Showing posts with label paul craig roberts. Show all posts
Showing posts with label paul craig roberts. Show all posts
Monday, August 12, 2013
Wednesday, August 10, 2011
What the S&P Downgrade Really Means
The S&P Downgrade
By PAUL CRAIG ROBERTS
On Friday, August 5, the credit rating agency, Standard & Poors, downgraded US debt from AAA to AA+.
Gerald Celente’s view that S&P’s downgrade of the US Treasury’s credit rating reflects a loss of confidence in the political system was confirmed by the rating agency itself.
S&P explained the downgrade as the result of heightened political risks, not economic ones. The game of chicken over the debt ceiling increase and the GOP’s ability to block tax increases indicate that “America’s governance and policymaking is becoming less stable, less effective, and less predictable”
The reduction in the government’s credit rating to AA+ from AAA is a cosmetic change. It remains a very high investment grade rating and is unlikely to have any effect on interest rates. It is revealing that despite the downgrade, US bond prices rose. It was stocks that fell. The financial press is blaming the stock market decline on the bond downgrade. However, stocks are falling because the economy is falling. Too many jobs have been moved offshore.
Interest rates could fall further as investors flee into Treasuries from the euro because of sovereign debt worries, flee equity markets as they continue to tumble, and as large banks charge depositors for holding their cash. Indeed, the latter policy could be seen as an effort to drive people with large cash holdings out of cash into government bonds. Japan has a lower credit rating than the US and has even lower interest rates.
More hard knocks are on their way. As the economy weakens and the economic outlook darkens, new deficit projections will elevate the debt issue.
The psychological effect of the S&P’s downgrade is likely to be larger than its economic effect. Many will see the downgrade as an indication that America is beginning to slip, that the country might be entering its decline.
There is no danger of the US defaulting on its bonds. The bonds are denominated in US dollars, and dollars can be created without limit. Moreover, the problem with the debt is less with the size of the national debt, which remains a lower percentage of GDP than during World War II, than with the large annual budget deficits. If equities continue to fall, if flight continues from the euro, if bank fees drive people out of cash, it is possible that the inflows into Treasuries can finance, for awhile, the large annual deficit, removing the need for the Federal Reserve to monetize the deficit via Quantitative Easing.
On the other hand, the weakening economy, given traditional policy views, will likely lead to a renewal of debt monetization or QE in an effort to stimulate the economy.
Continued debt monetization threatens the dollar. Investors will move out of Treasuries and all dollar-denominated assets not because they fear default, but because they fear a fall in the dollar’s exchange value and, thus, a fall in the value of their dollar holdings.
Debt monetization can cause domestic inflation (and imported inflation for those countries that peg to the dollar) as, and if, the new money finds its way into the economy. This has not happened to any extent so far in the US, because the banks are not lending and consumers are too indebted to borrow. But the fall in the dollar’s exchange value results in higher prices of many imports. So far the inflation that the US is experiencing is coming from the declining exchange value of the dollar. However, there is little doubt that asset prices, such as those of Treasuries and stocks, have been inflated by the Fed’s monetization of debt.
To flee from the dollar, there must be someplace to go. There are not alternative currencies large enough to absorb the dollars, especially with China pegged to the dollar and the euro experiencing troubles of its own because of the sovereign debt crises in Greece, Spain, Ireland, Portugal, and Italy. Dollar flight has driven up the prices of bullion and Swiss francs. Despite the Swiss government printing francs to absorb the dollar inflow, the franc continues to rise in value. As of time of writing, one US dollar is worth only about 76 Swiss centimes or cents. In 1966 there were 4.2 Swiss francs to the dollar or 420 centimes to the dollar.
The rise in the franc is crippling Switzerland’s ability to export. The loss in the dollar’s exchange value from dollar creation causes other countries, such as Japan and Switzerland to inflate their own currencies in order to hold down their rise. The Fed’s dollar policy has resulted in Russian leader Putin declaring the US to be a parasite upon the world and the Chinese to call for other countries to control how many dollars can be printed.
In other words, the US policy is seen as adversely impacting other countries without doing any good for America.
What I have explained can be comprehended within existing ways of thinking. Within this way of thinking, as the debt ceiling imbroglio made clear, the policy choices are between eliminating Social Security and Medicare or eliminating wars and low tax rates on the mega-rich in order to eliminate the annual budget deficits that are threatening the dollar’s exchange value and enlarging the national debt.
However, it is often the case that more is going on than traditional thinking can know about or explain. It is always a challenge to get people’s thinking into a new paradigm.
Nevertheless, unless the effort is made, people might never comprehend the behind-the-scenes power struggle.
A half century ago President Eisenhower in his farewell address warned the American people of the danger posed to democracy and the people’s control over their government by the military/security complex. Anyone can google his speech and read his stark warning.
Unfortunately, caught up in the Cold War with the Soviet Union and reassured by America’s rising economic might, neither public nor politicians paid any attention to our five-star general president’s warning.
In the succeeding half century the military/security complex became ever more powerful. The main power rival was Wall Street, which controls finance and money and is skilled at advancing its interests through economic policy arguments. With the financial deregulation that began during the Clinton presidency, Wall Street became all powerful. Wall Street controls the Treasury and the Federal Reserve, and the levers of money are more powerful than the levers of armaments. Moreover, Wall Street is better at intrigue than the CIA.
