The director of both the above films is Jamie Johnson, heir to the Johnson & Johnson billion dollar empire. So at least one of the top 1% sees the larger problem that so much wealth in so few hands causes. Good on you, Jamie.--jef
Thursday, August 2, 2012
No Country for Bold Men
It's not that I am a big fan of the president, he's been a huge disappointment. But Republicans don't even like Romney. They are only voting for him because he's not Obama. But Romney is the single worst candidate the Republicans have put up for president in my lifetime.--jef
Tuesday, July 31, 2012
Mitt Romney's Wimp Factor
by: Joshua Green - Business Week
The last two weeks have landed Mitt Romney in some real political trouble, and his responses—though drawn straight from the political consultant’s handbook—have fallen flat in a way that threatens to damage him much more than the incidents, taken on their own, would suggest.
In late June, the Washington Post ran a devastating story about how Bain Capital had invested in firms that specialize in outsourcing American jobs. A few days later, the Romney campaign demanded a retraction, and made a big show of meeting with the Post’s editors and releasing a memo that was intended to establish their case. Their request was denied.
Then, last week, the Boston Globe reported that SEC documents show Romney had remained chairman and chief executive of Bain Capital for at least three years longer than he claimed—important because much of the Bain outsourcing that’s become such a controversy occurred during this period, and Romney’s defense is that he had already “retired.” The Romney campaign demanded a retraction and was again denied.
Last Friday, as the Bain controversy took center stage, Romney hastily arranged five interviews with networks and major cable stations to respond to questions about his Bain tenure and why he won’t release more tax information. Romney didn’t have anything new to say—he repeated his refusal to release more than the two years’ worth of tax returns he’d already promised—and instead wound up demanding an apology from President Obama, whose campaign, he claimed, had impugned his integrity. Once more, Romney was shut down.
Each of these moves has a certain logic behind it. Romney can’t afford for voters to see him as having profited from outsourcing American jobs. Nor can he be seen as having run Bain between 1999-2002 because his defense against the outsourcing charge rests on his claim that he was gone by then. And having made up his mind not to release more tax returns—but feeling compelled to go on television Friday anyway—Romney instead attempted the political equivalent of an NBA player flopping to catch the ref’s attention and draw a charge by demanding that Obama apologize for the mean things said about him.
But Romney failed in each of these instances and now looks ineffectual. As Josh Marshall notes, “the Obama camp has backed Romney into a position in which he looks ridiculous—something much more lethal for presidential candidates than most people appreciate.” David Frum adds that on policy matters, “at every point, Romney has surrendered to the fringe of his party.” The danger for Romney is that voters won’t parse these episodes but will instead conclude, based on their overall impression of his squealing and inability to get results, that Romney is a wimp. This is a charge that famously dogged another establishment Republican:
It’s not clear Romney can do much to prove he wasn’t running Bain between ’99 and ’02. An article in today’s New York Times notes that 142 documents have surfaced tying Romney to the ownership of the firm during this period. Nor can he shut down the criticism and speculation surrounding his tax returns if he refuses to release more than he’s promised.
So how to shake the wimp factor? The best idea I’ve heard comes from Irwin M. Stelzer in the Weekly Standard who suggests that Romney go after corrupt bankers like those behind the Libor scandal. This would allow him to get tough on an issue where outrage is warranted, the public will side with him, and the politics cut against his fast-solidifying image as someone who cares only about protecting the interests of his own economic class. Doing so would also, Stelzer points out, be perfectly consistent with the pro-market capitalism Romney espouses.
In fact, it’s hard to see any drawbacks. The Libor bankers can’t possibly fight back, so it’s one fight that Romney can pick and be reasonably assured he won’t come out of it looking like a wimp.
The last two weeks have landed Mitt Romney in some real political trouble, and his responses—though drawn straight from the political consultant’s handbook—have fallen flat in a way that threatens to damage him much more than the incidents, taken on their own, would suggest.
In late June, the Washington Post ran a devastating story about how Bain Capital had invested in firms that specialize in outsourcing American jobs. A few days later, the Romney campaign demanded a retraction, and made a big show of meeting with the Post’s editors and releasing a memo that was intended to establish their case. Their request was denied.
Then, last week, the Boston Globe reported that SEC documents show Romney had remained chairman and chief executive of Bain Capital for at least three years longer than he claimed—important because much of the Bain outsourcing that’s become such a controversy occurred during this period, and Romney’s defense is that he had already “retired.” The Romney campaign demanded a retraction and was again denied.
Last Friday, as the Bain controversy took center stage, Romney hastily arranged five interviews with networks and major cable stations to respond to questions about his Bain tenure and why he won’t release more tax information. Romney didn’t have anything new to say—he repeated his refusal to release more than the two years’ worth of tax returns he’d already promised—and instead wound up demanding an apology from President Obama, whose campaign, he claimed, had impugned his integrity. Once more, Romney was shut down.
Each of these moves has a certain logic behind it. Romney can’t afford for voters to see him as having profited from outsourcing American jobs. Nor can he be seen as having run Bain between 1999-2002 because his defense against the outsourcing charge rests on his claim that he was gone by then. And having made up his mind not to release more tax returns—but feeling compelled to go on television Friday anyway—Romney instead attempted the political equivalent of an NBA player flopping to catch the ref’s attention and draw a charge by demanding that Obama apologize for the mean things said about him.
But Romney failed in each of these instances and now looks ineffectual. As Josh Marshall notes, “the Obama camp has backed Romney into a position in which he looks ridiculous—something much more lethal for presidential candidates than most people appreciate.” David Frum adds that on policy matters, “at every point, Romney has surrendered to the fringe of his party.” The danger for Romney is that voters won’t parse these episodes but will instead conclude, based on their overall impression of his squealing and inability to get results, that Romney is a wimp. This is a charge that famously dogged another establishment Republican:
So how to shake the wimp factor? The best idea I’ve heard comes from Irwin M. Stelzer in the Weekly Standard who suggests that Romney go after corrupt bankers like those behind the Libor scandal. This would allow him to get tough on an issue where outrage is warranted, the public will side with him, and the politics cut against his fast-solidifying image as someone who cares only about protecting the interests of his own economic class. Doing so would also, Stelzer points out, be perfectly consistent with the pro-market capitalism Romney espouses.
In fact, it’s hard to see any drawbacks. The Libor bankers can’t possibly fight back, so it’s one fight that Romney can pick and be reasonably assured he won’t come out of it looking like a wimp.
The Tax Havens of the Super-Rich
Are America’s rich getting richer? Certainly. Every official
yardstick shows that America’s most affluent are upping their incomes
much faster than everyone else.
How fast? Between 1980 and 2010, note economists Emmanuel Saez and Thomas Piketty, incomes for America’s top 1 percent more than doubled after inflation. They now average a little more than $1 million.
The top 0.1 percent saw their incomes more than triple, to $4.9 million, over that same span. And income more than quadrupled for the top 0.01 percent — the richest 16,000 Americans — to nearly $24 million.
And what about the rest of us? After inflation, average incomes for America’s bottom 90 percent actually fell — by 4.8 percent — between 1980 and 2010, from $31,337 to $29,840.
