeing many hands go up.

And Then We Face the Real Problem
If we do not maintain high deficits, it is likely we fall back into recession. Yet if we do not control spending, we risk running up a debt that becomes very difficult to finance by conventional means. Monetizing the debt can only work for a few trillion here or there. At some point, the bond market will simply fall apart. And it could happen quickly. Think back to how fast things fell apart in the summer of 2007. When perception of the potential for inflation changes, it changes things fast.

The problem is that we are now in a very deflationary world. Deleveraging, too much capacity, high and rising unemployment, falling real incomes, and more are all the classic pieces of the formula for deflation.

Let's look at what my friend Nouriel Roubini recently wrote. I think he hit the nail on the head:

"A combination of higher official indebtedness and monetization has the potential to yield the worst of all worlds, pushing up long-term rates and generating increased inflation expectations before a convincing return to growth takes hold. An early return to higher long-term rates will crowd out private demand, as lending rates on mortgages and personal and corporate loans rise too. It is unlikely that actual inflation will emerge this year or even next, but inflation expectations as reflected in long-term interest rates could well be rising later in 2010. This would represent a serious threat to economic recovery, which is predicated on the idea that the actual borrowing rates that individuals and businesses pay will remain low for an extended period.

"Yet the alternative - the early withdrawal of the stimulus drug that governments have been dispensing so freely - is even more serious. The present administration believes that deflation is a worse threat than inflation. They are right to think that. Trying to rebuild public finances at a deflationary moment - a time when unemployment is rising, and private demand is still contracting - could be catastrophic, turning recovery into renewed recession."

There are no good choices. Nouriel, optimist that he is (note sarcasm), suggests that there is a possibility that the government can manage expectations by showing a clear path to fiscal responsibility that can be believed. And thus the bond markets do not force rates higher, thereby thwarting recovery.

And technically he is right. If there were adults supervising the party, it might be possible. But there are not. The teenagers are in control. Instead of fiscal discipline, we are hearing increased demands for more spending. Please note that the very rosy future-deficit assumptions assume the end of the Bush tax cuts at the close of 2010. But raising taxes back to the level of 2000 does not make the projected future budget deficits go away.

I mean, seriously, does anyone think Pelosi or Reid are going to lead us to fiscal constraint? Obama talks a good game, but he has not offered a serious deficit-reduction proposal, other than further tax increases. And by serious, I mean we need cuts on the order of several hundred billion dollars. The Republicans lost their way and their power (deservedly, in my opinion). Just as at the high school prom, the very few adults are being ignored.

It is the proverbial rock and the hard place. Cut the stimulus too soon and we slide back into a deeper recession. Let the budget spin out of control for a few years and we will see inflation return, with higher rates and a recession. Raise taxes by 1.5-2% of GDP in 2010 and we are shoved back into recession.

There are no good choices. If we do the right thing and cut the deficit, it means very hard choices. Can we keep our commitments to two wars and our massive defense budget? Medicare and Social Security reform are not painless. Education? Research? The "stimulus"? But cutting the deficit by hundreds of billions while raising taxes by even more than is already in the works, is not the formula for sustainable recovery.

Have we grown up? Are there adults in the room? Sadly, I don't think there are enough. We are still a nation of teenagers. We will do whatever we can to avoid the pain today. We will kick the can down the road, hoping for a miracle. Will we grow up? Yes, but the lessons learned will be hard.

There are no statistical signs of an impending recession. We are not going to get an inverted yield curve this time, which made it relatively easy for me to predict recessions in 2000 and 2006. We are in a deflationary, deleveraging world. A far different world than in the past.

I see little room for us to avoid a double-dip recession. It would take the skill and speed of former Cowboys running back Tony Dorsett hitting a very small hole in the line to break us into the open. I see no running back in our national leadership with such ability. As I have outlined above, recession could be triggered again in any number of very different economic environments. It all depends on the choices we make. But the choices lead to the same consequences, at least in my opinion.

As I wrote in August 2000 and August 2006, I write again in August 2009: there is a recession in our future. I was early both of those times and I am early now, maybe two years early, though I doubt it. And as I pointed out both of those last times, the stock market drops an average of over 40% during a recession. When I was on Kudlow in October of 2006, I was given a hard time about my recession call and prediction of a bear market. I think it was John Rutherford who dismissed my bearish vision. And he was right for the next three quarters, as the market proceeded to rise another 20%. I looked foolish to many, but I maintained my views.

You have choices. You can buy and hold (buy and hope?) or you can develop a strategic alternative. The next bear market, as I wrote in 2003 and in Bull's Eye Investing, will likely be the bottom. (It takes at least three of them to really take us to the bottom.) But the next one will change perceptions for a long time. Valuations will drop. Savings will rise even more. And a generation will grow up. The adults will return. Chastened. Scarred. Shaken. But we will Muddle Through. That is what we do. Even my teenagers.

Choose wisely.

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« Reply #567 on: August 31, 2009, 11:30:40 PM »

The Maudlin piece is interesting.  He introduces the idea of a double-dip recession which makes sense if we are having a bit of a turnaround while we inject trillions of pretend money.  Eventually that faucet slows or dries and the pre-existing problems are still all there.

He points to deflation risk now but that will pass if/when we economically survive this.  Then we instantly have huge inflationary pressures.

He spelled out the bad choices we face and then the piece ended kind of suddenly before he told us the right answer.  Hopefully there is a sequel.
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« Reply #568 on: September 04, 2009, 10:02:37 AM »

So, how soon until we hit 10% (officially)?
« Reply #569 on: September 04, 2009, 06:16:24 PM »

September 04, 2009, 4:06 p.m.

Some Data for Mr. Biden
Big-stimulus America has lagged the global recovery. How might the vice president explain that?

By Jerry Bowyer

‘Facts are stubborn things,” wrote John Adams; I’m tempted to add: “But not as stubborn as Joe Biden.”

The vice president recently told the Brookings Institution that he has no doubt that the Obama administration’s stimulus plan has been a success. In fact, it’s been so successful that it has moved us from the precipice of a second Great Depression to the safer ground on which we now discuss recovery.

A big problem with this line of “reasoning” is that as of the second quarter of 2009 — the most recent period for which GDP data are available — we were still in recession. Meanwhile, much of the rest of the developed world had resumed positive economic growth.

Across the financial crisis, stimulus spending by the U.S. easily exceeded that of any other developed nation, both in absolute terms and as a percentage of GDP. It seems the Obama administration — in conjunction with the Gordon Brown regime in the U.K. — failed to persuade many of our European friends to increase their planned stimulus spending as part of a proposed “global New Deal.”

The U.S. will spend a full 2 percent of GDP on stimulus programs this year, while France will stimulate by only 0.7 percent of its GDP. Germany and Japan have both been robust stimulus spenders, yet each has spent considerably less than the United States. The result? While there is no one-to-one correlation between stimulus spending and GDP performance — since so many other factors are tied to economic growth — it is certainly notable that France, Japan, and Germany entered an economic spring during the second quarter of 2009 while the U.S. (along with the U.K.) remained stuck in an economic winter.

This analysis is constrained by complexity. For instance, the U.K.’s stimulus plan is in the same ballpark as Germany’s — it’s smaller if you only count this year, and slightly larger if you count last year as well. The U.S. and the U.K., however, have been much more aggressive in their central-planning initiatives than their developed-market cousins, with the U.S. embracing the nationalization of private-sector industries and various forms of income redistribution. The shift toward Keynesianism in the U.S. has been sizeable, and so far it’s been a bust.

So Joe Biden can boast all he wants. But facts are stubborn. And the fact of the matter is that the U.S. continued contracting while lesser Keynesians of the crisis resumed expansion.

— Jerry Bowyer is an economist, CNBC contributor, and author of the upcoming Free Market Capitalist’s Survival Guide.

National Review Online -
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« Reply #570 on: September 07, 2009, 06:10:44 PM »

Barack Obama accused of making 'Depression' mistakes
Barack Obama is committing the same mistakes made by policymakers during the Great Depression, according to a new study endorsed by Nobel laureate James Buchanan.
By Edmund Conway( U.K. Telegraph)
Published: 9:55PM BST 06 Sep 2009

 History repeating itself? President Obama has been accused by some economists of making the same mistakes policymakers in the US made in the Great Depression, which followed the Wall Street crash of 1929, pictured Photo: AP
His policies even have the potential to consign the US to a similar fate as Argentina, which suffered a painful and humiliating slide from first to Third World status last century, the paper says.

There are "troubling similarities" between the US President's actions since taking office and those which in the 1930s sent the US and much of the world spiralling into the worst economic collapse in recorded history, says the new pamphlet, published by the Institute of Economic Affairs.

In particular, the authors, economists Charles Rowley of George Mason University and Nathanael Smith of the Locke Institute, claim that the White House's plans to pour hundreds of billions of dollars of cash into the economy will undermine it in the long run. They say that by employing deficit spending and increased state intervention President Obama will ultimately hamper the long-term growth potential of the US economy and may risk delaying full economic recovery by several years.

The study represents a challenge to the widely held view that Keynesian fiscal policies helped the US recover from the Depression which started in the early 1930s. The authors say: "[Franklin D Roosevelt's] interventionist policies and draconian tax increases delayed full economic recovery by several years by exacerbating a climate of pessimistic expectations that drove down private capital formation and household consumption to unprecedented lows."

Although the authors support the Federal Reserve's moves to slash interest rates to just above zero and embark on quantitative easing, pumping cash directly into the system, they warn that greater intervention could set the US back further. Rowley says: "It is also not impossible that the US will experience the kind of economic collapse from first to Third World status experienced by Argentina under the national-socialist governance of Juan Peron."

The paper, which recommends that the US return to a more laissez-faire economic system rather than intervening further in activity, has been endorsed by Nobel laureate James Buchanan, who said: "We have learned some things from comparable experiences of the 1930s' Great Depression, perhaps enough to reduce the severity of the current contraction. But we have made no progress toward putting limits on political leaders, who act out their natural proclivities without any basic understanding of what makes capitalism work."

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« Reply #571 on: September 07, 2009, 09:43:51 PM »

Nice post Boyo.  Interesting that besides doing everything the opposite of Reagan he is emulating the policies that worsened and lengthened the great depression.
On a different note I picked up a pearl of wisdom from Professor Walter Williams last week.  He was explaining inflation which he defines as increasing (inflating) the money supply.  What we think of as inflation - increases in prices - are a symptom of inflation, but it is the increase in money supply that is the inflation.

I would clarify that it is the increase in money supply relative to the quantity of good and services in the economy, but at a time of zero growth - all monetary increases are inflationary.

Translated I think that means that it will only take ordinary levels of new growth in the economy for this current inflation to show its ugly head in the form of spiraling prices increases, and it will also be possible to return to stagflation, where inflation roars up without the accompanying economic growth.  sad
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« Reply #572 on: September 08, 2009, 08:29:14 AM »

Swiss topple U.S. as most competitive economy: WEF
By Sven Egenter
Tue Sep 8, 3:10 am ET
GENEVA (Reuters) – Switzerland knocked the United States off the position as the world's most competitive economy as the crash of the U.S. banking system left it more exposed to some long-standing weaknesses, a report said on Tuesday.

The World Economic Forum's global competitiveness report 2009/2010 showed economies with a large focus on financial services such as the U.S., Britain or Iceland were the losers of the crisis.

The U.S. as the world's largest economy lost last year's strong lead, slipping to number two for the first time since the introduction of the index in its current form in 2004.

"We have been expecting for some time that it may lose its top-position. There are a number of imbalances that have been building up," said Jennifer Blanke, Head of the WEF's Global Competitiveness Network.

"There are problems on the financial market that we were not aware of before. These countries (like the U.S. and Britain) are getting penalized now," she said.

Trust in Swiss banks also declined. But in the assessment of banks' soundness, the Alpine country still ranked 44th. U.S. banks fell to 108 -- right behind Tanzania -- and British banks to 126 in the ranking, now topped by Canada's banks.

The WEF bases its assessment on a range of factors, key for any country to prosper. The index includes economic data such as growth but also health data or the number of internet users.

The study also factors in a survey among business leaders, assessing for example the government's efficiency or the flexibility of the labor market.

The WEF applauded Switzerland for its capacity to innovate, sophisticated business culture, effective public services, excellent infrastructure and well-functioning goods markets.

The Swiss economy dipped into recession last year, too and had to bail out its largest bank UBS. But its economy is holding up better than many peers and most banks are relatively unscathed by the crisis, which drove U.S. banks into bankruptcy.

The WEF said the U.S. economy was still extremely productive but a number of escalating weaknesses were taking its toll.

Concerns were growing about the government's ability to maintain distance to the private sector and doubts rose about the quality of firms' auditing and reporting standards, it said.


Leading emerging markets Brazil, India and China improved their competitiveness despite the crisis, the report showed.