The behind the scenes fight for power is between these two powerful interest groups. America’s hegemony over the world is financial, not military. The military/security complex’s attempt to catch up is endangering the dollar and US financial hegemony.
The country has been at war for a decade, running up enormous bills that have enriched the military/security complex. Wall Street’s profits ran even higher. However, by achieving what economist Michael Hudson calls the “financialization of the economy,” the financial sector over-reached. The enormous sums represented by financial instruments are many times larger than the real economy on which they are based. When financial claims dwarf the size of the underlying real economy, massive instability is present.
Aware of its predicament, Wall Street has sent a shot across the bow with the S&P’s downgrade of the US credit rating. Spending must be reined in, and the only obvious chunk of spending that can be cut without throwing millions of Americans into the streets is the wars.
Credit rating agencies are creatures of Wall Street. Just as they did Wall Street’s bidding in assigning investment grade ratings to derivative junk, they will do Wall Street’s bidding in downgrading the US credit rating. Wall Street might complain about downgradings, but that is just to disguise that Wall Street is calling the shots.
The struggle between the military/security complex and the financial sector comes down to a struggle over patronage. The military/security complex’s patronage network is built upon armaments factories and workforces, military bases and military families, military contractors, private security firms, intelligence agencies, Homeland Security, federalized state and local police, and journalists who cover the defense sector.
Wall Street’s network includes investors, speculators, people with mortgages, car, student, and business loans, credit cards, real estate, insurance companies, pension funds, money managers and their clients, and financial journalists.
As the financial sector has over-extended and must shrink, Wall Street is determined to have access to public funds to manage the process and determined to maintain its relative power by forcing shrinkage in its competitor’s network. That means closing down the expensive wars in order to free up funds for entitlement privatization and to keep the dollar’s role as reserve currency. Wall Street realizes that if the dollar goes, its power goes with it.
What insights can we draw from this analysis?
The insight that it offers is that although economic policy will continue to be discussed in terms of employment, inflation, deficits, and national debt, the policies that are implemented will reflect the interests of the two contending power centers. Their struggle for supremacy could destroy the rest of us.
Wall Street opened the game with a debt downgrade, implying more are to come unless action is taken. The new Pentagon chief replied that any cuts to the military budget would be a “doomsday mechanism” that “would do real damage to our security, our troops and their families and our military’s ability to protect the nation.”
Will Americans be so afraid of terrorists that they will give up their entitlements? Will false flag terrorist events be perpetrated in order to elevate this fear? Will Wall Street provoke crises that are perceived as a greater threat?
From whom do we need greater protection than from Wall Street and the military/security complex and from our government, which is the tool of both?
By PAUL CRAIG ROBERTS
On Friday, August 5, the credit rating agency, Standard & Poors, downgraded US debt from AAA to AA+.
Gerald Celente’s view that S&P’s downgrade of the US Treasury’s credit rating reflects a loss of confidence in the political system was confirmed by the rating agency itself.
S&P explained the downgrade as the result of heightened political risks, not economic ones. The game of chicken over the debt ceiling increase and the GOP’s ability to block tax increases indicate that “America’s governance and policymaking is becoming less stable, less effective, and less predictable”
The reduction in the government’s credit rating to AA+ from AAA is a cosmetic change. It remains a very high investment grade rating and is unlikely to have any effect on interest rates. It is revealing that despite the downgrade, US bond prices rose. It was stocks that fell. The financial press is blaming the stock market decline on the bond downgrade. However, stocks are falling because the economy is falling. Too many jobs have been moved offshore.
Interest rates could fall further as investors flee into Treasuries from the euro because of sovereign debt worries, flee equity markets as they continue to tumble, and as large banks charge depositors for holding their cash. Indeed, the latter policy could be seen as an effort to drive people with large cash holdings out of cash into government bonds. Japan has a lower credit rating than the US and has even lower interest rates.
More hard knocks are on their way. As the economy weakens and the economic outlook darkens, new deficit projections will elevate the debt issue.
The psychological effect of the S&P’s downgrade is likely to be larger than its economic effect. Many will see the downgrade as an indication that America is beginning to slip, that the country might be entering its decline.
There is no danger of the US defaulting on its bonds. The bonds are denominated in US dollars, and dollars can be created without limit. Moreover, the problem with the debt is less with the size of the national debt, which remains a lower percentage of GDP than during World War II, than with the large annual budget deficits. If equities continue to fall, if flight continues from the euro, if bank fees drive people out of cash, it is possible that the inflows into Treasuries can finance, for awhile, the large annual deficit, removing the need for the Federal Reserve to monetize the deficit via Quantitative Easing.
On the other hand, the weakening economy, given traditional policy views, will likely lead to a renewal of debt monetization or QE in an effort to stimulate the economy.
Continued debt monetization threatens the dollar. Investors will move out of Treasuries and all dollar-denominated assets not because they fear default, but because they fear a fall in the dollar’s exchange value and, thus, a fall in the value of their dollar holdings.