These numbers tell us how much people make. Measuring wealth gauges how much people have. The two, common sense tells us, ought to be related. If incomes are getting much more unequal, then the distribution of our national wealth ought to become much more unequal too.
But that doesn’t seem to be the case. A Congressional Research Service of new Federal Reserve data indicates that the gap between the wealth of America’s most awesomely affluent and everyone else is holding steady.
In 2010, the Fed data show, the top 1 percent held 34.5 percent of the nation’s wealth, almost the same exact share as in 1995, and not that much more than the 30.1 percent share they held in 1989.
These numbers just don’t add up — income is increasingly skewed toward the top, but wealth distribution is holding steady. What can explain this paradox?
Maybe the Federal Reserve isn’t doing a good job of assessing just how much wealth the wealthiest Americans own. Indeed, Fed researchers do acknowledge that they don’t take into account — for privacy reasons — the wealth of anyone listed in the Forbes magazine annual list of America’s 400 richest.
But including these 400 only moves the top 1 percent’s share of America’s wealth up by a bit over a percentage point. It isn’t enough to explain the disconnect between the extraordinary income gains of America’s rich and the modest rise in their share of national wealth.
Maybe the rich are simply living large, wasting their astronomical incomes on caviar, private jets, and other luxuries. But wasteful consumption can’t explain the inequality paradox either. Deep pockets in America’s top 0.01 percent could shell out $5,000 every single day of the year and still have 93 percent of their annual incomes left to spend.
So what in the end can explain the inequality paradox? The London-based Tax Justice Network has an answer. The world’s super rich, the group has just reported, are squirreling away — and concealing — phenomenal quantities of their cash in secret global tax havens.
The Network’s new tax-dodging study “conservatively” computes the total wealth stashed in these havens at $21 trillion. That total could plausibly run as high as $32 trillion.
Americans make up, we know from previous research, almost a third of the global super rich. That would put the American share of unrecorded offshore assets as high as $10 trillion.
Add this $10 trillion to the wealth of America’s top 1 percent and the inequality disconnect between wealth and income largely disappears. Paradox solved.
Now we have to tackle a much bigger challenge: ending the march to ever greater inequality. Shutting down tax havens would make a great place to start.
How fast? Between 1980 and 2010, note economists Emmanuel Saez and Thomas Piketty, incomes for America’s top 1 percent more than doubled after inflation. They now average a little more than $1 million.
The top 0.1 percent saw their incomes more than triple, to $4.9 million, over that same span. And income more than quadrupled for the top 0.01 percent — the richest 16,000 Americans — to nearly $24 million.
And what about the rest of us? After inflation, average incomes for America’s bottom 90 percent actually fell — by 4.8 percent — between 1980 and 2010, from $31,337 to $29,840.
These numbers tell us how much people make. Measuring wealth gauges how much people have. The two, common sense tells us, ought to be related. If incomes are getting much more unequal, then the distribution of our national wealth ought to become much more unequal too.
But that doesn’t seem to be the case. A Congressional Research Service of new Federal Reserve data indicates that the gap between the wealth of America’s most awesomely affluent and everyone else is holding steady.
In 2010, the Fed data show, the top 1 percent held 34.5 percent of the nation’s wealth, almost the same exact share as in 1995, and not that much more than the 30.1 percent share they held in 1989.
These numbers just don’t add up — income is increasingly skewed toward the top, but wealth distribution is holding steady. What can explain this paradox?
Maybe the Federal Reserve isn’t doing a good job of assessing just how much wealth the wealthiest Americans own. Indeed, Fed researchers do acknowledge that they don’t take into account — for privacy reasons — the wealth of anyone listed in the Forbes magazine annual list of America’s 400 richest.
But including these 400 only moves the top 1 percent’s share of America’s wealth up by a bit over a percentage point. It isn’t enough to explain the disconnect between the extraordinary income gains of America’s rich and the modest rise in their share of national wealth.
Maybe the rich are simply living large, wasting their astronomical incomes on caviar, private jets, and other luxuries. But wasteful consumption can’t explain the inequality paradox either. Deep pockets in America’s top 0.01 percent could shell out $5,000 every single day of the year and still have 93 percent of their annual incomes left to spend.
So what in the end can explain the inequality paradox? The London-based Tax Justice Network has an answer. The world’s super rich, the group has just reported, are squirreling away — and concealing — phenomenal quantities of their cash in secret global tax havens.
The Network’s new tax-dodging study “conservatively” computes the total wealth stashed in these havens at $21 trillion. That total could plausibly run as high as $32 trillion.
Americans make up, we know from previous research, almost a third of the global super rich. That would put the American share of unrecorded offshore assets as high as $10 trillion.
Add this $10 trillion to the wealth of America’s top 1 percent and the inequality disconnect between wealth and income largely disappears. Paradox solved.
Now we have to tackle a much bigger challenge: ending the march to ever greater inequality. Shutting down tax havens would make a great place to start.
This Modern World
Monday, July 30, 2012
Nationalize Money, Not Banks
We Don’t Have To Be In Financial Crisis
Herman Daly
Emeritus Professor, University of Maryland School of Public Policy
If our present banking system, in addition to fraudulent and corrupt, also seems “screwy” to you, it should. Why should money, a public utility (serving the public as medium of exchange, store of value, and unit of account), be largely the by-product of private lending and borrowing? Is that really an improvement over being a by-product of private gold mining, as it was under the gold standard? The best way to sabotage a system is hobble it by tying together two of its separate parts, creating an unnecessary and obstructive connection. Why should the public pay interest to the private banking sector to provide a medium of exchange that the government can provide at little or no cost? Why should seigniorage (profit to the issuer of fiat money) go largely to the private sector rather than entirely to the government (the commonwealth)?
Is there not a better away? Yes, there is. We need not go back to the gold standard. Keep fiat money, but move from fractional reserve banking to a system of 100% reserve requirements. The change need not be abrupt—we could gradually raise the reserve requirement to 100%. Already the Fed has the authority to change reserve requirements but seldom uses it. This would put control of the money supply and seigniorage entirely with the government rather than largely with private banks. Banks would no longer be able to live the alchemist’s dream by creating money out of nothing and lending it at interest. All quasi-bank financial institutions should be brought under this rule, regulated as commercial banks subject to 100% reserve requirements.
Banks cannot create money under 100% reserves (the reserve deposit multiplier would be unity), and banks would earn their profit by financial intermediation only, lending savers’ money for them (charging a loan rate higher than the rate paid to savings or “time-account” depositors) and charging for checking, safekeeping, and other services. With 100% reserves every dollar loaned to a borrower would be a dollar previously saved by a depositor (and not available to the depositor during the period of the loan), thereby re-establishing the classical balance between abstinence and investment. With credit limited by saving (abstinence from consumption) there will be less lending and borrowing and it will be done more carefully—no more easy credit to finance the leveraged purchase of “assets” that are nothing but bets on dodgy debts.
To make up for the decline and eventual elimination of bank- created, interest-bearing money, the government can pay some of its expenses by issuing more non interest-bearing fiat money.