But Russia saw one of the steepest declines among the 133 countries assessed, falling back 12 places to 63, as worries about government efficiency and judicial independence rose, the WEF said.

After years of rapid improvement, which took it to place 29, China now had to tackle shortcomings in areas such as financial markets, technological readiness and education as it could no longer rely on cheap labor alone to generate growth.

India, ranked 49th, was in turn well positioned in complex fields such as innovation but had still to catch up on basics such as health or infrastructure, the WEF said.

Brazil leapt by 8 ranks to 56th, as measures to improve fiscal sustainability and to liberalize and open the economy showed effects, the report said.

Among the top-ten, Singapore moved up to third from fifth, swapping positions with Denmark, which fell behind fellow-Nordic country Sweden. Finland as 6th and Germany as 7th stayed put while Japan and Canada overtook the Netherlands.

The WEF study named African countries Zimbabwe and Burundi as the world's least competitive economies.

In the case of Zimbabwe, the WEF noted the complete absence of property rights, corruption, basic government inefficiency as well as macroeconomic instability as fundamental flaws.

For the full report click on:

(Reporting by Sven Egenter; Editing by Andy Bruce)
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« Reply #573 on: September 15, 2009, 10:04:35 AM »

Is Obama the next Herbert Hoover?
posted at 10:55 am on September 15, 2009 by Ed Morrissey

The last President to initiate a trade war during a recession wound up creating the biggest economic catastrophe in American history. Yet the current President appears to have ignored the lesson of Herbert Hoover and the Smoot-Hawley Act in slapping tariffs on China and its tire exports while the economy struggles to come back to life after a deep recession. The Wall Street Journal wonders where Barack Obama is leading the US, or whether Obama wants to lead at all:

The smell of trade war is suddenly in the air. Mr. Obama slapped a 35% tariff on Chinese tires Friday night, and China responded on the weekend by threatening to retaliate against U.S. chickens and auto parts. That followed French President Nicolas Sarkozy’s demand on Thursday that Europe impose a carbon tariff on imports from countries that don’t follow its cap-and-trade diktats. “We need to impose a carbon tax at [Europe's] border. I will lead that battle,” he said.
Mr. Sarkozy was following U.S. Energy Secretary Steven Chu, who has endorsed a carbon tax on imports, and the U.S. House of Representatives, which passed a carbon tariff as part of its cap-and-tax bill. This in turn followed the “Buy American” provisions of the stimulus, which has incensed much of Canada; Congress’s bill to ban Mexican trucks from U.S. roads in direct violation of Nafta, prompting Mexico to retaliate against U.S. farm and kitchen goods; and the must-make-cars-in-America provisions of the auto bailouts. Meanwhile, U.S. trade pacts with Colombia, Panama and South Korea languish in Congress.

Through all of this Mr. Obama has either said nothing or objected so feebly that Congress has assumed he doesn’t mean it. Despite his pro-forma demurrals, Mr. Obama’s actions and nonactions are telling the world that the U.S. is abandoning the global leadership on trade that Presidents of both parties have worked to maintain since the 1930s. His advisers whisper that their man is merely playing a little tactical domestic politics, but he is playing with fire, as the last 80 years of trade history should tell him.

Not only does this ignore the history of trade wars and recessions, which the Journal outlines, but it also ignores Obama’s own big-spending policies. Obama wants to spend trillions of dollars in deficits over the next ten years, especially on his overhaul of the health-care and energy industries in the US. That will take a lot of happy bondholders buying US debt, and for the last several years, that means China. What happens when China stops buying — or worse yet, starts selling what Treasuries they already hold?
If an American administration wanted to confront China on trade, it should have prepared itself by eliminating the need to sell debt. That administration would have pared down spending dramatically, lowered corporate taxes to allow for better competition in the global marketplace for American companies, and encouraged domestic investment by lowering capital-gains taxes. The Obama administration has done the exact opposite instead, leaving the US completely unprepared for a trade war against China, especially over tires, which impacts a mere 7,000 jobs in the US.
Bill Clinton, for all his faults, understood the power and the necessity of open trade. George Bush learned that lesson after a fumble on steel tariffs in 2001. No other president since Hoover has made the mistake of thinking that a trade war would help bolster the economy here in the US or abroad. Picking a fight with the US’s largest debtholder as we prepare to issue more debt in the next few years than we have over the course of the past 230 seems like a foolish, ignorant strategy — the worst of both worlds, with the worst possible outcomes.
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« Reply #574 on: September 16, 2009, 04:24:11 PM »

Buchanan doesn't surprise me.  He has always as far as I know been a protectionist but Obama does.
This has to be a nod to unions.   Otherwise, isn't a tire tariff otherwise completely counter the Obama's talk of working with the world in partnership?


Down at the Chinese outlet store in Albany known as Wal-Mart, Chinese tires have so successfully undercut U.S.-made tires that the Cooper Tire factory in that south Georgia town had to shut down.

Twenty-one hundred Georgians lost their jobs.

The tale of Cooper Tire and what it portends is told in last week's Washington Post by Peter Whoriskey.

How could tires made on the other side of the world, then shipped to Albany, be sold for less than tires made in Albany?

Here's how.

At Cooper Tire, the wages were $18 to $21 per hour. In China, they are a fraction of that. The Albany factory is subject to U.S. health-and-safety, wage-and-hour and civil rights laws from which Chinese plants are exempt. Environmental standards had to be met at Cooper Tire or the plant would have been closed. Chinese factories are notorious polluters.

China won the competition because the 14th Amendment's "equal protection of the laws" does not apply to the People's Republic. While free trade laws grant China free and equal access to the U.S. market, China can pay workers wages and force them to work hours that would violate U.S. law, and China can operate plants whose health, safety and environmental standards would have their U.S. competitors shut down as public nuisances.

Beijing also manipulates its currency to keep export prices low and grants a rebate on its value-added tax on exports to the U.S.A., while imposing a value-added tax on goods coming from the U.S.A.

Thus did China, from 2004 to 2008, triple her share of the U.S. tire market from 5 percent to 17 percent and take down Cooper Tire of Albany.

But not to worry. Cooper Tire has seen the light and is now opening and acquiring plants in China, and sending Albany workers over to train the Chinese who took their jobs.

Welcome to 21st century America, where globalism has replaced patriotism as the civil religion of our corporate elites. As Thomas Jefferson reminded us, "Merchants have no country."

What has this meant to the republic that was once the most self-sufficient and independent in all of history?

Since 2001, when George Bush took the oath, the United States has run $3.8 trillion in trade deficits in manufactured goods, more than twice the $1.68 trillion in trade deficits we ran for imported oil and gas.

Our trade deficit with China in manufactured goods alone, $1.58 trillion over those eight years, roughly equals the entire U.S. trade deficit for oil and gas.

U.S. politicians never cease to wail of the need for "energy independence." But why is our dependence on the oil of Saudi Arabia, the Gulf, Nigeria, Canada, Mexico and Venezuela a greater concern than our dependence on a non-democratic rival great power for computers and vital components of our weapons systems and high-tech industries?

As Executive Director Auggie Tantillo of the American Manufacturing Trade Action Committee compellingly argues:

"Running a trade deficit for natural resources that the United States lacks is something that cannot be helped, but running a massive deficit in manmade products that America easily could produce itself is a choice -- a poor choice that is bankrupting the country and responsible for the loss of millions of jobs."

How many millions of jobs?

In the George W. Bush years, we lost 5.3 million manufacturing jobs, one-fourth to one-third of all we had in 2001.

And our dependence on China is growing.

Where Beijing was responsible for 60 percent of the U.S. trade deficit in manufactured goods in 2008, in the first six months of 2009, China accounted for 79 percent of our trade deficit in manufactured goods.

How can we end this dependency and begin building factories and creating jobs here, rather than deepening our dependency on a China that seeks to take our place in the sun? The same way Alexander Hamilton did, when we Americans produced almost nothing and were even more dependent on Great Britain than we are on China today.

Let us do unto our trading partners as they have done unto us.

As they rebate value-added taxes on exports to us, and impose a value-added tax on our exports to them, let us reciprocate. Impose a border tax equal to a VAT on all their goods entering the United States, and use the hundreds of billions to cut corporate taxes on all manufacturing done here in the United States.

Where they have tilted the playing field against us, let us tilt it back again. Transnational companies are as amoral as sharks. What is needed is simply to cut their profits from moving factories and jobs abroad and increase their profits for bringing them back to the U.S.A.

It's not rocket science. Hamilton, James Madison and Abraham Lincoln all did it. Obama's tariffs on Chinese tires are a good start.

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« Reply #575 on: September 21, 2009, 01:31:43 PM »

Friday, September 18, 2009

September Auto Sales Go Clunk   [Henry Payne]

When Congress gave away $3 billion for buyers to trade in their “clunkers” and buy new cars in August, lawmakers thrilled as buyers swamped showrooms to take advantage of the big discounts. “Cash for clunkers has captured the public’s attention . . . (it) has the possibility to truly jumpstart our economy,” said Rep. Candice Miller (R., Mich.). Other, more sober analysts, warned that the clunkers program was only stealing from future sales.

September sales are in, and sobriety can take a bow. reports that “September’s light-vehicle sales rate will fall to 8.8 million units . . . the lowest rate in nearly 28 years, tying the worst demand on record. After the cash-for-clunkers program boosted August sales to their first year-over-year increase since October 2007, demand has plunged. In at least the last 33 years, the U.S. seasonally adjusted annual rate has only dropped as low as 8.8 million units once — in December 1981 — with records stretching back to January 1976.”

“Many people regard February as the darkest month of the recession, but even then (sales were) higher, at 9.1 million units,” adds statistician Zhenwei Zhou.

But sobriety comes hard for Washington. Now NHTSA says that, despite burdening manufacturers with $60 billion in new costs, its new 35.5 mpg fuel mandate will stimulate the economy by boosting auto sales by 65,480 vehicles through 2016 because Washington “expects stronger consumer demand for fuel-efficient models.” Sure.
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« Reply #576 on: September 22, 2009, 01:53:18 PM »

From the Boston Globe about an economist who predicted the latest crash.  His prescription is Obama like.
Big government supporting unions and jobs to the lower socioeconomic classes even if supported by big government.
Sounds simply like New Deal stuff. 

What is interesting is that we already have millions upon millions of lower wage jobs (ala Minsky) available for the unemployed.
If we simply throw out the illegals who work for low wages our unemployed would have ample opportunity to make some money at least till the economy picks up.
Instead we give it all away.  What dopes:
« Reply #577 on: September 27, 2009, 11:05:44 AM »

The dead end kids
Last Updated: 4:45 AM, September 27, 2009
Posted: 1:34 AM, September 27, 2009

The unemployment rate for young Americans has exploded to 52.2 percent -- a post-World War II high, according to the Labor Dept. -- meaning millions of Americans are staring at the likelihood that their lifetime earning potential will be diminished and, combined with the predicted slow economic recovery, their transition into productive members of society could be put on hold for an extended period of time.

And worse, without a clear economic recovery plan aimed at creating entry-level jobs, the odds of many of these young adults -- aged 16 to 24, excluding students -- getting a job and moving out of their parents' houses are long. Young workers have been among the hardest hit during the current recession -- in which a total of 9.5 million jobs have been lost.

"It's an extremely dire situation in the short run," said Heidi Shierholz, an economist with the Washington-based Economic Policy Institute. "This group won't do as well as their parents unless the jobs situation changes."

Al Angrisani, the former assistant Labor Department secretary under President Reagan, doesn't see a turnaround in the jobs picture for entry-level workers and places the blame squarely on the Obama administration and the construction of its stimulus bill.

"There is no assistance provided for the development of job growth through small businesses, which create 70 percent of the jobs in the country," Angrisani said in an interview last week. "All those [unemployed young people] should be getting hired by small businesses."

There are six million small businesses in the country, those that employ less than 100 people, and a jobs stimulus bill should include tax credits to give incentives to those businesses to hire people, the former Labor official said.

"If each of the businesses hired just one person, we would go a long way in growing ourselves back to where we were before the recession," Angrisani noted.

During previous recessions, in the early '80s, early '90s and after Sept. 11, 2001, unemployment among 16-to-24 year olds never went above 50 percent. Except after 9/11, jobs growth followed within two years.

A much slower recovery is forecast today. Shierholz believes it could take four or five years to ramp up jobs again.

A study from the National Longitudinal Survey of Youth, a government database, said the damage to a new career by a recession can last 15 years. And if young Americans are not working and becoming productive members of society, they are less likely to make major purchases -- from cars to homes -- thus putting the US economy further behind the eight ball.

Angrisani said he believes that Obama's economic team, led by Larry Summers, has a blind spot for small business because no senior member of the team -- dominated by academics and veterans of big business -- has ever started and grown a business.

"The Reagan administration had people who knew of small business," he said.