Debt monetization can cause domestic inflation (and imported inflation for those countries that peg to the dollar) as, and if, the new money finds its way into the economy. This has not happened to any extent so far in the US, because the banks are not lending and consumers are too indebted to borrow. But the fall in the dollar’s exchange value results in higher prices of many imports. So far the inflation that the US is experiencing is coming from the declining exchange value of the dollar. However, there is little doubt that asset prices, such as those of Treasuries and stocks, have been inflated by the Fed’s monetization of debt.
To flee from the dollar, there must be someplace to go. There are not alternative currencies large enough to absorb the dollars, especially with China pegged to the dollar and the euro experiencing troubles of its own because of the sovereign debt crises in Greece, Spain, Ireland, Portugal, and Italy. Dollar flight has driven up the prices of bullion and Swiss francs. Despite the Swiss government printing francs to absorb the dollar inflow, the franc continues to rise in value. As of time of writing, one US dollar is worth only about 76 Swiss centimes or cents. In 1966 there were 4.2 Swiss francs to the dollar or 420 centimes to the dollar.
The rise in the franc is crippling Switzerland’s ability to export. The loss in the dollar’s exchange value from dollar creation causes other countries, such as Japan and Switzerland to inflate their own currencies in order to hold down their rise. The Fed’s dollar policy has resulted in Russian leader Putin declaring the US to be a parasite upon the world and the Chinese to call for other countries to control how many dollars can be printed.
In other words, the US policy is seen as adversely impacting other countries without doing any good for America.
What I have explained can be comprehended within existing ways of thinking. Within this way of thinking, as the debt ceiling imbroglio made clear, the policy choices are between eliminating Social Security and Medicare or eliminating wars and low tax rates on the mega-rich in order to eliminate the annual budget deficits that are threatening the dollar’s exchange value and enlarging the national debt.
However, it is often the case that more is going on than traditional thinking can know about or explain. It is always a challenge to get people’s thinking into a new paradigm.
Nevertheless, unless the effort is made, people might never comprehend the behind-the-scenes power struggle.
A half century ago President Eisenhower in his farewell address warned the American people of the danger posed to democracy and the people’s control over their government by the military/security complex. Anyone can google his speech and read his stark warning.
Unfortunately, caught up in the Cold War with the Soviet Union and reassured by America’s rising economic might, neither public nor politicians paid any attention to our five-star general president’s warning.
In the succeeding half century the military/security complex became ever more powerful. The main power rival was Wall Street, which controls finance and money and is skilled at advancing its interests through economic policy arguments. With the financial deregulation that began during the Clinton presidency, Wall Street became all powerful. Wall Street controls the Treasury and the Federal Reserve, and the levers of money are more powerful than the levers of armaments. Moreover, Wall Street is better at intrigue than the CIA.
The behind the scenes fight for power is between these two powerful interest groups. America’s hegemony over the world is financial, not military. The military/security complex’s attempt to catch up is endangering the dollar and US financial hegemony.
The country has been at war for a decade, running up enormous bills that have enriched the military/security complex. Wall Street’s profits ran even higher. However, by achieving what economist Michael Hudson calls the “financialization of the economy,” the financial sector over-reached. The enormous sums represented by financial instruments are many times larger than the real economy on which they are based. When financial claims dwarf the size of the underlying real economy, massive instability is present.
Aware of its predicament, Wall Street has sent a shot across the bow with the S&P’s downgrade of the US credit rating. Spending must be reined in, and the only obvious chunk of spending that can be cut without throwing millions of Americans into the streets is the wars.
Credit rating agencies are creatures of Wall Street. Just as they did Wall Street’s bidding in assigning investment grade ratings to derivative junk, they will do Wall Street’s bidding in downgrading the US credit rating. Wall Street might complain about downgradings, but that is just to disguise that Wall Street is calling the shots.
The struggle between the military/security complex and the financial sector comes down to a struggle over patronage. The military/security complex’s patronage network is built upon armaments factories and workforces, military bases and military families, military contractors, private security firms, intelligence agencies, Homeland Security, federalized state and local police, and journalists who cover the defense sector.
Wall Street’s network includes investors, speculators, people with mortgages, car, student, and business loans, credit cards, real estate, insurance companies, pension funds, money managers and their clients, and financial journalists.
As the financial sector has over-extended and must shrink, Wall Street is determined to have access to public funds to manage the process and determined to maintain its relative power by forcing shrinkage in its competitor’s network. That means closing down the expensive wars in order to free up funds for entitlement privatization and to keep the dollar’s role as reserve currency. Wall Street realizes that if the dollar goes, its power goes with it.
What insights can we draw from this analysis?
The insight that it offers is that although economic policy will continue to be discussed in terms of employment, inflation, deficits, and national debt, the policies that are implemented will reflect the interests of the two contending power centers. Their struggle for supremacy could destroy the rest of us.
Wall Street opened the game with a debt downgrade, implying more are to come unless action is taken. The new Pentagon chief replied that any cuts to the military budget would be a “doomsday mechanism” that “would do real damage to our security, our troops and their families and our military’s ability to protect the nation.”
Will Americans be so afraid of terrorists that they will give up their entitlements? Will false flag terrorist events be perpetrated in order to elevate this fear? Will Wall Street provoke crises that are perceived as a greater threat?
From whom do we need greater protection than from Wall Street and the military/security complex and from our government, which is the tool of both?