However, it can only do this up to a strict limit imposed by inflation. If the government issues more money than the public voluntarily wants to hold, the public will trade it for goods, driving the price level up. As soon as the price index begins to rise the government must print less. Thus a policy of maintaining a constant price index would govern the internal value of the dollar. The external value of the dollar could be left to freely fluctuating exchange rates.
Alternatively, if we instituted John M. Keynes’ international clearing union, the external value of the dollar, along with that of all other currencies, could be set relative to the “bancor,” a common denominator accounting unit used by the payments union. The bancor would serve as an international reserve currency for settling trade imbalances—a kind of “gold substitute”.
The United States opposed Keynes’ plan at Bretton Woods precisely because under it the dollar would not function as the world’s reserve currency, and the US would lose the enormous international subsidy that results from all countries having to hold large transaction balances in dollars.
The payments union would settle trade balances multilaterally. Each country would have a net trade balance with the rest of the world (with the payments union) in bancor units. Any country running a persistent deficit would be charged a penalty, and if continued would have its currency devalued relative to the bancor. But persistent surplus countries would also be charged a penalty, and if the surplus persisted their currency would suffer an appreciation relative to the bancor.
Keynes’ goal was balanced trade, and both surplus and deficit nations would be expected to take measures to bring their trade into balance. With trade in near balance there would be little need for a world reserve currency, and what need there was could be met by the bancor. Freely fluctuating exchange rates would also in theory keep trade balanced and reduce or eliminate the need for a world reserve currency. Which system would be better is a complicated issue not pursued here. In either case the IMF could be abolished since there would be little need for financing trade imbalances (the IMF’s main purpose) in a regime whose goal is to eliminate trade imbalances.
Returning to domestic institutions, the Treasury would replace the Fed (which is owned by and operated in the interests of the commercial banks). The interest rate would no longer be a target policy variable, but rather left to market forces. The target variables of the Treasury would be the money supply and the price index. The treasury would print and spend into circulation for public purposes as much money as the public voluntarily wants to hold. When the price index begins to rise it must cease printing money and finance any additional public expenditures by taxing or borrowing from the public (not from itself). The policy of maintaining a constant price index effectively gives the fiat currency the “backing” of the basket of commodities in the price index.
In the 1920s the leading academic economists, Frank Knight of Chicago and Irving Fisher of Yale, along with others including underground economist and Nobel Laureate in Chemistry, Frederick Soddy, strongly advocated a policy of 100% reserves for commercial banks. Why did this suggestion for financial reform disappear from discussion? The best answer I have received is that the great depression and subsequent Keynesian emphasis on growth swept it aside because limiting bank lending to actual savings was too restrictive on growth, which became the big panacea. Also there is the obvious vested interest of commercial banks in retaining the privilege of creating money and lending it at interest.
Now suppose for a moment that aggregate growth has begun to increase environmental and social costs faster than production benefits, thus becoming uneconomic growth. There is much evidence that this is the case. Then a financial constraint on growth (balancing investment with abstinence) would be much needed, and 100% reserves would be a good way to accomplish it. If, however, growth remains the summum bonum of the economy, then we will inevitably borrow against our hoped for larger future income to finance the investments needed to produce it.
Financing investment by saving would require less present consumption, which many will deem to be an unacceptable drag on growth. But real growth has encountered the biophysical and social limits of a “full world.” Financial growth is being stimulated ever more in the hope that it will pull real growth behind it, but it is in fact pushing uneconomic growth- — growth of ”illth.” Since illth is negative wealth it can hardly redeem the growing debt that is financing it.
The original 100% reserve proponents mentioned above were in favor of aggregate growth, but wanted it to be steady growth in wealth, not speculative boom and bust cycles. Soddy was especially cautious about uncontrolled physical growth, but his main concern was with the symbolic financial system and its disconnect from the real system that it was supposed to symbolize. The result was confusion between wealth and debt. One need not advocate a steady-state economy to favor 100% reserves, but if one does favor a steady state the attractions of 100% reserves are increased.
How would the 100% reserve system serve the steady-state economy?
Keynes bancor scheme or a regime of fluctuating exchange rates would automatically balance international trade accounts, eliminating large surpluses and deficits. Thus, there would no longer be any need for the International Monetary Fund and the austerity its “conditionality” imposes on weaker economies.
To dismiss such sound policies as “extreme” in the face of the repeatedly demonstrated failure and fraud of our current financial system is quite absurd. The idea is not to nationalize banks, but to nationalize money, which is a natural public utility in the first place. The fact that this idea is hardly discussed today, in spite of its distinguished intellectual ancestry and common sense, is testimony to the power of vested interests over good ideas. It is also testimony to the veto power that our growth fetish exercises over the thinking of economists today.
Herman Daly
Emeritus Professor, University of Maryland School of Public Policy
If our present banking system, in addition to fraudulent and corrupt, also seems “screwy” to you, it should. Why should money, a public utility (serving the public as medium of exchange, store of value, and unit of account), be largely the by-product of private lending and borrowing? Is that really an improvement over being a by-product of private gold mining, as it was under the gold standard? The best way to sabotage a system is hobble it by tying together two of its separate parts, creating an unnecessary and obstructive connection. Why should the public pay interest to the private banking sector to provide a medium of exchange that the government can provide at little or no cost? Why should seigniorage (profit to the issuer of fiat money) go largely to the private sector rather than entirely to the government (the commonwealth)?
Is there not a better away? Yes, there is. We need not go back to the gold standard. Keep fiat money, but move from fractional reserve banking to a system of 100% reserve requirements. The change need not be abrupt—we could gradually raise the reserve requirement to 100%. Already the Fed has the authority to change reserve requirements but seldom uses it. This would put control of the money supply and seigniorage entirely with the government rather than largely with private banks. Banks would no longer be able to live the alchemist’s dream by creating money out of nothing and lending it at interest. All quasi-bank financial institutions should be brought under this rule, regulated as commercial banks subject to 100% reserve requirements.
Banks cannot create money under 100% reserves (the reserve deposit multiplier would be unity), and banks would earn their profit by financial intermediation only, lending savers’ money for them (charging a loan rate higher than the rate paid to savings or “time-account” depositors) and charging for checking, safekeeping, and other services. With 100% reserves every dollar loaned to a borrower would be a dollar previously saved by a depositor (and not available to the depositor during the period of the loan), thereby re-establishing the classical balance between abstinence and investment. With credit limited by saving (abstinence from consumption) there will be less lending and borrowing and it will be done more carefully—no more easy credit to finance the leveraged purchase of “assets” that are nothing but bets on dodgy debts.
To make up for the decline and eventual elimination of bank- created, interest-bearing money, the government can pay some of its expenses by issuing more non interest-bearing fiat money.
However, it can only do this up to a strict limit imposed by inflation. If the government issues more money than the public voluntarily wants to hold, the public will trade it for goods, driving the price level up. As soon as the price index begins to rise the government must print less. Thus a policy of maintaining a constant price index would govern the internal value of the dollar. The external value of the dollar could be left to freely fluctuating exchange rates.
Alternatively, if we instituted John M. Keynes’ international clearing union, the external value of the dollar, along with that of all other currencies, could be set relative to the “bancor,” a common denominator accounting unit used by the payments union. The bancor would serve as an international reserve currency for settling trade imbalances—a kind of “gold substitute”.