"They should carve out $100 billion right now and create something like $5,000 to $6,000 job credits that would drive the hiring of young, idled workers by small business."

Angrisani said the stimulus money going to extending unemployment benefits is like a narcotic that is keeping the unemployed content -- but doing little to get them jobs.

Labor Dept. statistics also show that the number of chronically unemployed -- those without a job for 27 weeks or more -- has also hit a post-WWII high.
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« Reply #578 on: September 27, 2009, 11:27:35 AM »

Agreed that the situation is terrible and agreed that the O-boids are devoid of business experience and awareness, but doesn't this piece fall into the trap of a government directed economy?
« Reply #579 on: September 27, 2009, 01:27:54 PM »

Yep. Though there is the implicit argument that government should get out of the micromanagement biz via schemes like minimum wage, it does then propose government fixes. Think the most important statement in the piece, however, is that small business is the engine that creates entry level employment, yet is the economic segment most impacted by minimum wage requirements. Throw in health care mandates, higher taxes, and so on, and that engine will be sputtering for quite some time.

Of course, that might be what the O-bots want: send all the kids into gov. sponsored jobs programs or into education paid for with government loans. . . .
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« Reply #580 on: October 05, 2009, 10:18:57 PM »

Exclusive report by Robert Fisk

The demise of the dollar

In a graphic illustration of the new world order, Arab states have launched secret moves with China, Russia and France to stop using the US currency for oil trading

By Robert Fisk

Tuesday, 6 October 2009


Iran announced late last month that its foreign currency reserves would henceforth be held in euros rather than dollars.

In the most profound financial change in recent Middle East history, Gulf Arabs are planning – along with China, Russia, Japan and France – to end dollar dealings for oil, moving instead to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar.

Secret meetings have already been held by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on the scheme, which will mean that oil will no longer be priced in dollars.

The plans, confirmed to The Independent by both Gulf Arab and Chinese banking sources in Hong Kong, may help to explain the sudden rise in gold prices, but it also augurs an extraordinary transition from dollar markets within nine years.

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The Americans, who are aware the meetings have taken place – although they have not discovered the details – are sure to fight this international cabal which will include hitherto loyal allies Japan and the Gulf Arabs. Against the background to these currency meetings, Sun Bigan, China's former special envoy to the Middle East, has warned there is a risk of deepening divisions between China and the US over influence and oil in the Middle East. "Bilateral quarrels and clashes are unavoidable," he told the Asia and Africa Review. "We cannot lower vigilance against hostility in the Middle East over energy interests and security."

This sounds like a dangerous prediction of a future economic war between the US and China over Middle East oil – yet again turning the region's conflicts into a battle for great power supremacy. China uses more oil incrementally than the US because its growth is less energy efficient. The transitional currency in the move away from dollars, according to Chinese banking sources, may well be gold. An indication of the huge amounts involved can be gained from the wealth of Abu Dhabi, Saudi Arabia, Kuwait and Qatar who together hold an estimated $2.1 trillion in dollar reserves.

The decline of American economic power linked to the current global recession was implicitly acknowledged by the World Bank president Robert Zoellick. "One of the legacies of this crisis may be a recognition of changed economic power relations," he said in Istanbul ahead of meetings this week of the IMF and World Bank. But it is China's extraordinary new financial power – along with past anger among oil-producing and oil-consuming nations at America's power to interfere in the international financial system – which has prompted the latest discussions involving the Gulf states.

Brazil has shown interest in collaborating in non-dollar oil payments, along with India. Indeed, China appears to be the most enthusiastic of all the financial powers involved, not least because of its enormous trade with the Middle East.

China imports 60 per cent of its oil, much of it from the Middle East and Russia. The Chinese have oil production concessions in Iraq – blocked by the US until this year – and since 2008 have held an $8bn agreement with Iran to develop refining capacity and gas resources. China has oil deals in Sudan (where it has substituted for US interests) and has been negotiating for oil concessions with Libya, where all such contracts are joint ventures.

Furthermore, Chinese exports to the region now account for no fewer than 10 per cent of the imports of every country in the Middle East, including a huge range of products from cars to weapon systems, food, clothes, even dolls. In a clear sign of China's growing financial muscle, the president of the European Central Bank, Jean-Claude Trichet, yesterday pleaded with Beijing to let the yuan appreciate against a sliding dollar and, by extension, loosen China's reliance on US monetary policy, to help rebalance the world economy and ease upward pressure on the euro.

Ever since the Bretton Woods agreements – the accords after the Second World War which bequeathed the architecture for the modern international financial system – America's trading partners have been left to cope with the impact of Washington's control and, in more recent years, the hegemony of the dollar as the dominant global reserve currency.

The Chinese believe, for example, that the Americans persuaded Britain to stay out of the euro in order to prevent an earlier move away from the dollar. But Chinese banking sources say their discussions have gone too far to be blocked now. "The Russians will eventually bring in the rouble to the basket of currencies," a prominent Hong Kong broker told The Independent. "The Brits are stuck in the middle and will come into the euro. They have no choice because they won't be able to use the US dollar."

Chinese financial sources believe President Barack Obama is too busy fixing the US economy to concentrate on the extraordinary implications of the transition from the dollar in nine years' time. The current deadline for the currency transition is 2018.

The US discussed the trend briefly at the G20 summit in Pittsburgh; the Chinese Central Bank governor and other officials have been worrying aloud about the dollar for years. Their problem is that much of their national wealth is tied up in dollar assets.

"These plans will change the face of international financial transactions," one Chinese banker said. "America and Britain must be very worried. You will know how worried by the thunder of denials this news will generate."

Iran announced late last month that its foreign currency reserves would henceforth be held in euros rather than dollars. Bankers remember, of course, what happened to the last Middle East oil producer to sell its oil in euros rather than dollars. A few months after Saddam Hussein trumpeted his decision, the Americans and British invaded Iraq.
Power User
Posts: 15533

« Reply #581 on: October 12, 2009, 09:58:15 PM »

Very possible. Almost certain, in my book.
Power User
Posts: 15533

« Reply #582 on: October 13, 2009, 08:42:06 AM »

Power User
Posts: 9483

« Reply #583 on: October 13, 2009, 10:55:00 AM »

First regarding Bloomberg on the Obama dollar, normally a weak dollar boosts exports i.e. self correcting, but combine that with the decimation of industry, what is there to sell anymore and the dollar was already low.

The Financial Times piece: a good chance the US economy will experience a second dip followed by extended stagnation that will qualify as the second Great Depression.

I agree with GM, absolutely possible and almost certain.  But also totally PREVENTABLE.

All of our policy levers are currently headed in the wrong direction.  Pro-growth economics has been replaced with assumed growth economics that makes it okay to keep adding burdens and inefficiencies to the productive economy until it collapses on its own weight.

"The economic crisis represents the implosion of the economic paradigm that has ruled US and global growth for the past thirty years. That paradigm was based on consumption fuelled by indebtedness and asset price inflation, and it is done."

   - There was a little more to it IMO but he has his time line correct.  30 years ago we were in the Jimmy Carter era of stagnation and stagflation.  Carter's answer was to do everything possible to make it worse while correcting none of the underlying weakness.

Today, if the problem was debt, our answer is debt on steroids??

Decline is a choice. (See

Pro-growth policies are a different choice.  True pro-growth policies such as those of JFK, Reagan, and even Clinton after the Gingrich takeover, are rather simple and always available. 

Investors don't even know what their tax rate will be on returns from productive investments made now.  Taking a widespread, wait and see approach chops off new job growth before it can get started.  The left machine certainly promised huge hikes on all the larger players.  Complicating that is that fact that their word is worthless, their policy aprovals are negative and the context they operate in has changed.  Even though they haven't really raised taxes yet, the uncertainty causes all the economic damage we would expect if they had.

Employers don't even know what the burden of hiring an employee today will be.  With space and time not allowing a full laundry list of all the known burdens and coming burdens (cf. employee leave, layoff notification laws, health care burdens...).  Hillary said it best and Obama and Pelosi are definitely to her left; it goes something like this: You can't afford all the ideas I have for the economy.

Consumers, citizens, taxpayers and voters, whatever we like to call ourselves, we don't even know if we will have $2000 added to our energy bill, $4000 added to our health care bill, and who knows what added to our tax bill, not even counting state and local taxes.  Property taxes, energy taxes, health care costs and more are not costs that go down when you lose your job or close your company.  Then what?

What else did they do to really dig deep for the first great depression?  Smoot Hawley.  So what did Obama do as the hole keeps expanding: "Obama slaps tariff on Chinese tires - MarketWatch  Sep 11, 2009 ... The Obama administration will slap a special tariff on Chinese-macde tires."  Also canceled out of a free trade agreement in Latin America.  Does that mentality from the world's largest economy cause others to open the doors a little more to free enterprise and free trade?  I think not!

Repeating, decline is a choice.  We are choosing it.  Maybe you and I didn't vote for Pelosi or Obama, but we also are not successfully putting out clear, pro-growth alternatives and arguments up for consideration.
Power User
Posts: 7840

« Reply #584 on: October 20, 2009, 12:35:44 PM »

We keep hearing how non partisan the CBO is.  But is it?  The present director was appointed 01/22/2009 for four years.
He is from Princeton and Harvard (where else?) did work with a Reagan guy years ago but recently worked at the liberal think tank the Brookings Institute.

To me it is not clear he is a partisan inasmuch as a political opportunist.  He donated 1000 to Obama's campaign.  He seems to hail from the left and worked under the Clinton regime.  Yet some of his moves towards Obama may be more to garner favor for a job than that he is a true believer.

The conclusion from the CBO that the Baucus bill will reduce the deficit by some 80 million certainly sounds suspect to me.

To think that Pelosi and the rest are not pressuring him would seem naive.

In any case:

*****, a Wash Post Co > Profiles > Douglas W. Elmendorf
Douglas W.

Current Position: Director of the Congressional Budget Office (since January 2009)
Credit: Jahi Chikwendiu/TWP
  Table of Contents
1. Why He Matters
2. At a Glance
3. Path to Power
4. The Issues
4.1. The Bailout
4.2. Health Care
5. The Network
6. Campaign Contributions
7. Footnotes
8. Tags
9. Links
10. Key Associates
11. News

Why He Matters
Elmendorf may be the most important financial analyst in America. He’s not one of the highest paid, but his client list is the U.S. Congress as he evaluates the nation’s budget in trying economic times. He will be a key player in determining how Congress responds to President Barack Obama’s proposed $3.6 trillion budget for fiscal year 2010.

Succeeding new Office of Management and Budget Director Peter Orszag, Elmendorf joined the Congressional Budget Office (CBO) as the struggling economy commanded much of Congress’ time. Like Orszag, he comes from the liberal think-tank the Brookings Institution, and was the former director of the Hamilton Project, which focuses on economic policy at Brookings.

Elmendorf continued what Orszag began as CBO head, including contributing to the CBO “Director’s Blog” and evaluating health-care reform’s impact on the national budget. Speaker of the House Nancy Pelosi (D-Calif.) and the President Pro Tempore of the Senate Robert C. Byrd (D-WestVa.) selected Elmendorf after getting recommendations from the House and Senate Budget Committees. The House and Senate switch who takes charge in selecting a new CBO director; Pelosi took the lead in selecting Elmendorf.“Pelosi and Spratt Statement on New Director of the Congressional Budget Office” Press Release, Dec. 30, 2008(1)“Pelosi and Spratt Statement on New Director of the Congressional Budget Office” Press Release, Dec. 30, 2008 

In March 2009, the CBO released a revised budget outlook, which increased its forecast of the 2008 deficit from $1.2 trillion to $1.8 trillion. It also valued the 10-year deficit at $9.3 trillion — $2.3 trillion more than what the White House projected in February 2009.Pulizzi, Henry J., "OMB's Orszag:CBO Figures Reflect Worsening Econ, Fiscal Outlook," Dow Jones News Service, March 20, 2009(2)Pulizzi, Henry J., "OMB's Orszag:CBO Figures Reflect Worsening Econ, Fiscal Outlook," Dow Jones News Service, March 20, 2009

Elmendorf is also a key voice in the health-care debate as his office in July 2009 released a report estimating the cost of the health-care plan crafted by Sens. Edward M. Kennedy (D-Mass.) and Christopher J. Dodd (D-Conn.) at a daunting $1 trillion. A Preliminary Analysis of the HELP Committee’s Health Insurance Coverage Provisions," Congressional Budget Office, July 2, 2009(3)A Preliminary Analysis of the HELP Committee’s Health Insurance Coverage Provisions," Congressional Budget Office, July 2, 2009
 At a Glance
Current Position: Director of the Congressional Budget Office (since January 2009)

Career History: Director of the Hamilton Project at the Brookings Institution (2008 to 2009); Senior fellow at the Brookings (2007 to 2009); Chief of the macro-economic analysis team at the Federal Reserve Board (2002 to 2007)

Birthday: N/A

Hometown: Poughkeepsie, N.Y.