Sunday, November 14, 2010
America's Devolution Into Dictatorship
Licensed to Kill
By PAUL CRAIG ROBERTS
The United States Department of Justice (sic) routinely charges and convicts innocents with bogus and concocted crimes that are not even on the statutes book. The distinguished defense attorney and civil libertarian, Harvey A. Silverglate, published a book last year, Three Felonies A Day: How the Feds Target the Innocent, which conclusively proves that today in “freedom and democracy” America we have punishment without crime.
This same Justice (sic) Department, which routinely frames and railroads the innocent, argued in Federal Court on November 8 that the US government, if approved by the president, could murder anyone it wishes, citizens or noncitizens, at will. All that is required is that the government declare, without evidence, charges, trial, jury conviction or any of the due process required by the US Constitution, that the government suspects the murdered person or persons to be a “threat.”
The US Justice (sic) Department even told US Federal District Court Judge John Bates that the US judiciary, formerly a co-equal branch of government, has absolutely no legal authority whatsoever to stick its nose into President “Change” Obama’s decision to assassinate Americans. The unaccountability of the president’s decision to murder people is, the US Justice (sic) Department declared, one of “the very core powers of the president as commander in chief.”
The argument by the Justice (sic) Department that the executive branch has unreviewable authority to kill Americans, whom the executive branch has unilaterally, without presenting evidence, determined to pose a threat, was challenged by the American Civil Liberties Union and the Center For Constitutional Rights.
The outcome of the case will determine whether president George W. Bush, was correct when he said that the US Constitution was nothing but a “scrap of paper.”
It is my opinion that the American people and the US Constitution haven’t much chance of winning this case. The Republican Federalist Society has succeeded in appointing many federal district, appeals and supreme court judges, who believe that the powers of the executive branch are superior to the powers of the legislature and judiciary. The Founding Fathers of our country declared unequivocally that the executive, legislative, and judicial branches were co-equal, However, the Republican brownshirts who comprise the Federalist Society have implanted the society’s demonic ideology in the federal bench and Justice (sic) Department. Today the erroneous belief is widespread that the executive branch is supreme and that the other branches of government are less than equal.
If Americans have a greater enemy than neoconservatives, that enemy is the Federalist Society.
Disagree with me as you will, but now let’s look at this development from another perspective. I am old enough to remember the Nixon years, and I was a presidential appointee, confirmed by the US senate, in the Reagan administration. For those of you too young to know and those who are to old to remember, President Nixon resigned to avoid impeachment simply because Nixon lied about when he learned about the burglary of the Watergate office of the Democratic party.
Nixon lied about when he learned of the burglary, because he knew that the Washington Post would make an issue of the burglary, if he launched an investigation, to defeat his re-election. The military/security complex and the black ops groups in the US government were angry at Nixon for smoothing US-China relations. The Washington Post, long regarded as a CIA asset, hid behind its “liberal” image to bring Nixon down. Woodward and Bernstein wrote thriller-type reports of midnight meetings with “Deep Throat” in parking garages to get the scoop on the date of Nixon’s knowledge of the meaningless burglary.
Let’s assume that I have it all wrong. The fact remains that Nixon was driven from office because of the Watergate burglary. No one was harmed. Nixon did not kill anyone or claim the right to kill, without proof or accountability, American citizens. If the dastardly President Nixon had a Justice (sic) Department like the present one, he simply would have declared Woodward, Bernstein, and the Washington Post to be a threat and murdered them by merely exercising the power that the Obama administration is claiming.
Nixon might be too far in the past for most Americans, so let’s look at Ronald Reagan.
The neoconservatives’ Iran/Contra scandal almost brought down President Reagan. It is unclear whether President Reagan knew about the neocon operation and, if he did, whether he was kept in the loop. But all of this aside, what do you think would have been President Reagan’s fate if he, or his Justice (sic) Department, had declared that Reagan had the power as commander in chief to murder anyone he considered to be a threat?
Instantly, the media would have been in an uproar, law schools and university faculties would have been in an uproar, the Democrats would have been demanding Reagan’s impeachment, and his impeachment would have occurred with the speed of light.
Today in America, approximately 25 years later, the ACLU has to go to federal court in order to attempt to affirm that “if the Constitution means anything, it surely means that the president does not have unreviewable authority to summarily execute any American whom he concludes is an enemy of the state.”
In reply, the Justice (sic) Department told the court that murdering American citizens is a “political question” that is not subject to judicial review. The “freedom and democracy” government then invoked the “state secrets privilege” and declared that the case against the government’s power to commit murder must be dismissed in order to avoid “the disclosure of sensitive information”
As far as I can tell, the “corporate media” and most Americans do not care. Indeed, conservative Republicans are cheering it on.
By PAUL CRAIG ROBERTS
The United States Department of Justice (sic) routinely charges and convicts innocents with bogus and concocted crimes that are not even on the statutes book. The distinguished defense attorney and civil libertarian, Harvey A. Silverglate, published a book last year, Three Felonies A Day: How the Feds Target the Innocent, which conclusively proves that today in “freedom and democracy” America we have punishment without crime.