The United States opposed Keynes’ plan at Bretton Woods precisely because under it the dollar would not function as the world’s reserve currency, and the US would lose the enormous international subsidy that results from all countries having to hold large transaction balances in dollars.
The payments union would settle trade balances multilaterally. Each country would have a net trade balance with the rest of the world (with the payments union) in bancor units. Any country running a persistent deficit would be charged a penalty, and if continued would have its currency devalued relative to the bancor. But persistent surplus countries would also be charged a penalty, and if the surplus persisted their currency would suffer an appreciation relative to the bancor.
Keynes’ goal was balanced trade, and both surplus and deficit nations would be expected to take measures to bring their trade into balance. With trade in near balance there would be little need for a world reserve currency, and what need there was could be met by the bancor. Freely fluctuating exchange rates would also in theory keep trade balanced and reduce or eliminate the need for a world reserve currency. Which system would be better is a complicated issue not pursued here. In either case the IMF could be abolished since there would be little need for financing trade imbalances (the IMF’s main purpose) in a regime whose goal is to eliminate trade imbalances.
Returning to domestic institutions, the Treasury would replace the Fed (which is owned by and operated in the interests of the commercial banks). The interest rate would no longer be a target policy variable, but rather left to market forces. The target variables of the Treasury would be the money supply and the price index. The treasury would print and spend into circulation for public purposes as much money as the public voluntarily wants to hold. When the price index begins to rise it must cease printing money and finance any additional public expenditures by taxing or borrowing from the public (not from itself). The policy of maintaining a constant price index effectively gives the fiat currency the “backing” of the basket of commodities in the price index.
In the 1920s the leading academic economists, Frank Knight of Chicago and Irving Fisher of Yale, along with others including underground economist and Nobel Laureate in Chemistry, Frederick Soddy, strongly advocated a policy of 100% reserves for commercial banks. Why did this suggestion for financial reform disappear from discussion? The best answer I have received is that the great depression and subsequent Keynesian emphasis on growth swept it aside because limiting bank lending to actual savings was too restrictive on growth, which became the big panacea. Also there is the obvious vested interest of commercial banks in retaining the privilege of creating money and lending it at interest.
Now suppose for a moment that aggregate growth has begun to increase environmental and social costs faster than production benefits, thus becoming uneconomic growth. There is much evidence that this is the case. Then a financial constraint on growth (balancing investment with abstinence) would be much needed, and 100% reserves would be a good way to accomplish it. If, however, growth remains the summum bonum of the economy, then we will inevitably borrow against our hoped for larger future income to finance the investments needed to produce it.
Financing investment by saving would require less present consumption, which many will deem to be an unacceptable drag on growth. But real growth has encountered the biophysical and social limits of a “full world.” Financial growth is being stimulated ever more in the hope that it will pull real growth behind it, but it is in fact pushing uneconomic growth- — growth of ”illth.” Since illth is negative wealth it can hardly redeem the growing debt that is financing it.
The original 100% reserve proponents mentioned above were in favor of aggregate growth, but wanted it to be steady growth in wealth, not speculative boom and bust cycles. Soddy was especially cautious about uncontrolled physical growth, but his main concern was with the symbolic financial system and its disconnect from the real system that it was supposed to symbolize. The result was confusion between wealth and debt. One need not advocate a steady-state economy to favor 100% reserves, but if one does favor a steady state the attractions of 100% reserves are increased.
How would the 100% reserve system serve the steady-state economy?
- First, as just mentioned it would restrict borrowing for new investment to existing savings, greatly reducing speculative growth ventures—for example the leveraging of stock purchases with huge amounts of borrowed money (created by banks ex nihilo rather than saved out of past earnings) would be severely limited. Down payment on houses would be much higher, and consumer credit would be greatly diminished. Credit cards would become debit cards. Long term lending would have to be financed by long term time deposits, or by carefully sequenced rolling over of shorter term deposits. Growth economists will scream, but a steady-state economy does not aim to grow, for the very good reason that growth has become uneconomic.
- Second, the money supply no longer has to grow in order for people to pay back the principal plus the interest required by the loan responsible for the money’s very existence in the first place. The repayment of old loans with interest continually threatens to diminish the money supply unless new loans compensate. With 100% reserves money becomes neutral with respect to growth rather than biasing the system toward growth by requiring more loans just to keep the money supply from shrinking.
- Third, the financial sector will no longer be able to capture such a large share of the nation’s profits (around 40%!), freeing some smart people for more productive, less parasitic, activity.
- Fourth, the money supply would no longer expand during a boom, when banks like to loan lots of money, and contract during a recession, when banks try to collect outstanding debts, thereby reinforcing the cyclical tendency of the economy.
- Fifth, with 100% reserves there is no danger of a run on a bank leading to a cascading collapse of the credit pyramid, and the FDIC could be abolished, along with its consequent moral hazard. The danger of collapse of the whole payment system due to the failure of one or two “too big to fail” banks would be eliminated. Congress then could not be frightened into giving huge bailouts to some banks to avoid the “contagion” of failure, because the money supply is no longer controlled by the private banks. Any given bank could fail by making imprudent loans, but its failure, even if a large bank, would not disrupt the public utility function of money. The club that the banks used to beat Congress into giving bailouts would have been taken away.
- Sixth, the explicit policy of a constant price index would reduce fears of inflation and the resultant quest to accumulate more as a protection against inflation. Also it in effect provides a multi-commodity backing to our fiat money.
Keynes bancor scheme or a regime of fluctuating exchange rates would automatically balance international trade accounts, eliminating large surpluses and deficits. Thus, there would no longer be any need for the International Monetary Fund and the austerity its “conditionality” imposes on weaker economies.
To dismiss such sound policies as “extreme” in the face of the repeatedly demonstrated failure and fraud of our current financial system is quite absurd. The idea is not to nationalize banks, but to nationalize money, which is a natural public utility in the first place. The fact that this idea is hardly discussed today, in spite of its distinguished intellectual ancestry and common sense, is testimony to the power of vested interests over good ideas. It is also testimony to the veto power that our growth fetish exercises over the thinking of economists today.
Sunday, July 29, 2012
US growth slows as consumers cut back on spending
(* And really, since the govt counts goods that have been produced but not ordered or sold as "growth" if you discount those goods, we've not been experiencing slow growth, but the 4th year of an economic depression. --jef)
Factories received fewer orders and
exports were hit by a global slowdown, the commerce department reported.
The US economy slowed again during the second quarter of the year, government figures showed Friday.
The nation's gross domestic product (GDP) – the broadest measure of the economy – grew at a sluggish 1.5% between April and June, the US commerce department said. The latest figure compares to 2% growth during the prior three months, and 4.1% in the fourth quarter of 2011.
The slowdown came as consumers cut back, local governments cut spending, factories received fewer orders and exports were hit by a global slowdown and a stronger dollar.
The latest news comes as the number of jobs created each month has also fallen sharply. The GDP figure is likely to be a blow to president Barack Obama as the economy emerges as the key issue of the 2012 election.