Alma Mater: Princeton University, A.B. (economics), 1983; Harvard University, M.A. (economics), 1985; Harvard, PhD (economics), 1989

Spouse: N/A

Religion: N/A

DC Office: N/A

State/District Office: N/A

Email N/A

Web site
Path to Power
Hailing from upstate New York, Elmendorf spent his early career as an academic and educator. He went to Princeton University as an undergraduate, studying economics, and then headed to Harvard University to obtain his master’s and Ph.D in the same subject. After graduating in 1989, he stayed at Harvard for five years, working closely with economics professor Martin Feldstein, the director of the Council of Economic Advisers (CEA) under President Reagan.Douglas Elmendorf’s resume(4)Douglas Elmendorf’s resume

In 1993, Elmendorf moved to public life, working for the CBO office for the first time. He spent a year as an associate analyst before joining full-time in 1994 as a principal analyst where Elmendorf focused on health- care issues and the economic effects of budget deficits. Working under CBO Director Robert D. Reischauer, Elmendorf worked on a team that concluded President Bill Clinton's health reform package would cost much more than originally thought. This analysis helped cripple Clinton's attempt to reform health care.Montgomery, Lori, "What Would a Health Overhaul Cost? All Eyes on the CBO," The Washington Post, June 11, 2009(5)Montgomery, Lori, "What Would a Health Overhaul Cost? All Eyes on the CBO," The Washington Post, June 11, 2009

Elmendorf only stayed a year at the CBO as a principal analyst before heading to the Federal Reserve Board as an economist while Alan Greenspan headed it. In 1998, his travels through the financial departments of the federal government continued, as Elmedorf moved to the CEA, working as a senior economist under Director Janet Yellen.Douglas Elmendorf’s resume(4)Douglas Elmendorf’s resume

After staying at the CEA for a year, Elmendorf then joined the Treasury Department as deputy assistant secretary for economic policy, working under Clinton Treasury Secretary Lawrence Summers. When George W. Bush took office, Elmendorf moved back to the Fed as a senior economist and in 2002, he got a promotion to chief of the macro-economic analysis team, leading a group of 30 economists and researchers as they forecasted inflation rates and labor markets.

In 2007, Elmendorf began working for the liberal think-tank Brookings Institution, co-editing the yearly publication “Brookings Papers on Economic Activity.”Douglas Elmendorf’s resume(4)Douglas Elmendorf’s resume In 2008, Jason Furman, the director of the Brookings’ group known as the Hamilton Project left to join the Obama campaign. Elmendorf replaced him as director of the Hamilton Project, a forum for economic policy discussion that was created by Clinton Treasury Secretary Robert Rubin — an advocate of free trade and a small deficit.
The Issues
Joining the CBO in late December 2008, Elmendorf is responsible for providing estimates of the cost of legislation on the federal budget. Elmendorf already has a full plate: Within the first month of President Obama’s administration, Congress passed a $787 billion stimulus package and weeks later, the House approved a $410 billion ‘omnibus’ bill, which allocated funds for the federal government through September 2009.Faler, Brian, "House Approves $410 Billion ‘Omnibus’ Spending Bill," Bloomberg News, Feb. 25, 2009(6)Faler, Brian, "House Approves $410 Billion ‘Omnibus’ Spending Bill," Bloomberg News, Feb. 25, 2009 The CBO was tasked with evaluating the long-term effects of these mammoth measures, while explaining their impact on the budget to lawmakers on the Hill.

The Bailout
Although the CBO is a non-partisan position, Elmendorf worked two years at Brookings. While there, he spent much of his time opining on the mortgage collapse, and the appropriate response by the government. While he only called for the nationalization of banks as a last resort, Elmendorf did support a bailout of struggling financial institutions.

In a paper titled “The Great Credit Squeeze,” Elmendorf along with co-authors Martin Neil Baily and Robert E. Litan, laid out important steps in an attempt to stabilize the financial system quickly, and to assure nothing similar repeats itself. The paper recommended helping banks and mortgage finance companies like Fannie Mae and Freddie Mac, but also suggested ways to aid struggling homeowners facing foreclosure. Some of the short-term stabilization options the authors proposed included equity investment by the government, “outright nationalization” of Fannie and Freddie and allowing judges the power to reduce mortgage payments.Baily, Martin Neal; Elmendorf, Douglas and Litan, Robert E., “The Great Credit Squeeze,” The Brookings Institution, May 21, 2008(7)Baily, Martin Neal; Elmendorf, Douglas and Litan, Robert E., “The Great Credit Squeeze,” The Brookings Institution, May 21, 2008

The three authors also outlined long-term recommendations for changes to the financial system to make it more stable. The three long-term changes they suggested were:

Make financial instruments, like derivatives and certain mortgages, more transparent.
Prevent financial institutions from leveraging themselves to the degree many did prior to the 2008 collapse of the credit markets.
Increased government supervision of financial institutions.Baily, Martin Neal; Elmendorf, Douglas and Litan, Robert E., “The Great Credit Squeeze,” The Brookings Institution, May 21, 2008(7)Baily, Martin Neal; Elmendorf, Douglas and Litan, Robert E., “The Great Credit Squeeze,” The Brookings Institution, May 21, 2008
Health Care
In July 2009, CBO estimated the cost of Senate Health, Education and Labor Committee health-care reform bill - otherwise known as the Kennedy-Dodd bill - would cost more than $1 trillion over ten years, but it did not include the tax on the wealthy when analyzing the bill."A Preliminary Analysis of the HELP Committee’s Health Insurance Coverage Provisions," Congressional Budget Office, July 2, 2009(Cool"A Preliminary Analysis of the HELP Committee’s Health Insurance Coverage Provisions," Congressional Budget Office, July 2, 2009

Then, on July 16, 2009, Elmendorf testified in front of the Senate Budget Committee. He came out strongly against the proposed bills being drafted by Democrats in both the House and the Senate. Elmendorf said the proposals did not offer "the sort of fundamental changes that would be necessary to reduce the trajectory of federal health spending by a signficant amount."

"On the contrary," said Elmendorf, "the legislation significantly expands the federal responsibility for health care costs."Montgomery, Lori, "CBO Chief Criticizes Democrats' Health Reform Measures," The Washington Post, July 16, 2009(9)Montgomery, Lori, "CBO Chief Criticizes Democrats' Health Reform Measures," The Washington Post, July 16, 2009

When asked whether or not he felt that there had been a "successful effort" to reign in the long-term costs of health care, Elmendorf answered "No."Montgomery, Lori, "CBO Chief Criticizes Democrats' Health Reform Measures," The Washington Post, July 16, 2009(9)Montgomery, Lori, "CBO Chief Criticizes Democrats' Health Reform Measures," The Washington Post, July 16, 2009

In October 2009, there was only one version of the health care bill still in committee. The Senate Finance Committee had a plan that proposed nonprofit cooperatives in place of the more controversial, public insurance option. Despite much debate on how much the bill would cost, the CBO scored it favorably. The agency's preliminary analysis showed that the committee's bill would cost $829 billion over ten years, while decreasing the deficit by $81 billion. The proposal would insure 29 million people who are currently uninsured.Letter by CBO Director Douglas W. Elmendorf to Senator Max Baucus regarding the Senate Finance Committee Health Care Bill, Oct. 7, 2009(10)Letter by CBO Director Douglas W. Elmendorf to Senator Max Baucus regarding the Senate Finance Committee Health Care Bill, Oct. 7, 2009
The Network
Elmendorf has spent years working in government, and has had an opportunity to work closely with a variety of senior officials in the Obama administration. In the waning years of the Clinton administration, Elmendorf worked under Clinton Treasury Secretary Lawrence Summers — Summers now heads Obama’s National Economic Council (NEC).

In 2002, Elmendorf moved to the Fed, working under Alan Greenspan.

While at Harvard, Elmendorf worked closely with Martin Feldstein, former chair of the Council of Economic Advisers under President Reagan. In 2007, Elmendorf moved to the Brookings Institution. Obama Deputy Director of the NEC Jason Furman also worked at Brookings when Elmendorf started.

Elmendorf has followed in Office of Management and Budget Director Peter Orszag’s career footsteps twice now. Elmendorf took over as director of the Hamilton Project a few years after Orszag stepped down in order to join the CBO as its director. Now, Elmendorf has replaced Orszag as CBO head.
Campaign Contributions
Elmendorf donated $1,000 to President Barack Obama’s campaign in June 2008.Center for Responsive Politics
 (11)Center for Responsive Politics
SideBar Footnotes
1.“Pelosi and Spratt Statement on New Director of the Congressional Budget Office” Press Release, Dec. 30, 2008

2.Pulizzi, Henry J., "OMB's Orszag:CBO Figures Reflect Worsening Econ, Fiscal Outlook," Dow Jones News Service, March 20, 2009

3.A Preliminary Analysis of the HELP Committee’s Health Insurance Coverage Provisions," Congressional Budget Office, July 2, 2009

4.Douglas Elmendorf’s resume

5.Montgomery, Lori, "What Would a Health Overhaul Cost? All Eyes on the CBO," The Washington Post, June 11, 2009

6.Faler, Brian, "House Approves $410 Billion ‘Omnibus’ Spending Bill," Bloomberg News, Feb. 25, 2009

7.Baily, Martin Neal; Elmendorf, Douglas and Litan, Robert E., “The Great Credit Squeeze,” The Brookings Institution, May 21, 2008

8."A Preliminary Analysis of the HELP Committee’s Health Insurance Coverage Provisions," Congressional Budget Office, July 2, 2009

9.Montgomery, Lori, "CBO Chief Criticizes Democrats' Health Reform Measures," The Washington Post, July 16, 2009

10.Letter by CBO Director Douglas W. Elmendorf to Senator Max Baucus regarding the Senate Finance Committee Health Care Bill, Oct. 7, 2009

11.Center for Responsive Politics


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« Reply #585 on: October 21, 2009, 07:40:58 AM »

When McCain challenged BO about the radicals around him, BO cited Volcker and Warren Buffett as the people to whom he listened on economics.  We're shocked, absolutely shocked, to discover that this may have been a misdirection!


Volcker Fails to Sell a Bank Strategy

Published: October 20, 2009
Listen to a top economist in the Obama administration describe Paul A. Volcker, the former Federal Reserve chairman who endorsed Mr. Obama early in his election campaign and who stood by his side during the financial crisis.

“The guy’s a giant, he’s a genius, he is a great human being,” said Austan D. Goolsbee, counselor to Mr. Obama since their Chicago days. “Whenever he has advice, the administration is very interested.”
Well, not lately. The aging Mr. Volcker (he is 82) has some advice, deeply felt. He has been offering it in speeches and Congressional testimony, and repeating it to those around the president, most of them young enough to be his children.

He wants the nation’s banks to be prohibited from owning and trading risky securities, the very practice that got the biggest ones into deep trouble in 2008. And the administration is saying no, it will not separate commercial banking from investment operations.

“I am not pounding the desk all the time, but I am making my point,” Mr. Volcker said in one of his infrequent on-the-record interviews. “I have talked to some senators who asked me to talk to them, and if people want to talk to me, I talk to them. But I am not going around knocking on doors.”

Still, he does head the president’s Economic Recovery Advisory Board, which makes him the administration’s most prominent outside economic adviser. As Fed chairman from 1979 to 1987, he helped the country weather more than one crisis. And in the campaign last year, he appeared occasionally with Mr. Obama, including a town hall meeting in Florida last fall. His towering presence (he is 6-foot-8) offered reassurance that the candidate’s economic policies, in the midst of a crisis, were trustworthy.

More subtly, Mr. Obama has in Mr. Volcker an adviser perceived as standing apart from Wall Street, and critical of its ways, some administration officials say, while Timothy F. Geithner, the Treasury secretary, and Lawrence H. Summers, chief of the National Economic Council, are seen, rightly or wrongly, as more sympathetic to the concerns of investment bankers.

For all these reasons, Mr. Volcker’s approach to financial regulation cannot be just brushed off — and Mr. Goolsbee, speaking for the administration, is careful not to do so. “We have discussed these issues with Paul Volcker extensively,” he said.

Mr. Volcker’s proposal would roll back the nation’s commercial banks to an earlier era, when they were restricted to commercial banking and prohibited from engaging in risky Wall Street activities.

The Obama team, in contrast, would let the giants survive, but would regulate them extensively, so they could not get themselves and the nation into trouble again. While the administration’s proposal languishes, giants like Goldman Sachs have re-engaged in old trading practices, once again earning big profits and planning big bonuses.

Mr. Volcker argues that regulation by itself will not work. Sooner or later, the giants, in pursuit of profits, will get into trouble. The administration should accept this and shield commercial banking from Wall Street’s wild ways.