This same Justice (sic) Department, which routinely frames and railroads the innocent, argued in Federal Court on November 8 that the US government, if approved by the president, could murder anyone it wishes, citizens or noncitizens, at will. All that is required is that the government declare, without evidence, charges, trial, jury conviction or any of the due process required by the US Constitution, that the government suspects the murdered person or persons to be a “threat.”
The US Justice (sic) Department even told US Federal District Court Judge John Bates that the US judiciary, formerly a co-equal branch of government, has absolutely no legal authority whatsoever to stick its nose into President “Change” Obama’s decision to assassinate Americans. The unaccountability of the president’s decision to murder people is, the US Justice (sic) Department declared, one of “the very core powers of the president as commander in chief.”
The argument by the Justice (sic) Department that the executive branch has unreviewable authority to kill Americans, whom the executive branch has unilaterally, without presenting evidence, determined to pose a threat, was challenged by the American Civil Liberties Union and the Center For Constitutional Rights.
The outcome of the case will determine whether president George W. Bush, was correct when he said that the US Constitution was nothing but a “scrap of paper.”
It is my opinion that the American people and the US Constitution haven’t much chance of winning this case. The Republican Federalist Society has succeeded in appointing many federal district, appeals and supreme court judges, who believe that the powers of the executive branch are superior to the powers of the legislature and judiciary. The Founding Fathers of our country declared unequivocally that the executive, legislative, and judicial branches were co-equal, However, the Republican brownshirts who comprise the Federalist Society have implanted the society’s demonic ideology in the federal bench and Justice (sic) Department. Today the erroneous belief is widespread that the executive branch is supreme and that the other branches of government are less than equal.
If Americans have a greater enemy than neoconservatives, that enemy is the Federalist Society.
Disagree with me as you will, but now let’s look at this development from another perspective. I am old enough to remember the Nixon years, and I was a presidential appointee, confirmed by the US senate, in the Reagan administration. For those of you too young to know and those who are to old to remember, President Nixon resigned to avoid impeachment simply because Nixon lied about when he learned about the burglary of the Watergate office of the Democratic party.
Nixon lied about when he learned of the burglary, because he knew that the Washington Post would make an issue of the burglary, if he launched an investigation, to defeat his re-election. The military/security complex and the black ops groups in the US government were angry at Nixon for smoothing US-China relations. The Washington Post, long regarded as a CIA asset, hid behind its “liberal” image to bring Nixon down. Woodward and Bernstein wrote thriller-type reports of midnight meetings with “Deep Throat” in parking garages to get the scoop on the date of Nixon’s knowledge of the meaningless burglary.
Let’s assume that I have it all wrong. The fact remains that Nixon was driven from office because of the Watergate burglary. No one was harmed. Nixon did not kill anyone or claim the right to kill, without proof or accountability, American citizens. If the dastardly President Nixon had a Justice (sic) Department like the present one, he simply would have declared Woodward, Bernstein, and the Washington Post to be a threat and murdered them by merely exercising the power that the Obama administration is claiming.
Nixon might be too far in the past for most Americans, so let’s look at Ronald Reagan.
The neoconservatives’ Iran/Contra scandal almost brought down President Reagan. It is unclear whether President Reagan knew about the neocon operation and, if he did, whether he was kept in the loop. But all of this aside, what do you think would have been President Reagan’s fate if he, or his Justice (sic) Department, had declared that Reagan had the power as commander in chief to murder anyone he considered to be a threat?
Instantly, the media would have been in an uproar, law schools and university faculties would have been in an uproar, the Democrats would have been demanding Reagan’s impeachment, and his impeachment would have occurred with the speed of light.
Today in America, approximately 25 years later, the ACLU has to go to federal court in order to attempt to affirm that “if the Constitution means anything, it surely means that the president does not have unreviewable authority to summarily execute any American whom he concludes is an enemy of the state.”
In reply, the Justice (sic) Department told the court that murdering American citizens is a “political question” that is not subject to judicial review. The “freedom and democracy” government then invoked the “state secrets privilege” and declared that the case against the government’s power to commit murder must be dismissed in order to avoid “the disclosure of sensitive information”
As far as I can tell, the “corporate media” and most Americans do not care. Indeed, conservative Republicans are cheering it on.
Tuesday, August 17, 2010
Paul Craig Roberts: America is Truly being Destroyed by Design
(First, let me explain that I think Dr. Paul Craig Roberts knows what he's talking about. He was once Under Secretary of the Treasury for the Reagan Administration, publisher of the Wall Street Journal, and an economist of note for 40+ years. He was one of the few economists who predicted the MBS/CDO/derivatives cause of the current financial crisis back in 2004. The man knows his stuff. Alex Jones means well, I think. But his message often gets lost in his emotional outbursts and tirades in which he insults and batters his listeners with derisive comments. But I think he means well, usually.--jef)
***
Thursday, July 15, 2010
Economics in Freefall
When Money Buys Integrity
By PAUL CRAIG ROBERTS
I admire Joselph E. Stiglitz, because he has a social conscience and a sense of justice, the absence of which turns economists into monsters. Despite his virtues and Nobel Prize, Stiglitz sometimes falls down as an economist. Readers of my new book, How The Economy Was Lost, will be aware that I take him to task for the Solow-Stiglitz production function, which seriously misleads economics about the scarcity of nature’s capital.