A Wall Street Journal/NBC News poll released this week found the economy was the only issue for which voters expressed more confidence in Mitt Romney, Obama's Republican rival, than the president.
The GDP figure was slightly higher than many economists had predicted. Economists surveyed by Dow Jones Newswires had expected a rate of 1.3% in the second quarter.
Consumer spending slowed in the quarter. Personal consumption expenditures rose 1.5% during the quarter, down from a 2.4% in the first quarter and the smallest gain in a year.
Spending on durable goods – including cars and home appliances – fell 1.% in the second quarter.
Cuts in government spending, especially at the local level, also held back growth. State and local spending fell 2.1% during the quarter while federal spending declined 0.4%.
Non-residential fixed investment, including business spending on structures and equipment, increased 5.3% during the second quarter, down from 7.5% in the previous quarter.
The US economy has grown for 12 consecutive quarters, but the gains have been small.*
"The current recovery has been utterly anaemic in relation to the average recovery in the post-war era. Real GDP is growing at a pace slower than virtually any recovery since the war," Dan Greenhaus, chief global strategist at BTIG, said in a note to clients.
The nation's gross domestic product (GDP) – the broadest measure of the economy – grew at a sluggish 1.5% between April and June, the US commerce department said. The latest figure compares to 2% growth during the prior three months, and 4.1% in the fourth quarter of 2011.
The slowdown came as consumers cut back, local governments cut spending, factories received fewer orders and exports were hit by a global slowdown and a stronger dollar.
The latest news comes as the number of jobs created each month has also fallen sharply. The GDP figure is likely to be a blow to president Barack Obama as the economy emerges as the key issue of the 2012 election.
A Wall Street Journal/NBC News poll released this week found the economy was the only issue for which voters expressed more confidence in Mitt Romney, Obama's Republican rival, than the president.
The GDP figure was slightly higher than many economists had predicted. Economists surveyed by Dow Jones Newswires had expected a rate of 1.3% in the second quarter.
Consumer spending slowed in the quarter. Personal consumption expenditures rose 1.5% during the quarter, down from a 2.4% in the first quarter and the smallest gain in a year.
Spending on durable goods – including cars and home appliances – fell 1.% in the second quarter.
Cuts in government spending, especially at the local level, also held back growth. State and local spending fell 2.1% during the quarter while federal spending declined 0.4%.
Non-residential fixed investment, including business spending on structures and equipment, increased 5.3% during the second quarter, down from 7.5% in the previous quarter.
The US economy has grown for 12 consecutive quarters, but the gains have been small.*
"The current recovery has been utterly anaemic in relation to the average recovery in the post-war era. Real GDP is growing at a pace slower than virtually any recovery since the war," Dan Greenhaus, chief global strategist at BTIG, said in a note to clients.
Agenda 21 Meets Global Corporate Takeover in the Trans-Pacific Partnership
July 28, 2012
Susanne Posel
Occupy Corporatism
The Trans-Pacific Partnership (TPP) “is a key trade initiative” that the Obama administration claims is “seeking to support jobs for American workers by boosting American exports to the dynamic Asia-Pacific region, promote manufacturing, innovation, and entrepreneurship, and at the same time, reflect in the agreement important values on key issues such as worker rights and the environment.”
However, the agenda of the TPP is a securitization of customs and border patrol services, telecommunications, corporate competition policy that directly affects immigration, corporate investments, and the addition of intellectual property rights with focus on copyright limitations.
The TPP, held in secret, is in actuality a multi-national trade agreement that seeks to extend intellectual property rights across the globe; creating an international enforcement scheme.
In a White House statement , Obama seeks to incorporate America with Canada and the other TPP countries in a “next-generation regional agreement that liberalizes trade and investment.” The press release explains that TPP will build upon “the commitments of NAFTA.”
The TPP defines intellectual property as:
The leaked document drafted as the US TPP Intellectual Property Rights Chapter clearly states that negotiators for Obama are actively pushing for the adaptation of copyright measures that further restrict that is outlined in the Anti-Counterfeiting Trade Agreement (ACTA) and other similar international treaties.
There is an initiative to control global IP enforcement by the UN under signatory treaty wherein nations will be mandated to enact domestic laws that have been worded to reflect the provisions in the TPP agreement.
As in the Digital Millennium Copyright Act of 1998 (DMCA), that places federal agencies in control of digital “locks” and enforcement of over=blown statutory damages on claims of copyright infringement; as well as restricting the US Congress from altering existing IP governances as changes in technology and innovation demands such elasticity.
The restrictive nature of the TPP is evidenced in such obligations as:
This amicable request has fallen on deaf ears as the Obama administration continues to shroud the TPP talks in secrecy.
The propaganda in the public forum is that the TPP is a sort of Free Trade Act (FTA) which masks the massive profits that corporations stand to gain and the elimination of those currently employed as multi-national business is converted into a weapon of mass destruction .
Outsourcing, which was endorsed by NAFTA over a decade ago, would be enhanced under TPP, where manipulation of governments by mega-corporations could ensure profit margins increase exponentially.
Within TPP is an UN-like tribunal of attorneys that would govern legal disputes, enforce through international judgment complaints regarding governmental regulations and oversee adherence to corporate operations despite independent right of sovereign nations under international mandate.
Ron Kirkland, US Trade Representative for the Obama administration believes that public interest and national sovereignty must be cast to the wayside under global governance that is in line with multi-national corporate agendas that serve the global Elite.
Corporate control over natural resources through the use of international tribunals that will rule over environmental issues, land use, public health, and any and all laws or regulations foreign or domestic that apply. Those tribunals would be seated by private sector lawyers operating under the UN and World Bank (WB) demand for taxpayer compensation of domestic regulatory policies because corporations must be paid back for “expected future profits”.
In basic terms, with the aid of tribunal “courts” corporations can put pressure on governments to weaken their environmental policies at the whim of the multi-national company with the backing of international mandate.
This has happened already in various places around the world:
Occupy Corporatism
The Trans-Pacific Partnership (TPP) “is a key trade initiative” that the Obama administration claims is “seeking to support jobs for American workers by boosting American exports to the dynamic Asia-Pacific region, promote manufacturing, innovation, and entrepreneurship, and at the same time, reflect in the agreement important values on key issues such as worker rights and the environment.”
However, the agenda of the TPP is a securitization of customs and border patrol services, telecommunications, corporate competition policy that directly affects immigration, corporate investments, and the addition of intellectual property rights with focus on copyright limitations.
The TPP, held in secret, is in actuality a multi-national trade agreement that seeks to extend intellectual property rights across the globe; creating an international enforcement scheme.
In a White House statement , Obama seeks to incorporate America with Canada and the other TPP countries in a “next-generation regional agreement that liberalizes trade and investment.” The press release explains that TPP will build upon “the commitments of NAFTA.”
The TPP defines intellectual property as:
• Copyright
• Trademarks
• Patents
• Geopolitical indicators
The leaked document drafted as the US TPP Intellectual Property Rights Chapter clearly states that negotiators for Obama are actively pushing for the adaptation of copyright measures that further restrict that is outlined in the Anti-Counterfeiting Trade Agreement (ACTA) and other similar international treaties.