“The banks are there to serve the public,” Mr. Volcker said, “and that is what they should concentrate on. These other activities create conflicts of interest. They create risks, and if you try to control the risks with supervision, that just creates friction and difficulties” and ultimately fails.

The only viable solution, in the Volcker view, is to break up the giants. JPMorgan Chase would have to give up the trading operations acquired from Bear Stearns. Bank of America and Merrill Lynch would go back to being separate companies. Goldman Sachs could no longer be a bank holding company. It’s a tall order, and to achieve it Congress would have to enact a modern-day version of the 1933 Glass-Steagall Act, which mandated separation.

Glass-Steagall was watered down over the years and finally revoked in 1999. In the Volcker resurrection, commercial banks would take deposits, manage the nation’s payments system, make standard loans and even trade securities for their customers — just not for themselves. The government, in return, would rescue banks that fail.

On the other side of the wall, investment houses would be free to buy and sell securities for their own accounts, borrowing to leverage these trades and thus multiplying the profits, and the risks.

Being separated from banks, the investment houses would no longer have access to federally insured deposits to finance this trading. If one failed, the government would supervise an orderly liquidation. None would be too big to fail — a designation that could arise for a handful of institutions under the administration’s proposal.

“People say I’m old-fashioned and banks can no longer be separated from nonbank activity,” Mr. Volcker said, acknowledging criticism that he is nostalgic for an earlier era. “That argument,” he added ruefully, “brought us to where we are today.”

He may not be alone in his proposal, but he is nearly so. Most economists and policy makers argue that a global economy requires that America have big financial institutions to compete against others in Europe and Asia. An administration spokesman says the Obama proposal for reform would result in financial institutions that could fail without damaging the system.

Still, a handful side with Mr. Volcker, among them Joseph E. Stiglitz, a Nobel laureate in economics at Columbia and a former official in the Clinton administration. “We would have a cleaner, safer banking system,” Mr. Stiglitz said, adding that while he endorses Mr. Volcker’s proposal, the former Fed chairman is nevertheless embarked on a quixotic journey.

Alan Greenspan, the only other former Fed chairman still living, favored the repeal of Glass-Steagall a decade ago and, unlike Mr. Volcker, would not bring it back now. He declined to be interviewed for this article, but in response to e-mailed questions he cited two recent public statements in which he suggested that the nation’s largest financial institutions become smaller, so that none would be too big to fail, requiring a federal rescue.

Taking issue implicitly with the Volcker proposal to split commercial and investment banking, he has said: “No form of economic organization can fully contain bouts of destructive speculative euphoria.”

For his part, Mr. Volcker is careful to explain that he supports 80 percent of the administration’s detailed plan for financial regulation, including much higher capital requirements and “guidelines” on pay. Wall Street compensation, he said in a recent television interview, “has gotten grotesquely large.”

Before the credit crisis, the big institutions earned most of their profits from proprietary trading, and those profits led to giant bonuses. Mr. Volcker argues that splitting commercial and investment banking would put a damper on both pay and risky trading practices.

His disagreement with the Obama people on whether to restore some version of Glass-Steagall appears to have contributed to published reports that his influence in the administration is fading and that he is rarely if ever in the small Washington office assigned to him.

He operates from his own offices in New York, communicating with administration officials and other members of the advisory board mainly by telephone. (He does not use e-mail, although his support staff does.) He travels infrequently to Washington, he says, and when he does, the visits are too short to bother with the office. The advisory board has been asked to study, amid other issues, the tax law on corporate profits earned overseas, hardly a headline concern.

So Mr. Volcker scoffs at the reports that he is losing clout. “I did not have influence to start with,” he said.
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« Reply #586 on: October 21, 2009, 07:50:27 AM »

second post

Rising Debt a Threat to Japanese Economy
Published: October 20, 2009
TOKYO — How much debt can an industrialized country carry before the nation’s economy and its currency bow, then break?

A construction site near the Yamba dam project in Naganohara, Japan. Stimulus spending on dams and roads have helped inflate Japan's gross public debt to twice the $5 trillion economy.
The question looms large in the United States, as a surging budget deficit pushes government debt to nearly 98 percent of the gross domestic product. But it looms even larger in Japan.

Here, years of stimulus spending on expensive dams and roads have inflated the country’s gross public debt to twice the size of its $5 trillion economy — by far the highest debt-to-G.D.P. ratio in recent memory.

Just paying the interest on its debt consumed a fifth of Japan’s budget for 2008, compared with debt payments that compose about a tenth of the United States budget.

Yet, the finance minister, Hirohisa Fujii, suggested Tuesday that the government would sell 50 trillion yen, about $550 billion, in new bonds — or more.

“There’s no mistaking the budget deficit stems from the past year’s global recession. Now is the time to be bold and issue more deficit bonds,” Mr. Fujii told reporters at the National Press Club in Tokyo. “Those who may call this pork-barrel spending — that’s a total lie.”

For jittery investors, Japan’s rising sea of debt is the stuff of nightmares: the possibility of an eventual sovereign debt crisis, where the country would be unable to pay some holders of its bonds, or a destabilizing collapse in the value of the yen.

In the immediate term, Mr. Fujii’s remarks prompted concerns of a supply glut in bond markets, sending prices on 10-year Japanese government bonds down 0.087 yen, to 99.56 yen, and yields to their highest point in six weeks.

The Obama administration insists that it understands the risks posed by deficits and ever-increasing debt. Its critics are doubtful. But as Washington runs up a trillion-dollar deficit this year, with trillions in debt for years to come, it need look no farther than Tokyo to see how overspending can ravage an economy.

Tokyo’s new government, which won a landslide victory on an ambitious (and expensive) social agenda, is set to issue a record amount of debt, borrowing more in government bonds than it will receive in tax receipts for the first time since the years after World War II.

“Public sector finances are spinning out of control — fast,” said Carl Weinberg, chief economist at High Frequency Economics in a recent note to clients. “We believe a fiscal crisis is imminent.”

One of the lessons of Japan’s experience is that a government saddled with debt can quickly run out of room to maneuver.

“Japan will keep on selling more bonds this year and next, but that won’t work in three to five years,” said Akito Fukunaga, a Tokyo-based fixed-income strategist at Credit Suisse. “If you ask me what Japan can resort to after that, my answer would be ‘not very much.’ ”

How Japan got into such a deep hole, and kept digging, is a tale of reckless spending.

The country poured hundreds of billions of dollars into civil engineering projects in the postwar era, marbling Japan with highways, dams and ports.

The spending initially fueled Japan’s rapid postwar growth and kept the Liberal Democratic Party in power for most of the last half-century. But after a spectacular asset and stock market boom collapsed in 1990, the country fell into a long economic malaise.

The Democratic Party, which swept to victory in August, promises to rein in public works spending. But the party’s generous welfare agenda — like cash support to families with children and free high schools — could ultimately enlarge budget deficits.

“It’s dangerous for the Democrats to push on with all of their policies when tax revenues are so low,” said Chotaro Morita, head of fixed-income strategy at Barclays Capital Japan. “From a global perspective, Japan’s debt ratio is way off the charts,” he said.

Still, officials insist that Japan is better off than the United States by some measures.

One hugely important difference is that Japan is rich in personal savings and assets, and owes less than 10 percent of its debt to foreigners. By comparison, about 46 percent of America’s debt is held overseas by countries such as China and Japan.

Moreover, half of Japan’s government bonds are held by the public sector, while government regulations encourage long-term investors like banks, pension funds and insurance companies to buy up the rest.

All of this makes a sudden sell-off of government bonds unlikely, officials argue.

“The government is just borrowing from one pocket and putting it in the other,” said Toyoo Gyohten, a former top finance ministry official and a special currency adviser to Mr. Fujii. “Although the numbers appear very fearsome, we have some leeway.”

Many analysts agree that during a recession, Japan, like the United States, should worry less about trying to cut debt. But they say Tokyo should at least concentrate on making sure that spending does not get out of hand.

“The government needs to stabilize the debt, first and foremost. Only then can it start setting other targets,” said Randall Jones, chief economist for Japan and Korea at the Organization for Economic Cooperation and Development.

A credible plan to pare down spending is important “to maintain public confidence in Japan’s fiscal sustainability,” said the O.E.C.D.’s economic survey of Japan for 2009.


Rising Debt a Threat to Japanese Economy

Published: October 20, 2009
(Page 2 of 2)

In the long run, even Japan’s sizable assets could fall and eventually turn negative. Japan’s rapidly aging population means retirees are starting to dip into their nest eggs — just as government spending increases to cover their rising medical bills and pension payments.

The fall in public and private savings could eventually reverse Japan’s current account surplus, possibly driving up interest rates as the public and private sectors compete for funds. Higher interest rates would increase the cost of servicing the debt, and raise Japan’s risk of default.

In a worst case, Japan’s currency could suffer as more investors switch away from Japan to other assets. And if Japan were to print more money and set off inflation to reduce its debt burden, the supply of yen would shoot up, lowering the currency’s value further.

In recent months, the yen’s surge on major markets as the dollar weakened has sent a false sense of security. The currency recently touched a seven-month high of about 89 yen to the dollar before easing slightly, as near-zero interest rates in the United States prompted investors to take their money elsewhere. Many strategists expect the yen to strengthen further, at least in the short term.

“In 10 or 20 years, Japan’s current-account surplus will fall into deficit, and that will lead to a weaker yen,” said Mr. Morita at Barclays Capital. “But if investors become pessimistic about Japan before that, the yen will weaken earlier than that.”

For all the recent talk of a shift away from the dollar as the reserve currency of choice, it is the yen that is becoming increasingly irrelevant, analysts say. The yen made up 3.08 percent of foreign currency reserves in mid-2009, down from 3.29 percent the same time last year and down from 6.4 percent in 1999. In mid-2009, the dollar still accounted for almost 63 percent of global foreign reserves.

“The yen is set to enter a long decline” in both stature and value as investors lose confidence in Japan, said Hideo Kumano, chief economist at the Dai-Ichi Life Research Institute in Tokyo.

Considering the state of Japan’s finances and economy, Mr. Kumano said, the yen’s recent strength against the dollar “isn’t an affirmation of Japan — it’s the yen’s last hurrah.”
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« Reply #587 on: October 21, 2009, 11:07:08 PM »

First my comment on the previous post here.  The Yen in one currency mentioned for the replacement of the dollar.  Japan is/was the world's no.2 economy yet countries hold a whopping 3% of their foreign reserves in Yen.  I will criticize Europe later but point out for now that the only threat to our own currency is economic mis-management from within.

Saw this on a bumper sticker today next to some save the earth stickers:

“Capitalism is the extraordinary belief that the nastiest of men for the nastiest of motives will somehow work for the benefit of all.” - John Maynard Keynes

Substitute the word liberty for the word capitalism in the quote for that is what they are really saying.  They can't curtail your free ability to buy, sell, work, save, invest or retain a fair portion of the fruits of your labor without curtailing your liberties. 

The nastiest of men for the nastiest of motives is their way of describing hard working Americans who are trying to bring prosperity and economic security to their families.  Keynes is dead but he is still the chief economic adviser to the current administration.  At room temperature he still believes that a large deficit is the ONLY way that our flawed free market can rescued.

There isn't a capitalist in today's world who can take away 40% of your family's income.  Big government can.  A bit unusual but my total taxes paid for 2008 were 4 times larger than my take home income.  To say that taxes are greater than food, clothing and shelter combined would be pure sugar coating for the magnitude of this taking.
« Reply #588 on: November 10, 2009, 06:42:12 PM »

State of the Stimulus

By Veronique de Rugy
Tuesday, November 10, 2009
Filed under: Economic Policy, Boardroom, Government & Politics, Numbers

One reason unemployment continues to rise may be that stimulus funds did not target high-unemployment states.
On Friday, the Labor Department announced that the national unemployment rate rose by 0.4 percentage points to 10.2 percent. This increase is larger than expected for October and represents the highest unemployment level in 26 years. However, this is probably not the end of the unemployment rate’s upward trend. One reason may be that the stimulus funds did not target high unemployment states.

Using numbers from the administration’s website and September 2009 labor force data from the Bureau of Labor Statistics, the chart below plots the number of jobs created for each 100,000 people in every state’s labor force and the corresponding unemployment rate in that state.

The solid green line estimates what the number of jobs created or saved should look like if the administration were allocating relatively more money to the states with higher unemployment rates and if that money, in turn, created more jobs.

However, the data show that this is not the case. The chart shows that many higher-unemployment states (the states on the right) saw similar numbers of jobs created as lower-unemployment states (the states on the left), or even worse, saw relatively fewer jobs created.

Michigan is a good case in point. The state has a 15.3 percent unemployment rate, the highest in the country. So far, the Obama administration claims to have created or saved some 466 jobs per 100,000 members of the labor force in Michigan. That’s roughly the same number of jobs created by states with lower unemployment, such as New Jersey. And there were fewer jobs saved or created in Michigan than in California, Washington, or Montana—all states with relatively lower unemployment.