Another of Stiglitz’s shortcomings, one that he shares with most economists, is his habit of reifying the market economy. The market is a social organization. The results of market activity reflect the behavior of the human participants in the market. When economists reify the market, they attribute the behavior, ethics, and morality--or lack thereof--of humans to the market itself. Thus, Stiglitz describes human failures as “market failures,” and he asks in his new book, Freefall, “why didn’t the market exercise discipline on bad corporate governance and bad incentive structures?”
Social institutions are inanimate. They do not possess life and cannot impose good outcomes on human action.
Libertarians also reify markets, but instead of blaming markets for human failures, they imbue the market with human virtues and even with the super-human virtue of producing results that human intelligence cannot improve upon. Economists’ “risk models” for which Nobel Prizes have been awarded and Federal Reserve chairman Alan Greenspan attributed the social institution with economic wisdom beyond man’s.
It is likely that the practice of reifying the market economy developed as a form of shorthand. It was convenient to say that the market did this and that rather than to have to describe the human interactions that produced the results. The market was transformed from an abstraction into a life form and became the actor instead of the humans operating within the institution.
If the outcomes are good, libertarians attribute the good results to the market’s virtues; if bad, libertarians blame human interference--government regulation. Economists of Stiglitz’s persuasion see it in the opposite way. Good results are produced by regulation; bad results are the result of allowing the market to make decisions on its own.
This way of thinking, which reifies a social institution, is ingrained in economics. It is the source of enormous confusion and has resulted in a pointless long-running ideological battle that Stiglitz calls “a battle of ideas.”
It is possible to clear away the confusion. First, understand that a free market is one in which prices are free to respond to supply and demand. Economists of all persuasions understand that to fix a price below the price at which supply and demand equate results in shortages. Economists have learned this from rent control. Fixing a price above the price at which supply and demand equate results in surpluses. Economists have learned this from agricultural subsidies. A free market does not mean a market in which human behavior is not regulated. A free market is one in which supply and demand are permitted to equate.
Second, understand that regulation regulates human behavior, not the market. It is the actors in the market who are charged with regulatory infractions, not the institution itself. Regulation is necessary because of human faults, such as greed, fraud, carelessness, not because of market faults. Regulation is necessary because of human failure, not because of market failure.
Third, understand that the problem of regulation is that it is done by flawed humans. Human flaws do not disappear by moving human action from the economy to government. Most likely the flaws worsen as government decisions are often unaccountable. Many economists assume that regulators act in the public interest. However, as George Stigler, another Nobel Prizewinner, pointed out several decades ago, regulators are invariably captured by the industries that they regulate.
There are endless examples of regulators--indeed, entire governments--captured by the private interests that they are supposed to regulate. For example, in a recent subscriber’s only edition of CounterPunch (June 16-30), Jeffrey St. Clair describes in detail the incestuous relationship between the government’s Minerals Management Service and the oil industry. An agency charged with regulating the impact of oil drilling on the environment became “a bureaucratic facilitator of big oil.” Thus, the environmental catastrophe in the Gulf of Mexico and looming catastrophes along Alaska’s fragile coastline.
Indeed, economists themselves and academics are often captured by private interest groups and turned into shills. In How The Economy Was Lost, I accuse economists of shilling for transnational corporations when they falsely describe jobs offshoring as the beneficial workings of free trade. Like the Israel Lobby, corporations have found that money will purchase professors, academic departments and think tanks, as well as journalists.
Offshoring transforms American workers’ wages into performance bonuses for executives, capital gains for shareholders, and honoraria and research grants for economists who shill for the practice.
The problem that the US economy faces is far more serious than the financial crisis resulting from financial deregulation. The reason that traditional monetary and fiscal policies cannot produce an economic recovery is that so much of the US economy has been moved offshore. As the jobs have departed, there is no work to which low interest rates and massive government spending can recall workers. This is the real freefall.
By PAUL CRAIG ROBERTS
I admire Joselph E. Stiglitz, because he has a social conscience and a sense of justice, the absence of which turns economists into monsters. Despite his virtues and Nobel Prize, Stiglitz sometimes falls down as an economist. Readers of my new book, How The Economy Was Lost, will be aware that I take him to task for the Solow-Stiglitz production function, which seriously misleads economics about the scarcity of nature’s capital.
Another of Stiglitz’s shortcomings, one that he shares with most economists, is his habit of reifying the market economy. The market is a social organization. The results of market activity reflect the behavior of the human participants in the market. When economists reify the market, they attribute the behavior, ethics, and morality--or lack thereof--of humans to the market itself. Thus, Stiglitz describes human failures as “market failures,” and he asks in his new book, Freefall, “why didn’t the market exercise discipline on bad corporate governance and bad incentive structures?”
Social institutions are inanimate. They do not possess life and cannot impose good outcomes on human action.
Libertarians also reify markets, but instead of blaming markets for human failures, they imbue the market with human virtues and even with the super-human virtue of producing results that human intelligence cannot improve upon. Economists’ “risk models” for which Nobel Prizes have been awarded and Federal Reserve chairman Alan Greenspan attributed the social institution with economic wisdom beyond man’s.