There is an initiative to control global IP enforcement by the UN under signatory treaty wherein nations will be mandated to enact domestic laws that have been worded to reflect the provisions in the TPP agreement.
As in the Digital Millennium Copyright Act of 1998 (DMCA), that places federal agencies in control of digital “locks” and enforcement of over=blown statutory damages on claims of copyright infringement; as well as restricting the US Congress from altering existing IP governances as changes in technology and innovation demands such elasticity.
The restrictive nature of the TPP is evidenced in such obligations as:
In June of this year, Senators Sherrod Brown, Jeff Merkley, Ron Wyden and Robert Menendez wrote to the Obama administration requesting transparency regarding the TPP talks. In the correspondence, the Senators conveyed : “Groups essential to the success and legitimacy of any agreements are not being provided the opportunity to provide meaningful input on negotiations that have broad policy ramifications. If Congress and the broader public are not informed of the exact terms of the agreement until the conclusion of the process, then the opportunity for meaningful input is lost. The lack of transparency and input makes passage of trade agreements more contentious and controversial.”
- Strict punishment over temporary use of copyrighted material without the holder’s authorization
- Import bans on “parallel goods” from foreign nations wherein copyright authorization is required
- Extend copyright terms beyond 70 years as agreed in the 1994 Agreement on Trade-Related Aspects of IP
- Enact laws that treat copyright violation and technological protection measures as separate offences regardless of proof that copyright infringement has occurred
- Classify copyright infringement as a criminal offense
- Complete adaptation of the DMCA Internet Intermediaries copyright safe harbor regime
This amicable request has fallen on deaf ears as the Obama administration continues to shroud the TPP talks in secrecy.
The propaganda in the public forum is that the TPP is a sort of Free Trade Act (FTA) which masks the massive profits that corporations stand to gain and the elimination of those currently employed as multi-national business is converted into a weapon of mass destruction .
Outsourcing, which was endorsed by NAFTA over a decade ago, would be enhanced under TPP, where manipulation of governments by mega-corporations could ensure profit margins increase exponentially.
Within TPP is an UN-like tribunal of attorneys that would govern legal disputes, enforce through international judgment complaints regarding governmental regulations and oversee adherence to corporate operations despite independent right of sovereign nations under international mandate.
Ron Kirkland, US Trade Representative for the Obama administration believes that public interest and national sovereignty must be cast to the wayside under global governance that is in line with multi-national corporate agendas that serve the global Elite.
Corporate control over natural resources through the use of international tribunals that will rule over environmental issues, land use, public health, and any and all laws or regulations foreign or domestic that apply. Those tribunals would be seated by private sector lawyers operating under the UN and World Bank (WB) demand for taxpayer compensation of domestic regulatory policies because corporations must be paid back for “expected future profits”.
In basic terms, with the aid of tribunal “courts” corporations can put pressure on governments to weaken their environmental policies at the whim of the multi-national company with the backing of international mandate.
This has happened already in various places around the world:
The TPP rewrites domestic law to fit international accord with corporate interest. Whether it is environmental or social issues, the TPP allows the end result to be in line with the profitability of the endeavor. All globalist schemes are wrapped up nicely in the TPP agreement. By empowering multi-national corporations, as they have done with the central banking cartels, the global Elite are ensured their one world government comes to fruition.
- Chevron used investor tribunals to invade Ecuador and commit toxic contamination of indigenous areas
- Renco Group Inc used investor-tribunals to pollute Peru with residue from smelter factories without having to clean up their mess
- Pacific Rim Mining Corp, while mining for gold, contaminated natural water sources with cyanide without punitive action against them by coercing governments to rewrite water policies
Drought in US Intensifying to 'Historic Proportions'
Thursday, July 26, 2012 by Common Dreams
The drought in the U.S. is intensifying and shows little signs of abating, according the most recent Drought Monitor issued Thursday.
The data from the Drought Monitor show the intensification of the drought over the past week.
While the amount of the contiguous U.S. hit by drought remained at near 64%, the area hit by severe or greater drought went from about 42% to 46%. In the past week, the areas suffering extreme or exceptional drought jumped from 13.5% to almost 21%.
“We’ve seen tremendous intensification of drought through Illinois, Iowa, Missouri, Indiana, Arkansas, Kansa and Nebraska, and into part of Wyoming and South Dakota in the last week,” said Brian Fuchs, a climatologist and U.S. Drought Monitor author.
“This drought is two-pronged,” Fuchs added. “Not only the dryness but the heat is playing a big and important role. Even areas that have picked up rain are still suffering because of the heat.”
Describing the hot, parched area from the Great Plains to the Midwest, Drought Monitor author Richard Heim of the NOAA reports, "Temperatures reached 100 degrees Fahrenheit or hotter across parts of the Great Plains to Midwest every day this week, and some locations have not had significant rain for the last 30 days. July 22 USDA statistics indicated over 90 percent of the topsoil was short or very short of moisture in Oklahoma, Kansas, Nebraska, Missouri, Iowa, Illinois, Indiana, and Ohio, with virtually all (99 percent) short or very short in Missouri and Illinois. Over 80 percent of the pasture and rangeland was in poor or very poor condition in Kansas, Arkansas, Missouri, Illinois, and Indiana. Corn, Soybean, Sorghum, and Alfalfa losses continued to mount, ponds dried up, and wells failed in several of the states."
Dr. Jeff Masters writes on WunderBlog: "These are truly historic levels of drought, exceeded only during the great Dust Bowl drought of the 1930s and a severe drought in the mid-1950s."
According to Masters, July 2012 now ranks second on a list of months with the greatest percent area in moderate or greater drought since 1895.
Relief appears to be nowhere in sight. “Conditions are likely to persist,” Fuchs said. “We’ll see further development and intensification into the fall.”
The data from the Drought Monitor show the intensification of the drought over the past week.
While the amount of the contiguous U.S. hit by drought remained at near 64%, the area hit by severe or greater drought went from about 42% to 46%. In the past week, the areas suffering extreme or exceptional drought jumped from 13.5% to almost 21%.
“We’ve seen tremendous intensification of drought through Illinois, Iowa, Missouri, Indiana, Arkansas, Kansa and Nebraska, and into part of Wyoming and South Dakota in the last week,” said Brian Fuchs, a climatologist and U.S. Drought Monitor author.
“This drought is two-pronged,” Fuchs added. “Not only the dryness but the heat is playing a big and important role. Even areas that have picked up rain are still suffering because of the heat.”
Describing the hot, parched area from the Great Plains to the Midwest, Drought Monitor author Richard Heim of the NOAA reports, "Temperatures reached 100 degrees Fahrenheit or hotter across parts of the Great Plains to Midwest every day this week, and some locations have not had significant rain for the last 30 days. July 22 USDA statistics indicated over 90 percent of the topsoil was short or very short of moisture in Oklahoma, Kansas, Nebraska, Missouri, Iowa, Illinois, Indiana, and Ohio, with virtually all (99 percent) short or very short in Missouri and Illinois. Over 80 percent of the pasture and rangeland was in poor or very poor condition in Kansas, Arkansas, Missouri, Illinois, and Indiana. Corn, Soybean, Sorghum, and Alfalfa losses continued to mount, ponds dried up, and wells failed in several of the states."