Now let’s look at North Dakota. With a 4.2 percent unemployment rate, there were roughly 356 jobs saved or created—more jobs than many states with much higher unemployment.

This suggests that there is no real correlation between unemployment rates in the states and the number of jobs “created or saved” with stimulus money.

This lack of correlation could be explained in several ways. First, perhaps the causes of Michigan’s high unemployment rate cannot be countered just by spending money. In other words, structural factors (such as tax rates, regulations, or labor laws) in the state could mean that more money is needed to create a job in Michigan than it takes to create a job in, say, Montana (if so the best way to create jobs in that state would be to address these underlying factors of unemployment).

Another reason could be that stimulus funds are being allocated without any connection to the level of unemployment within states. If government spending could in fact create jobs, then the problem of unemployment could have been mitigated by distributing funds to states based on their relative unemployment levels.

Finally, the money could be properly allocated but states are wasting it, hence not creating enough jobs.

The reality is likely at the crossroad of these three explanations. First, the data show that much of the money has been allocated randomly among states without regard for the level of unemployment in those states.

Second, much of the money has been spent to close budget gaps in the states, which often means keeping union-protected school teachers in their jobs and paying for public-sector jobs rather than creating jobs in the private sector. For instance, according to data, so far a little over 13,000 contracts went to independent contractors and over 116,000 grants went to public agencies. Also, reports have shown that the stimulus funds have been used to pay for employees whose jobs were never in danger (see California for instance).

Finally, the data on reveals that many private-sector jobs were created at very high cost to taxpayers. For instance, $437,675,000 was awarded to CH2M WG IDAHO, LLC, in Washington to create 496 jobs. That’s $882,409 per job. That’s not as bad as the $257,613,800 awarded to the Brookhaven Science Associates, LLC, in New York to create 25 jobs. That’s over $10.3 million per job.

It’s worth noting that due to over-reporting issues, the White House’s claim of 640,329 jobs created or saved is likely inaccurate. USA Today noted that “the federal government sent Bob Bray $26,174 in stimulus aid to fix a fence and replace the roofs on public apartments in Blooming Grove, Texas, a town of fewer than 900 people outside Dallas. He hired five roofers and an inspector to do the job. But the number of jobs he reported to the government looked very different—450 jobs.”

Veronique de Rugy is a senior research fellow at The Mercatus Center at George Mason University.
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« Reply #589 on: November 10, 2009, 07:07:38 PM »

If true, this will shake the world.
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« Reply #590 on: November 10, 2009, 11:06:07 PM »

A possibility I have been raising for some time.  Would you also please post it on the China thread?

As far as its relevance for this thread here i.e. what would happen to Chinese purchases of US debt, I cannot reason out whether the bursting of the Chinese bubble would mean that our debt was their only option or whether they would cease buying altogether.

BBG:  Forgive me, but IMHO that was one hideous article (said, of course, with Love).  The stimulus hasn't worked not because of good or bad targeting but because its demand side economics (Keynesianism) which as I see it, doesn't work by definition.  If I am not mistaken, total take of US cap gains tax is $200+ billion.  Imagine the effect of lifting the cap gains tax altogether!
« Reply #591 on: November 11, 2009, 07:49:17 AM »

Crafty, don't post it 'cause I agree w/ it, or 'cause I'm even statistician enough to understand the graph. I post it 'cause it struck me as a nice piece of evidence that the stimulus does squat: one would think stimulus spending in one place would impact job growth there, but as I read the graph there is not a lot of correlation between government spending and job creation. Not a surprise to a supply sider, but it should be a nail in the Keynesian coffin.
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« Reply #592 on: November 11, 2009, 11:27:47 AM »

My initial reaction as I read the report was similar to Crafty's but not as harsh.  I couldn't think of reply lines other than sarcasm... Stimulus was poorly targeted, didn't solve the problem - no kidding...

Though it looks like a deck chair debate on a Titanic going under, I think it IS VERY important for serious studies like this one to look at the results of this nonsense and get the failed results out there for the electorate to see.

If the trillions were not targeted at the problem areas in the country, and they were not randomly dropped from an airplane - actually be a better Keynesian attempt than this one - then the funds were disbursed based on other cynical means,  political influence of the members in power and even worse, the cronyism of the unelected staffers serving the public from their extremist organizations, spreading our not-earned-yet money on the family and friends plan.

Just like Glen Beck's program to study the Czars and a trillion times more important is for investigators to follow the money trail of these people that would trivialize the term drunken sailors. 

Most closed auto dealerships had Republican ownership.  I don't know what that means or why you rebuild an industry a federal mandate to close sales and service locations, but that is a heads-up that EVERYTHING they do and every dollar they printed, borrowed and wasted needs to be scrutinized.

The corruption and cronyism might be the sword that brings this group down, but as Crafty states, the way forward is not Keynesian economic flooding and tampering, it needs to be a comprehensive system of responsible, pro-growth measures - so far not even on the table for discussion.
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« Reply #593 on: November 12, 2009, 10:31:33 AM »

$13 trillion of American wealth has been destroyed since San Francisco liberal congresswoman Nancy Pelosi was chosen by America to be Speaker, Minneapolis congressman Keith Ellison put his hand on the Koran to serve with her, all the committee chairmanships turned over to the likes of Barney Frank and Charlie Rangel, and young Obama moved from the minority to the majority to the White House in a successful takeover of the other branches of government.

$13 Trillion destroyed and now the U6 measure of unemployment approaches 17% and rising.

That's the good news; think where we would be without trillions in phony Keynesian stimuli and the resulting millions of jobs created or saved.  shocked sad  huh

So ... from all we have learned ... what is our political - economic policy going forward?

a) Let the 'Bush' tax cuts expire for a massive tax increase on 'the rich', the only ones capable of hiring anyone.

b) Pass a 2000 page multi-trillion dollar government expansion and control program to handcuff all Americans but especially to place more burdens and mandates on businesses, in particular those who hire and employ people.

c) Remove the cap on 'FICA' income making the tax rate on 'wealthy' go way over 50%, before state, local, double taxation, and other new taxes such as energy, and reducing social security from a supplemental insurance program to just another failed general welfare program.

d) Add $3000 per family for a new energy tax - from all that extra money you have lying around - and really go after companies that still actually do anything or produce anything in America.

e) Raise the Death Tax from zero to 55%, leaving basically no reason whatsoever for anyone who knows how to  build wealth and employ anyone to continue to do so.

f) Raise capital gains tax rates, just as our largest economic competitor is lowering tax rates.

g) Increase Government Spending at dollar and percentage levels never heard of before.

h) Instead of a 'Fair Tax' to replace the income tax, the talk now is for a federal VAT/sales tax ON TOP OF raised levels of income taxation.  Why? because they already know that the tax rate increases on the rich are just punitive and dramatic in nature and don't actually bring in more revenue, like rate decreases did.  So first you must punish the rich - who most easily can rearrange their affairs, then you still have to raise revenues.

i) Inflate the currency.  Continue to flood the market with dollars at unprecedented levels while the economy stagnates or contracts.  That is inflation, by definition.  Price increases and wealth destruction follow.  We already know that but continue to do it.

j) Generational theft.  For all talk and action about tax increases, no one even pretends they will be enough to close the gap on unfunded liabilities.  Unlike our predecessors leaving things better than ever before, the result of the above economic destruction policies, uncontrolled spending, high rates of taxation and regulation/strangulation, debt, devalued dollars and unfunded liabilities, is to leave the bills behind for our children and our children's chilren.

How is that for hope and change?   - Doug
« Last Edit: November 12, 2009, 10:52:46 AM by DougMacG » Logged
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« Reply #594 on: November 12, 2009, 05:11:48 PM »

Possibly by design Barack Obama is the biggest enslaver of part of our society since 1865.

We the taxpayers are enslaved to government who confiscate wealth to bribe their way to power.

Ironically so many in the lower classes think of themselves slaves to those of the higher classes.

Obama is turning this around and making the earners and creators of wealth the slave to those who have their hands out for entitlements.

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« Reply #595 on: November 14, 2009, 12:27:04 PM »

Nov 11, 2009

Which big country will default first?
By Martin Hutchinson

Of the world's six largest economies, three have budget and public debt positions that if allowed to fester will push those nations into bankruptcy (the seventh largest, Italy, also has a budget and debt position that is highly vulnerable, but its problems appear chronic rather than acute).

Given the proclivities of modern politicians for delaying pain and avoiding problems, it is likely that festering is just what those positions will do. So which major country, the United States, Japan or Britain, will default first on its foreign debt?

The other three of the six top economies, Germany, China and France, appear to have fewer problems but are not out of the woods entirely. Germany has substantial public debt because of the costs involved in integrating the former East Germany, but those costs are now mostly past and the current government is highly disciplined - thus Germany is now the most stable major economy. France is less disciplined; its debt level is similar to that of Germany but its budget deficit is much higher, at around 8% of gross domestic product (GDP) in 2009, according to The Economist forecasting panel. However, its problems pale in comparison to those of the deficit-ridden trio. China has huge amounts of hidden debt in its banking system, which could well collapse, but its direct public debt is small, as is its budget deficit, so it is unlikely to enter formal default.

The worst budget balance of the three deficit countries is in Britain, where the forecast budget deficit for calendar 2009 is a staggering 14.5% of GDP. Furthermore, the Bank of England has been slightly more irresponsible in its financing mechanisms than even the Federal Reserve, leaving interest rates above zero but funding fully one third of public spending through direct money creation. Governor Mervyn King has a reputation in the world's chancelleries as a conservative man of economic understanding. He doesn't really deserve it, having been one of the 364 lunatic economists who signed a round-robin to Margaret Thatcher in 1981 denouncing her economic policies just as they were on the point of magnificently working, pulling Britain back from what seemed inevitable catastrophic decline.

King's quiet manner may be more reassuring to skeptics than the arrogance of "Helicopter Ben" Bernanke, the US Federal Reservechairman, but the reality of his policies is little sounder and the economic situation facing him is distinctly worse.

Britain has two additional problems not shared by the United States and Japan. First, its economy is in distinctly worse shape. Growth was negative in the third quarter of 2009, unlike the modest positive growth in the US and the sharp uptick in Japan. Moreover, whereas US house prices are now at a reasonable level, in terms of incomes (albeit still perhaps 10% above their eventual bottom), Britain's house prices are still grossly inflated, possibly in London even double their appropriate level in terms of income.

The financial services business in Britain is a larger part of the overall economy than in the US and the absurd exemption from tax for foreigners has brought a huge disparity between the few foreigners at the top of the City of London and the unfortunate locals toiling for mere mortal rewards. A recent story that the housing market for London homes priced above 5 million British pounds (US$8.3 million) was being reflated by Goldman Sachs bonuses indicates the problem, and suggests that the further deflation needed in UK housing will have a major and unpleasant economic effect.

A second British problem not shared by the US is its excessive reliance on financial services. As detailed in previous columns, this sector has roughly doubled in the last 30 years as a share of both British and US GDP. In addition, the sector's vulnerability to a restoration of a properly tight monetary policy has been enormously increased through its addiction to trading revenue. The US has many other ways of making a living if its financial services sector shrinks, and New York is only a modest part of the overall economy. Britain is horribly over-dependent on financial services, and the painful if salutary effects of London costs being pushed down to national levels by a lengthy recession are less likely to be counterbalanced by exuberant growth elsewhere.

The other question to be answered for all three countries is that of political will. If, as is certainly the case in Britain, deficits at the current levels will lead to default (albeit not for some years since the country's public debt is still quite low), then to avoid default tough decisions must be taken. Britain is in poor shape in this respect. Its prime minister, Gordon Brown, is largely responsible for the underlying budget problem, having overspent when Chancellor of the Exchequer, or finance minister, during the boom years, largely on added bureaucracy rather than on anything productive or value-creating. However, the opposition Conservatives, likely to take power next spring, are led by a center-leftist with a background in public relations and no discernable backbone or principles.

Britain has a history of such leaders, which it has managed to survive - the ineffable Harold Macmillan, in particular, who wanted to abolish the stock exchange and contemplated nationalizing the banks when they raised interest rates, was a man of outlook and temperament very similar to David Cameron's. Macmillan was notoriously prone to soft options that postponed economic problems, firing his entire Treasury team in pursuit of soft options in 1958 and leaving behind an appalling legacy of inflationary bubble on his retirement in 1963. If Cameron is truly like Macmillan, his government's response to economic and financial disaster will be one of wriggle rather than confrontation.

With neither party providing solutions to an economic crisis, the British public is likely to discover that, unlike in the crisis of 1976, no solutions will be found. Default (doubtless disguised as with Argentina as "renegotiation") would in that case inevitably follow.