It is likely that the practice of reifying the market economy developed as a form of shorthand. It was convenient to say that the market did this and that rather than to have to describe the human interactions that produced the results. The market was transformed from an abstraction into a life form and became the actor instead of the humans operating within the institution.
If the outcomes are good, libertarians attribute the good results to the market’s virtues; if bad, libertarians blame human interference--government regulation. Economists of Stiglitz’s persuasion see it in the opposite way. Good results are produced by regulation; bad results are the result of allowing the market to make decisions on its own.
This way of thinking, which reifies a social institution, is ingrained in economics. It is the source of enormous confusion and has resulted in a pointless long-running ideological battle that Stiglitz calls “a battle of ideas.”
It is possible to clear away the confusion. First, understand that a free market is one in which prices are free to respond to supply and demand. Economists of all persuasions understand that to fix a price below the price at which supply and demand equate results in shortages. Economists have learned this from rent control. Fixing a price above the price at which supply and demand equate results in surpluses. Economists have learned this from agricultural subsidies. A free market does not mean a market in which human behavior is not regulated. A free market is one in which supply and demand are permitted to equate.
Second, understand that regulation regulates human behavior, not the market. It is the actors in the market who are charged with regulatory infractions, not the institution itself. Regulation is necessary because of human faults, such as greed, fraud, carelessness, not because of market faults. Regulation is necessary because of human failure, not because of market failure.
Third, understand that the problem of regulation is that it is done by flawed humans. Human flaws do not disappear by moving human action from the economy to government. Most likely the flaws worsen as government decisions are often unaccountable. Many economists assume that regulators act in the public interest. However, as George Stigler, another Nobel Prizewinner, pointed out several decades ago, regulators are invariably captured by the industries that they regulate.
There are endless examples of regulators--indeed, entire governments--captured by the private interests that they are supposed to regulate. For example, in a recent subscriber’s only edition of CounterPunch (June 16-30), Jeffrey St. Clair describes in detail the incestuous relationship between the government’s Minerals Management Service and the oil industry. An agency charged with regulating the impact of oil drilling on the environment became “a bureaucratic facilitator of big oil.” Thus, the environmental catastrophe in the Gulf of Mexico and looming catastrophes along Alaska’s fragile coastline.
Indeed, economists themselves and academics are often captured by private interest groups and turned into shills. In How The Economy Was Lost, I accuse economists of shilling for transnational corporations when they falsely describe jobs offshoring as the beneficial workings of free trade. Like the Israel Lobby, corporations have found that money will purchase professors, academic departments and think tanks, as well as journalists.
Offshoring transforms American workers’ wages into performance bonuses for executives, capital gains for shareholders, and honoraria and research grants for economists who shill for the practice.
The problem that the US economy faces is far more serious than the financial crisis resulting from financial deregulation. The reason that traditional monetary and fiscal policies cannot produce an economic recovery is that so much of the US economy has been moved offshore. As the jobs have departed, there is no work to which low interest rates and massive government spending can recall workers. This is the real freefall.
Saturday, June 5, 2010
Roberts: 'AIPAC Purchases US Elections'
Why is it that whenever anyone criticizes Israel's actions, or even questions them, they are called "anti-semitic"? Criticizing their govt has nothing to do with hating the Jews. Besides, the people are cool for the most part. It's Israel's govt and the violent lengths they will go to that is under fire, not their race.
Thursday, March 4, 2010
Is the Recovery Real?
No sooner did I say that none of the people who predicted the crash in 2004-05 (among them Paul Craig Roberts) than does one of them (the same P.C.R.) actually writes a column that asks if the recovery is real or not. (Hint: it's not! It's really getting worse!)
Is the Recovery Real?
By PAUL CRAIG ROBERTS
Happy news! The government has come up with a 5.9 percent GDP growth rate in the fourth quarter of 2009. The recession is over.
Or is it? Statistician John Williams has informed us that 69 percent of this growth, or 4.1 percentage points, is the result of inventory accumulation. That leaves a 1.8 percent growth rate, and the 1.8 percent is likely due to the underestimate of inflation and other statistical problems.
The Federal Reserve’s own monetary evidence contradicts the recovery assurances from Fed chairman Ben Bernanke. The Federal Reserve continues to pour massive reserves into the banks. The monetary base, which consists of currency in circulation and bank reserves (the basis for new loans), has surged from $850 billion in 2009 to $2.2 trillion on February 24.
Despite this potential for massive new money creation, the broadest measure of money growth is still contracting. The banks are too impaired and so are consumers for the banks to create new money by making loans.
The economy, in other words, is going nowhere.
As I have emphasized for years, an economy that moves its high productivity, high value-added jobs offshore is going nowhere but down. Except for the super-rich, there has been no growth in people’s incomes for a decade. To substitute for the missing income growth, consumers took on more debt. The growth in consumer debt kept the economy going. However, most consumers have now reached their maximum debt load, and millions went beyond their limit, resulting in foreclosures and lost homes.
There are no jobs to which people can be called back to work. The jobs have been given to the Chinese and Indians.
The economy is set for a “double-dip,” that is, renewed decline. This, of course, means larger federal, state, and local budget deficits. The U.S. federal deficit is now so large that it can no longer be financed by the trade surpluses of China, Japan, and OPEC.