Dr. Jeff Masters writes on WunderBlog: "These are truly historic levels of drought, exceeded only during the great Dust Bowl drought of the 1930s and a severe drought in the mid-1950s."
According to Masters, July 2012 now ranks second on a list of months with the greatest percent area in moderate or greater drought since 1895.
Relief appears to be nowhere in sight. “Conditions are likely to persist,” Fuchs said. “We’ll see further development and intensification into the fall.”
Rows
of corn stalks stand under a cloudless sky south of Blair, Nebraska,
Monday, July 23, 2012. The drought-damaged field was cut down for
silage. (AP Photo/Nati Harnik)
Contaminated Inquiry: Prof with Money Ties to Industry Led Fracking Study
Friday, July 27, 2012 by Common Dreams
Report: UTexas Study Spun the Facts and Misled the Public
A recent University of Texas study, which claims to prove that
the natural gas extraction process known as fracking does not cause
environmental damage or water contamination, was led by a gas industry
insider who currently holds up to $1.6 million in stock at a large
fracking company. The information was revealed in a new exposé released by the Public Accountability Initiative (PAI).
Logo from PAI study: Contaminated Inquiry: How a University of Texas
Fracking Study Led by a Gas Industry Insider Spun the Facts and Misled
the Public The 400-page pro-fracking review in question was led
by author Charles Groat of the University of Texas. Neither Groat nor
the University openly reported that Groat himself is on the board of a
fracking company, Plains Exploration and Production Company.
As a board member, Groat receives 10,000 shares of restricted stock a
year. His holdings as of July 19th were worth $1.6 million. He also
receives an annual fee, which was $58,500 in 2011, according to filings.
Groat did not reveal his position with the company when the report was released and told reporters that the university had turned down all industry funds for the study.
Groat's report, Fact-based Regulation for Environmental Protection in Shale Gas Development, said that it separated "fact from fiction" and gave policy makers a way forward in a major natural gas boom. The study was reported widely by major news outlets.
On the contrary, the PAI maintains that Groat's study contains unfounded facts and misinformation, misleading selective language, and includes inaccurate claims of peer review.
Groat's research covered fracking operations in Texas, Louisiana, and the Marcellus Shale area. His company, Plains Exploration, is currently fracking in shale formations in Texas.
Following the PAI exposé, titled Contaminated Inquiry: How a University of Texas Fracking Study Led by a Gas Industry Insider Spun the Facts and Misled the Public, the university says it will assemble a group of independent experts to review the integrity of Groat's study.
PAI's exposé is the second in a series of studies revealing rampant and widespread industry ties to pro-fracking reports.
Logo from PAI study: Contaminated Inquiry: How a University of Texas
Fracking Study Led by a Gas Industry Insider Spun the Facts and Misled
the Public The 400-page pro-fracking review in question was led
by author Charles Groat of the University of Texas. Neither Groat nor
the University openly reported that Groat himself is on the board of a
fracking company, Plains Exploration and Production Company.Groat did not reveal his position with the company when the report was released and told reporters that the university had turned down all industry funds for the study.
Groat's report, Fact-based Regulation for Environmental Protection in Shale Gas Development, said that it separated "fact from fiction" and gave policy makers a way forward in a major natural gas boom. The study was reported widely by major news outlets.
On the contrary, the PAI maintains that Groat's study contains unfounded facts and misinformation, misleading selective language, and includes inaccurate claims of peer review.
Groat's research covered fracking operations in Texas, Louisiana, and the Marcellus Shale area. His company, Plains Exploration, is currently fracking in shale formations in Texas.
Following the PAI exposé, titled Contaminated Inquiry: How a University of Texas Fracking Study Led by a Gas Industry Insider Spun the Facts and Misled the Public, the university says it will assemble a group of independent experts to review the integrity of Groat's study.
PAI's exposé is the second in a series of studies revealing rampant and widespread industry ties to pro-fracking reports.
The Plan to Gut Social Security
Behind Obama’s Fake Recovery
Last week’s dismal “data dump” has ended all talk of a strong
recovery in the US. Retail sales, factory output, jobless claims,
consumer confidence, business investment and existing home sales are all
down sharply indicating that the US economy is decelerating and may be
headed for recession.
The Obama administration was warned repeatedly that activity would slow when the $800 billion fiscal stimulus (ARRA) ran out and net government spending became a drag on growth.
But Obama’s chief economics advisor, Lawrence Summers, shrugged off these warnings in order to keep the economy sputtering along at half-speed. Summers figured that bigger deficits and slower growth would create the rationale for slashing entitlement spending and crushing organised labor (particularly, public unions) In other words, the economy is weak, because the policy was designed to make it weak. Mission accomplished.
Not everyone in the Obama administration played along with this scam. Economist Christina Romer, for example, wanted the stimulus to be $1 trillion more than was eventually approved by Summers. That’s what she figured it would take to kick-start the growth engine and put tens of millions of unemployed Americans back to work. Here’s the story from Huffington Post’s Sam Stein:
Summers had a different agenda altogether. What he wanted was exactly what he got, a slow, underperforming economy with high unemployment and huge deficits. Does anyone really think that an economist with Summers’ impressive education and experience could be $1 trillion off in his calculations? (The American Recovery and Reinvestment Act of 2009 was eventually whittled down to $787 billion) It’s ridiculous. Summers wanted a flagging economy so he could torpedo Social Security, Medicare and Medicaid. These were the targets from the very beginning.
As for Obama, well, he probably figured that the $800 billion fiscal package would be enough to carry him over the finish-line in the 2012 elections, but not so big that it would subvert the goals of his chief economics advisor who was beholden to Wall Street and big business. In truth, Obama wanted the same thing as Summers, a justification for attacking the meager programs that keep the elderly and vulnerable from destitution.
Neither Summers nor Obama anticipated the downturn in China or the severity of the crisis in Europe both of which have weighed heavily on growth in the US and around the world. Here’s how Nouriel Roubini summed it up in a recent article on Project Syndicate:
On Tuesday, the Wall Street Journal announced that the “Fed Moves Closer to Action”. The news ignited a short rally, but soon faded. Confidence in the Fed is at its nadir. Another round of bond buying (QE3) might give equities a temporary jolt, but no one believes it will change the overall direction of the market or lead to an economic rebound. Interest rates are already at historic lows, so stuffing the banks with more reserves will neither increase lending or reduce unemployment. It is an exercise in futility. The Fed is at the limits of its effectiveness.
The current slowdown could have been avoided or at least mitigated had the Obama team followed Romer’s recommendation and provided the fiscal stimulus that was needed.
Now–due to political gridlock in congress–a second round of stimulus is out of the question which means the economy will continue its downward trend.
So, what should Obama do?
For starters, he should take a page out of FDR’s Depression handbook and hire more public workers. Here’s a clip from an article by economist Marshall Auerback who details some of the programs that Roosevelt implemented:
Skip all the red-tape connected to infrastructure and gov job’s programs and just rehire the people who got their pink slip after the crash. The money spent on jobs would more than pay for itself by raising state revenues and boosting economic activity by many orders of magnitude.