The United States is in somewhat better shape than Britain. Its deficit is somewhat lower, at 11.9% of GDP in calendar 2009, although its debt level is higher if you include the direct debt of mortgage guarantors Fannie Mae and Freddie Mac, as you should. It also has lower overall levels of public spending, although spending is rising rapidly. Furthermore, it has a much more diverse economy and a healthier real estate market, so that further likely downturns in California and Manhattan real estateand the financial services sector can be easily overcome.

US pundits like to whine about the impending deficits in social security and healthcare, but the former is easily overcome by adjusting the retirement age while the latter could be greatly mitigated by simple cost-containment measures, such as limiting trial lawyer depredations, making the state pay for the "emergency room" mandate to treat the indigent and allowing interstate competition for health insurance. All those changes would be politically difficult, but they are clearly visible and involve no damaging cuts in vital services, unlike the changes that would probably be necessary in Britain.

The other US advantage is political: it has an alternative to overspending. Last Tuesday's election results were a useful shot across the bows of the overspending consensus that had developed in both the George W Bush and Barack Obama administrations (as well as among the barons of Congress) since 2007. Whereas voter concern about spiraling deficits and public spending has no satisfactory outlet in Britain, it can now express itself clearly in the US, producing either a sharp change of policy by the current administration and Congress or a change of administration in 2012. Since the likelihood of a reversal of policy towards sound budgetary management is greater in the US than in Britain, the probability of eventual default is less.

Japan has already had its change of government, throwing out the faction of the Liberal Democrat Party (LDP) that regarded politics as the art of creating pointless infrastructure. Unfortunately, the Japanese electorate, faced in August with a no-good-choices problem similar to that of US voters last year and British voters next spring, replaced a long-serving overspending government with another committed to a different set of spending priorities rather than to ending the spending itself. The Democratic Party of Japan (DPJ) has cut back sharply on the infrastructure "stimulus" but is showing signs of replacing it with social spending. It is also committed to economically dozy policies such as reversing postal privatization, organized with such great political effort by prime minister Junichiro Koizumi in 2005.

Japan does however have a couple of advantages that may enable it to avoid default. First, its public debt carries very low interest rates, mostly below 2% per annum, and is owned almost entirely by its own citizens. What's more, state-owned entities such as the now un-privatized Postal Bank lend vast amounts of money to the government, acting as conduits to the less efficient bits of the public sector in the same way as do China's state-owned banks. This is appallingly bad for the efficiency of the economy and for living standards, but it postpones default and makes it less likely.

Second, it's not inevitable that the LDP's wasteful infrastructure spending will simply be replaced by wasteful social spending. Finance Minister Hirohisa Fujii is reputed to be a budgetary hard-liner. Further, at least part of the DPJ's spending will take the form of handouts to families with children. That may increase domestic consumption compared with exports and thereby better balance the Japanese economy, increasing its growth potential marginally. Nevertheless, since Japan's public debt is currently around 200% of GDP, Japan is much closer to the default precipice than either the US or Britain. Thus, while the better structure of Japan's economy and its debt make Japan's probability of default lower than Britain's, it's likely that if both countries defaulted, Japan would do so first.

We have not experienced a debt default by a major economy since the 1930s. That three such defaults are currently conceivable indicates both the severity of the current downturn and the wrong-headedness of the policies taken to address it. If it happens, a major sovereign debt default of this kind will cause the seizure of global capital markets, prolonging downturn for a decade or more.

We'd all better hope the urge for fiscal responsibility hits London, Washington and Tokyo pretty damn soon.

Martin Hutchinson is the author of Great Conservatives (Academica Press, 2005).
« Reply #596 on: November 16, 2009, 07:58:36 PM »

Dollar Crisis

Posted by Gerald P. O'Driscoll

Over the weekend, Liu Mingkang, a senior Chinese official, blasted the economic policies of the Obama Administration.  He identified low interest rates in the U.S. as the cause of “massive speculation” that was inflating asset bubbles around the world. The U.S. dollar is being used in what is known as a carry trade and is borrowed cheaply to finance the purchase of real estate in Asian cities like Hong Kong and Singapore. The easy money policies of the Fed are also fueling a boom in commodity prices.

The ordinary American, if not the political class, recognizes that neither the Fed’s monetary actions nor the trillions in spending have helped them. Unemployment is in double digits. Former senior Bush economic adviser Larry Lindsey is reported to have estimated that Americans’ net worth has dropped $13 trillion since the beginning of the recession in December 2007. Americans suffer while speculators profit.

We are on the cusp of a dollar crisis.  President Jimmy Carter faced a similar crisis in his presidency. Carter ousted his own choice for Chairman of the Fed and appointed Paul Volcker to that position. Volcker recognized that the dollar crisis needed to be ended and instituted painful but necessary sound money policies.  President Reagan re-appointed Volcker and together they restored American prosperity. Volcker advises President Obama and can explain to the president why he must act now.
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« Reply #597 on: November 16, 2009, 09:46:00 PM »

Actually Volcker has said that he was used for his credibility and that none of the BO people listen to him.  Complete agreement on the risk and severity of a dollar crisis.
« Reply #598 on: November 17, 2009, 12:38:08 PM »

Crafty has touched on this subject several times. Well worth the read.


November 10th, 2008
Defenders of the free market are often accused of being apologists for big business and shills for the corporate elite. Is this a fair charge?

No and yes. Emphatically no—because corporate power and the free market are actually antithetical; genuine competition is big business’s worst nightmare. But also, in all too many cases, yes —because although liberty and plutocracy cannot coexist, simultaneous advocacy of both is all too possible.

First, the no. Corporations tend to fear competition, because competition exerts downward pressure on prices and upward pressure on salaries; moreover, success on the market comes with no guarantee of permanency, depending as it does on outdoing other firms at correctly figuring out how best to satisfy forever-changing consumer preferences, and that kind of vulnerability to loss is no picnic. It is no surprise, then, that throughout U.S. history corporations have been overwhelmingly hostile to the free market. Indeed, most of the existing regulatory apparatus—including those regulations widely misperceived as restraints on corporate power—were vigorously supported, lobbied for, and in some cases even drafted by the corporate elite.[1]

Corporate power depends crucially on government intervention in the marketplace.[2] This is obvious enough in the case of the more overt forms of government favoritism such as subsidies, bailouts,[3] and other forms of corporate welfare; protectionist tariffs; explicit grants of monopoly privilege; and the seizing of private property for corporate use via eminent domain (as in Kelo v. New London). But these direct forms of pro-business intervention are supplemented by a swarm of indirect forms whose impact is arguably greater still.

As I have written elsewhere:

One especially useful service that the state can render the corporate elite is cartel enforcement. Price-fixing agreements are unstable on a free market, since while all parties to the agreement have a collective interest in seeing the agreement generally hold, each has an individual interest in breaking the agreement by underselling the other parties in order to win away their customers; and even if the cartel manages to maintain discipline over its own membership, the oligopolistic prices tend to attract new competitors into the market. Hence the advantage to business of state-enforced cartelisation. Often this is done directly, but there are indirect ways too, such as imposing uniform quality standards that relieve firms from having to compete in quality. (And when the quality standards are high, lower-quality but cheaper competitors are priced out of the market.)

The ability of colossal firms to exploit economies of scale is also limited in a free market, since beyond a certain point the benefits of size (e.g., reduced transaction costs) get outweighed by diseconomies of scale (e.g., calculational chaos stemming from absence of price feedback)—unless the state enables them to socialise these costs by immunising them from competition – e.g., by imposing fees, licensure requirements, capitalisation requirements, and other regulatory burdens that disproportionately impact newer, poorer entrants as opposed to richer, more established firms.[4]

Nor does the list end there. Tax breaks to favored corporations represent yet another non-obvious form of government intervention. There is of course nothing anti-market about tax breaks per se; quite the contrary. But when a firm is exempted from taxes to which its competitors are subject, it becomes the beneficiary of state coercion directed against others, and to that extent owes its success to government intervention rather than market forces.

Intellectual property laws also function to bolster the power of big business. Even those who accept the intellectual property as a legitimate form of private property[5] can agree that the ever-expanding temporal horizon of copyright protection, along with disproportionately steep fines for violations (measures for which publishers, recording firms, software companies, and film studios have lobbied so effectively), are excessive from an incentival point of view, stand in tension with the express intent of the Constitution’s patents-and-copyrights clause, and have more to do with maximizing corporate profits than with securing a fair return to the original creators.

Government favoritism also underwrites environmental irresponsibility on the part of big business. Polluters often enjoy protection against lawsuits, for example, despite the pollution’s status as a violation of private property rights.[6] When timber companies engage in logging on public lands, the access roads are generally tax-funded, thus reducing the cost of logging below its market rate; moreover, since the loggers do not own the forests they have little incentive to log sustainably.[7]

In addition, inflationary monetary policies on the part of central banks also tend to benefit those businesses that receive the inflated money first in the form of loans and investments, when they are still facing the old, lower prices, while those to whom the new money trickles down later, only after they have already begun facing higher prices, systematically lose out.

And of course corporations have been frequent beneficiaries of U.S. military interventions abroad, from the United Fruit Company in 1950s Guatemala to Halliburton in Iraq today.

Vast corporate empires like Wal-Mart are often either hailed or condemned (depending on the speaker’s perspective) as products of the free market. But not only is Wal-Mart a direct beneficiary of (usually local) government intervention in the form of such measures as eminent domain and tax breaks, but it also reaps less obvious benefits from policies of wider application. The funding of public highways through tax revenues, for example, constitutes a de facto transportation subsidy, allowing Wal-Mart and similar chains to socialize the costs of shipping and so enabling them to compete more successfully against local businesses; the low prices we enjoy at Wal-Mart in our capacity as consumers are thus made possible in part by our having already indirectly subsidized Wal-Mart’s operating costs in our capacity as taxpayers.

Wal-Mart also keeps its costs low by paying low salaries; but what makes those low salaries possible is the absence of more lucrative alternatives for its employees—and that fact in turn owes much to government intervention. The existence of regulations, fees, licensure requirements, et cetera does not affect all market participants equally; it’s much easier for wealthy, well-established companies to jump through these hoops than it is for new firms just starting up. Hence such regulations both decrease the number of employers bidding for employees’ services (thus keeping salaries low) and make it harder for the less affluent to start enterprises of their own.[8] Legal restrictions on labor organizing also make it harder for such workers to organize collectively on their own behalf.[9]

I don’t mean to suggest that Wal-Mart and similar firms owe their success solely to governmental privilege; genuine entrepreneurial talent has doubtless been involved as well. But given the enormous governmental contribution to that success, it’s doubtful that in the absence of government intervention such firms would be in anything like the position they are today.

In a free market, firms would be smaller and less hierarchical, more local and more numerous (and many would probably be employee-owned); prices would be lower and wages higher; and corporate power would be in shambles. Small wonder that big business, despite often paying lip service to free market ideals, tends to systematically oppose them in practice.

So where does this idea come from that advocates of free-market libertarianism must be carrying water for big business interests? Whence the pervasive conflation of corporatist plutocracy with libertarian laissez-faire? Who is responsible for promoting this confusion?

There are three different groups that must shoulder their share of the blame. (Note: in speaking of “blame” I am not necessarily saying that the “culprits” have deliberately promulgated what they knew to be a confusion; in most cases the failing is rather one of negligence, of inadequate attention to inconsistencies in their worldview. And as we’ll see, these three groups have systematically reinforced one another’s confusions.)

Culprit #1: the left. Across the spectrum from the squishiest mainstream liberal to the bomb-throwingest radical leftist, there is widespread (though not, it should be noted, universal)[10] agreement that laissez-faire and corporate plutocracy are virtually synonymous. David Korten, for example, describes advocates of unrestricted markets, private property, and individual rights as “corporate libertarians” who champion a “globalized free market that leaves resource allocation decisions in the hands of giant corporations”[11]—as though these giant corporations were creatures of the free market rather than of the state—while Noam Chomsky, though savvy enough to recognize that the corporate elite are terrified of genuine free markets, yet in the same breath will turn around and say that we must at all costs avoid free markets lest we unduly empower the corporate elite.[12]

Culprit #2: the right. If libertarians’ left-wing opponents have conflated free markets with pro-business intervention, libertarians’ right-wing opponents have done all they can to foster precisely this confusion; for there is a widespread (though again not universal) tendency for conservatives to cloak corporatist policies in free-market rhetoric. This is how conservative politicians in their presumptuous Adam Smith neckties have managed to get themselves perceived—perhaps have even managed to perceive themselves—as proponents of tax cuts, spending cuts, and unhampered competition despite endlessly raising taxes, raising spending, and promoting “government-business partnerships.”