Have you seen a graph of how many (state and local) jobs have been lost under Obama? It’s shocking! Take a look:
We need to get these people back to work so they can feed their families and pay the bills. If we can afford $11 trillion to bail out crooked bankers, we can certainly afford a measly $300 mil for hard-working middle class families. It’s just a matter of priorities.
Economist Dean Baker has posted an article on his blog that supports my general thesis that Obama is planning to cut Social Security etc following the election. Here’s an excerpt from the post:
The Obama administration was warned repeatedly that activity would slow when the $800 billion fiscal stimulus (ARRA) ran out and net government spending became a drag on growth.
But Obama’s chief economics advisor, Lawrence Summers, shrugged off these warnings in order to keep the economy sputtering along at half-speed. Summers figured that bigger deficits and slower growth would create the rationale for slashing entitlement spending and crushing organised labor (particularly, public unions) In other words, the economy is weak, because the policy was designed to make it weak. Mission accomplished.
Not everyone in the Obama administration played along with this scam. Economist Christina Romer, for example, wanted the stimulus to be $1 trillion more than was eventually approved by Summers. That’s what she figured it would take to kick-start the growth engine and put tens of millions of unemployed Americans back to work. Here’s the story from Huffington Post’s Sam Stein:
“…members of the president’s economic team felt that if they were to properly fill the hole caused by the recession, they would need a bill that priced at $1.8 trillion — $600 billion more than was previously believed to be the high-water mark for the White House.
The $1.8 trillion figure was included in a December 2008 memo authored by Christina Romer (the incoming head of the Council of Economic Advisers) and obtained by Scheiber in the course of researching his book.
“When Romer showed [Larry] Summers her $1.8 trillion figure late in the week before the memo was due, he dismissed it as impractical. So Romer spent the next few days coming up with a reasonable compromise: roughly $1.2 trillion,” Scheiber writes.”The idea that Summers rejected Romer’s plan as “impractical” is pure public relations.
Summers had a different agenda altogether. What he wanted was exactly what he got, a slow, underperforming economy with high unemployment and huge deficits. Does anyone really think that an economist with Summers’ impressive education and experience could be $1 trillion off in his calculations? (The American Recovery and Reinvestment Act of 2009 was eventually whittled down to $787 billion) It’s ridiculous. Summers wanted a flagging economy so he could torpedo Social Security, Medicare and Medicaid. These were the targets from the very beginning.
As for Obama, well, he probably figured that the $800 billion fiscal package would be enough to carry him over the finish-line in the 2012 elections, but not so big that it would subvert the goals of his chief economics advisor who was beholden to Wall Street and big business. In truth, Obama wanted the same thing as Summers, a justification for attacking the meager programs that keep the elderly and vulnerable from destitution.
Neither Summers nor Obama anticipated the downturn in China or the severity of the crisis in Europe both of which have weighed heavily on growth in the US and around the world. Here’s how Nouriel Roubini summed it up in a recent article on Project Syndicate:
“…the first-half growth rate looks set to come in closer to 1.5% at best, even below 2011’s dismal 1.7%. And now, after getting the first half of 2012 wrong, many are repeating the fairy tale that a combination of lower oil prices, rising auto sales, recovering house prices, and a resurgence of US manufacturing will boost growth in the second half of the year and fuel above-potential growth by 2013.
The reality is the opposite: for several reasons, growth will slow further in the second half of 2012 and be even lower in 2013 – close to stall speed.”Global growth is pretty much deteriorating everywhere; China, India, Japan, Brazil, emerging markets. The eurozone is particularly concerning as ongoing bank runs in the south accelerate increasing the likelihood of a full-blown banking system collapse. The uncertainty is reflected in 10-year US Treasuries which have seen yields drop to record-lows in the last week. The flight to safety has intensified as frightened investors try to get their money out of Europe to avoid the deepening crisis and possible breakup of the 17-member monetary union.
On Tuesday, the Wall Street Journal announced that the “Fed Moves Closer to Action”. The news ignited a short rally, but soon faded. Confidence in the Fed is at its nadir. Another round of bond buying (QE3) might give equities a temporary jolt, but no one believes it will change the overall direction of the market or lead to an economic rebound. Interest rates are already at historic lows, so stuffing the banks with more reserves will neither increase lending or reduce unemployment. It is an exercise in futility. The Fed is at the limits of its effectiveness.
The current slowdown could have been avoided or at least mitigated had the Obama team followed Romer’s recommendation and provided the fiscal stimulus that was needed.
Now–due to political gridlock in congress–a second round of stimulus is out of the question which means the economy will continue its downward trend.
So, what should Obama do?
For starters, he should take a page out of FDR’s Depression handbook and hire more public workers. Here’s a clip from an article by economist Marshall Auerback who details some of the programs that Roosevelt implemented:
“[Roosevelt’s] government hired about 60 per cent of the unemployed in public works and conservation projects that planted a billion trees, saved the whooping crane, modernized rural America, and built such diverse projects as the Cathedral of Learning in Pittsburgh, the Montana state capitol, much of the Chicago lakefront, New York’s Lincoln Tunnel and Triborough Bridge complex, the Tennessee Valley Authority and the aircraft carriers Enterprise and Yorktown. It also built or renovated 2,500 hospitals, 45,000 schools, 13,000 parks and playgrounds, 7,800 bridges, 700,000 miles of roads, and a thousand airfields. And it employed 50,000 teachers, rebuilt the country’s entire rural school system, and hired 3,000 writers, musicians, sculptors and painters, including Willem de Kooning and Jackson Pollock.”Or Obama could allocate $300 billion per year to rehire the 650,000 teachers and other state and local workers who’ve been laid off since the crash. That would be the easiest thing to do.
Skip all the red-tape connected to infrastructure and gov job’s programs and just rehire the people who got their pink slip after the crash. The money spent on jobs would more than pay for itself by raising state revenues and boosting economic activity by many orders of magnitude.
Have you seen a graph of how many (state and local) jobs have been lost under Obama? It’s shocking! Take a look:
We need to get these people back to work so they can feed their families and pay the bills. If we can afford $11 trillion to bail out crooked bankers, we can certainly afford a measly $300 mil for hard-working middle class families. It’s just a matter of priorities.
Economist Dean Baker has posted an article on his blog that supports my general thesis that Obama is planning to cut Social Security etc following the election. Here’s an excerpt from the post:
“The plan is that we will get the rich folks’ deal regardless of who wins the election….The deal that this gang … is hatching will inevitably include some amount of tax increases and also large budget cuts. At the top of the list… are cuts to Social Security and Medicare. ….
Social Security amounts to 90 percent or more of the income for one-third of seniors. For this group, the proposed cut in benefits would be a considerably larger share of their income that the higher taxes faced by someone earning $300,000 a year as a result of the repeal of the Bush tax cuts on high income earners…
(“The One Percent Want Your Social Security and Medicare and Steven Pearlstein Is Trying to Help”, Dean Baker, CEPR)There it is in black and white. Obama is just as committed to gutting Social Security as Romney. The only difference is that he’s a better pitchman. Much better.
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