Consider the conservative virtue-term “privatization,” which has two distinct, indeed opposed, meanings. On the one hand, it can mean returning some service or industry from the monopolistic government sector to the competitive private sector—getting government out of it; this would be the libertarian meaning. On the other hand, it can mean “contracting out,” i.e., granting to some private firm a monopoly privilege in the provision some service previously provided by government directly. There is nothing free-market about privatization in this latter sense, since the monopoly power is merely transferred from one set of hands to another; this is corporatism, or pro-business intervention, not laissez-faire. (To be sure, there may be competition in the bidding for such monopoly contracts, but competition to establish a legal monopoly is no more genuine market competition than voting—one last time—to establish a dictator is genuine democracy.)

Of these two meanings, the corporatist meaning may actually be older, dating back to fascist economic policies in Nazi Germany;[13] but it was the libertarian meaning that was primarily intended when the term (coined independently, as the reverse of “nationalization”) first achieved widespread usage in recent decades. Yet conservatives have largely co-opted the term, turning it once again toward the corporatist sense.

Similar concerns apply to that other conservative virtue-term, “deregulation.” From a libertarian standpoint, deregulating should mean the removal of governmental directives and interventions from the sphere of voluntary exchange. But when a private entity is granted special governmental privileges, “deregulating” it amounts instead to an increase, not a decrease, in governmental intrusion into the economy. To take an example not exactly at random, if assurances of a tax-funded bailout lead banks to make riskier loans than they otherwise would, then the banks are being made freer to take risks with the money of unconsenting taxpayers. When conservatives advocate this kind of deregulation they are wrapping redistribution and privilege in the language of economic freedom. When conservatives market their plutocratic schemes as free-market policies, can we really blame liberals and leftists for conflating the two? (Well, okay, yes we can. Still, it is a mitigating factor.)

Culprit #3: libertarians themselves. Alas, libertarians are not innocent here—which is why the answer to my opening question (as to whether it’s fair to charge libertarians with being apologists for big business) was no and yes rather than a simple no. If libertarians are accused of carrying water for corporate interests, that may be at least in part because, well, they so often sound like that’s just what they’re doing (though here, as above, there are plenty of honorable exceptions to this tendency). Consider libertarian icon Ayn Rand’s description of big business as a “persecuted minority,”[14] or the way libertarians defend “our free-market health-care system” against the alternative of socialized medicine, as though the health care system that prevails in the United States were the product of free competition rather than of systematic government intervention on behalf of insurance companies and the medical establishment at the expense of ordinary people.[15] Or again, note the alacrity with which so many libertarians rush to defend Wal-Mart and the like as heroic exemplars of the free market. Among such libertarians, criticisms of corporate power are routinely dismissed as anti-market ideology. (Of course such dismissiveness gets reinforced by the fact that many critics of corporate power are in the grip of anti-market ideology.) Thus when left-wing analysts complain about “corporate libertarians” they are not merely confused; they’re responding to a genuine tendency even if they’ve to some extent misunderstood it.

Kevin Carson has coined the term “vulgar libertarianism” for the tendency to treat the case for the free market as though it justified various unlovely features of actually existing corporatist society.[16] (I find it preferable to talk of vulgar libertarianism rather than of vulgar libertarians, because very few libertarians are consistently vulgar; vulgar libertarianism is a tendency that can show up to varying degrees in thinkers who have many strong anti-corporatist tendencies also.) Likewise, “vulgar liberalism” is Carson’s term for the corresponding tendency to treat the undesirability of those features of actually existing corporatist society as though they constituted an objection to the free market.[17] Both tendencies conflate free markets with corporatism, but draw opposite morals; as Murray Rothbard notes, “Both left and right have been persistently misled by the notion that intervention by the government is ipso facto leftish and antibusiness.”[18] And if many leftists tend to see dubious corporate advocacy in libertarian pronouncements even when it’s not there, so likewise many libertarians tend not to see dubious corporate advocacy in libertarian pronouncements even when it is there.

« Reply #599 on: November 17, 2009, 12:38:26 PM »

There is an obvious tendency for vulgar libertarianism and vulgar liberalism to reinforce each other, as each takes at face value the conflation of plutocracy with free markets assumed by the other. This conflation in turn tends to bolster the power of the political establishment by rendering genuine libertarianism invisible: Those who are attracted to free markets are lured into supporting plutocracy, thus helping to prop up statism’s right or corporatist wing; those who are repelled by plutocracy are lured into opposing free markets, thus helping to prop up statism’s left or social-democratic wing. But as these two wings have more in common than not, the political establishment wins either way.[19] The perception that libertarians are shills for big business thus has two bad effects: First, it tends to make it harder to attract converts to libertarianism, and so hinders its success; second, those converts its does attract may end up reinforcing corporate power through their advocacy of a muddled version of the doctrine.

In the nineteenth century, it was far more common than it is today for libertarians to see themselves as opponents of big business.[20] The long 20th-century alliance of libertarians with conservatives against the common enemy of state-socialism probably had much to do with reorienting libertarian thought toward the right; and the brief rapprochement between libertarians and the left during the 1960s foundered when the New Left imploded.[21] As a result, libertarians have been ill-placed to combat left-wing and right-wing conflation of markets with privilege, because they have not been entirely free of the conflation themselves.

Happily, the left/libertarian coalition is now beginning to re-emerge;[22] and with it is emerging a new emphasis on the distinction between free markets and prevailing corporatism. In addition, many libertarians are beginning to rethink the way they present their views, and in particular their use of terminology. Take, for example, the word “capitalism,” which libertarians during the past century have tended to apply to the system they favor. As I’ve argued elsewhere, this term is somewhat problematic; some use it to mean free markets, others to mean corporate privilege, and still others (perhaps the majority) to mean some confused amalgamation of the two:

By “capitalism” most people mean neither the free market simpliciter nor the prevailing neomercantilist system simpliciter. Rather, what most people mean by “capitalism” is this free-market system that currently prevails in the western world. In short, the term “capitalism” as generally used conceals an assumption that the prevailing system is a free market. And since the prevailing system is in fact one of government favoritism toward business, the ordinary use of the term carries with it the assumption that the free market is government favoritism toward business.[23]

Hence clinging to the term “capitalism” may be one of the factors reinforcing the conflation of libertarianism with corporatist advocacy.[24] In any case, if libertarianism advocacy is not to be misperceived—or worse yet, correctly perceived! —as pro-corporate apologetics, the antithetical relationship between free markets and corporate power must be continually highlighted.

Roderick Long is Associate Professor of Philosophy at Auburn University.


1 For documentation and analysis see Weinstein, James, The Corporate Ideal in the Liberal State, 1900-1918 (New York: Farrar Straus & Giroux, 1976); Kolko, Gabriel, The Triumph of Conservativm: A Reinterpretation of American History, 1900-1916 (Glencoe: The Free Press, 1963); Kolko, Gabriel, Railroads and Regulation, 1877-1916 (Princeton: Princeton University Press, 1965); Weaver, Paul, The Suicidal Corporation: How Big Business Fails America (New York: Touchtose, 1988); and Shaffer, Butler D., In Restraint of Trade: The Business Campaign Against Competition, 1918-1938 (Lewisburg PA: Bucknell University Press, 1997). For briefer accounts see Childs, Roy A., “Big Business and the Rise of American Statism,” Reason, February 1971, pp. 12-18, and March 1971, pp. 9-12 (online:, and Stromberg, Joseph R., “The Political Economy of Liberal Corporatism,” Individualist (May 1972), pp. 2-11 (online:

2 This is especially true if, as some libertarians argue, the corporate form itself (involving legal personality and limited liability) is inconsistent with free-market principles. (For this position see Van Dun, Frank, “Is the Corporation a Free-Market Institution?,” Freeman 53 no. 3 (March 2003), pp. 29-33 (online:; for the other side see Barry, Norman, “The Theory of the Corporation,” Freeman 53 no. 3 (March 2003), pp. 22-26 (online: ).) For the purposes of the present discussion, however, let us assume the legitimacy of the corporation.

3 Long, Roderick T., “Regulation: The Cause, Not the Cure, of the Financial Crisis” (online:

4 Long, Roderick T., “Those Who Control the Past Control the Future,” 18 September 2008 (online:; cf. Long, Roderick T., “History of an Idea; or, How an Argument Against the Workability of Authoritarian Socialism Became an Argument Against the Workability of Authoritarian Capitalism,” 2 October 2008 (online:, and Carson, Kevin A., “Economic Calculation in the Corporate Commonwealth,” Freeman 57 no. 1 (June 2007), pp. 13-18 (online: For a more detailed case see Carson, Kevin A., Studies in Mutualist Political Economy, Booksurge (2007; online:, and Carson, Kevin A., Organization Theory: An Individualist Anarchist Perspective, forthcoming (online:

5 Another disputed issue among libertarians; see, e.g., Cato Unbound’s June 2008 symposium on “The Future of Copyright” (online:

6 Rothbard, Murray N., “Law, Property Rights, and Air Pollution,” Cato Journal 2 no. 1 (Spring 1982), pp. 55-99 (online:

7 Ruwart, Mary J., Healing Our World In an Age of Aggression (Kalamazoo: SunStar, 2003
pp. 117-119.

8 On this latter point see Johnson, Charles, “Scratching By: How Government Creates Poverty as We Know It,” Freeman 57 no 10 (December 2007), pp. 12-17 (online:

9 For some of the ways in which purportedly pro-labor legislation turns out to be anti-labor I practice, see Johnson, Charles, “Free the Unions (and All Political Prisoners),” 1 May 2004 (online:

10 Especially given that many anti-corporate libertarians identify themselves as part of the left, e.g., the Alliance of the Libertarian Left (online:

11 Korten, David C., When Corporations Rule the World, 2nd ed. (San Francisco: Berrett-Koehler, 2001), p. 77.

12 Long, Roderick T., “Chomsky’s Augustinian Anarchism” (online:

13 Germà Bel, “Retrospectives: The Coining of ‘Privatization’ and Germany’s National Socialist Party,” Journal of Economic Perspectives 20 no. 3 (Summer 2006), pp. 187-194. Bel’s article unfortunately shows little sensitivity to the distinction between libertarian and corporatist senses of “privatization.”

14 Rand, Ayn, “America’s Persecuted Minority: Big Business,” Capitalism: The Unknown Ideal (New York: Signet, 1967), pp. 44-62. In fairness to Rand, she was not entirely blind to the phenomenon of corporatism; in her article “The Roots of War” (Capitalism, pp. 35-44), for example, she condemns “men with political pull” who seek “special advantages by government action in their own countries” and “special markets by government action abroad,” and so “acquire fortunes by government favor. . . which they could not have acquired on a free market.” Moreover, while readers often come away from her novel Atlas Shrugged (New York: Penguin, 1999) with the vague memory that the heroine, Dagny Taggart, was fighting against evil bureaucrats who wanted to impose unfair regulations on her railroad company, in fact Taggart’s struggle is against evil bureaucrats (in league with her power-hungry brother/employer) who want to give her company special favors and privileges at its competitors’ expense. For an analysis of what Rand got right and wrong about corporatism, see Long, Roderick T., “Toward a Libertarian Theory of Class,” pp. 321-25, in Social Philosophy & Policy 15 no. 1 (1998), pp. 303-349 (online: and

15 See Long, “Roderick T., “Poison As Food, Poison As Antidote,” 28 August 2008 (online:

16 Carson, Kevin A., “Vulgar Libertarianism Watch, Part 1,” 11 January 2005 (online:

17 Carson, Kevin A., “Vulgar Liberalism Watch (Yeah, You Read It Right)” 21 December 2005 (online:

18 Rothbard, Murray N., Left and Right: The Prospects for Liberty (Cato Institute, 1979; online:

19 The relationship between big business and big government is like the relation between church and state in the Middle Ages; it’s not an entirely harmonious cooperation, since each would like to be the dominant partner (and whether the result looks more like socialism or more like fascism depends on which side is in the ascendant at the moment), but the two sides share an interest in subordinating society to the partnership. See Long, “Poison As Food,” op. cit.

20 See Long, Roderick T., “They Saw it Coming: The 19th-Century Libertarian Critique of Fascism” (2005; online:

21 John Payne, “Rothbard’s Time on the Left,” Journal of Libertarian Studies 19 no1 (Winter 2005), pp. 7-24 (online:

22 See, for example, the group blogs and

23 Long, Roderick T., “Rothbard’s ‘Left and Right’: Forty Years Later” (2006; online:

24 William Gillis has likewise suggested abandoning “free market” in favor of “freed market”:
“You’d be surprised how much of a difference a change of tense can make. ‘Free market’ makes it sound like such a thing already exists and thus passively perpetuates the Red myth that Corporatism and wanton accumulation of Kapital are the natural consequences of free association and competition between individuals. . . . But ‘freed’ has an element of distance. . . . It moves us out of the present tense and into the theoretical realm of ‘after the revolution,’ where like the Reds we can still use present day examples to back theory, but we’re not tied into implicitly defending every horror in today’s market.” Gillis, William, “The Freed Market,” 31 July 2007 (online:
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