Currently the deficit is being financed by deterioration in the Federal Reserve’s balance sheet. The Fed is creating new reserves for the banks (thus the surge in the monetary base) in exchange for the bank’s toxic financial instruments. The banks are using the reserves to purchase Treasury debt instead of making new loans. This makes money for the banks, but does not grow the economy or create jobs for the millions of unemployed.
According to reports, recent auctions of Treasury debt have not gone well. China, America’s biggest creditor, has reduced its participation and is even selling some of its existing holdings. Whenever all of a new Treasury debt offering is not taken, the Federal Reserve buys the remainder. This results in debt monetization. The Fed pays for the bonds by creating new checking accounts for the Treasury, in other words, by printing money.
On February 24, Fed chairman Ben Bernanke told Congress that the U.S. faced a serious debt crisis and that the Fed was not going to print money in order to pay the government’s bills. In fact, Bernanke would have no choice but to print money.
Bernanke’s warning to Congress is his way of adding Federal Reserve pressure to that of Wall Street and former Treasury Secretary Paulson for Congress to balance the budget by gutting Social Security and Medicare. In case you haven’t noticed, no one in Washington or New York talks about cutting trillion dollar wars or trillion dollar handouts to rich bankers. They only talk about taking things away from little people. It is not the Bush/Cheney, Obama, neocon wars that are in the cross hairs; it is Social Security and Medicare.
Other Obama economic officials, such as White House economist Larry Summers, a former Treasury secretary, have called for a middle class tax increase. The problem with this “solution” is that a good part of the middle class is now jobless and homeless.
Money will have to be found somewhere if the Fed is to avoid printing it. During the Clinton administration a Treasury official proposed a 15 percent capital levy on all private pensions to make up for their tax deferral status. This idea didn’t fly, but today a desperate government, which has wasted $3 trillion invading countries that pose no danger to the U.S. and wasted more trillions of dollars combatting a crisis brought on by the government’s failure to regulate the financial sector, is likely to steal people’s pensions as well as to gut Social Security and Medicare.
The reason is that the dollar’s role as reserve currency is at stake. If the Federal Reserve has to monetize the federal deficit, the world will turn its back on a rapidly depreciating dollar. The minute the dollar loses the reserve currency role, the U.S. can no longer pay its bills in its own currency, and its days as a superpower come to a sudden end. Wars can’t be financed, and Washington’s pursuit of world hegemony will hit a brick wall.
The power-mad denizens of DC will do anything to further the expansion of their world empire.
Is the Recovery Real?
By PAUL CRAIG ROBERTS
Happy news! The government has come up with a 5.9 percent GDP growth rate in the fourth quarter of 2009. The recession is over.
Or is it? Statistician John Williams has informed us that 69 percent of this growth, or 4.1 percentage points, is the result of inventory accumulation. That leaves a 1.8 percent growth rate, and the 1.8 percent is likely due to the underestimate of inflation and other statistical problems.
The Federal Reserve’s own monetary evidence contradicts the recovery assurances from Fed chairman Ben Bernanke. The Federal Reserve continues to pour massive reserves into the banks. The monetary base, which consists of currency in circulation and bank reserves (the basis for new loans), has surged from $850 billion in 2009 to $2.2 trillion on February 24.
Despite this potential for massive new money creation, the broadest measure of money growth is still contracting. The banks are too impaired and so are consumers for the banks to create new money by making loans.
The economy, in other words, is going nowhere.
As I have emphasized for years, an economy that moves its high productivity, high value-added jobs offshore is going nowhere but down. Except for the super-rich, there has been no growth in people’s incomes for a decade. To substitute for the missing income growth, consumers took on more debt. The growth in consumer debt kept the economy going. However, most consumers have now reached their maximum debt load, and millions went beyond their limit, resulting in foreclosures and lost homes.
There are no jobs to which people can be called back to work. The jobs have been given to the Chinese and Indians.
The economy is set for a “double-dip,” that is, renewed decline. This, of course, means larger federal, state, and local budget deficits. The U.S. federal deficit is now so large that it can no longer be financed by the trade surpluses of China, Japan, and OPEC.
Currently the deficit is being financed by deterioration in the Federal Reserve’s balance sheet. The Fed is creating new reserves for the banks (thus the surge in the monetary base) in exchange for the bank’s toxic financial instruments. The banks are using the reserves to purchase Treasury debt instead of making new loans. This makes money for the banks, but does not grow the economy or create jobs for the millions of unemployed.
According to reports, recent auctions of Treasury debt have not gone well. China, America’s biggest creditor, has reduced its participation and is even selling some of its existing holdings. Whenever all of a new Treasury debt offering is not taken, the Federal Reserve buys the remainder. This results in debt monetization. The Fed pays for the bonds by creating new checking accounts for the Treasury, in other words, by printing money.
On February 24, Fed chairman Ben Bernanke told Congress that the U.S. faced a serious debt crisis and that the Fed was not going to print money in order to pay the government’s bills. In fact, Bernanke would have no choice but to print money.
Bernanke’s warning to Congress is his way of adding Federal Reserve pressure to that of Wall Street and former Treasury Secretary Paulson for Congress to balance the budget by gutting Social Security and Medicare. In case you haven’t noticed, no one in Washington or New York talks about cutting trillion dollar wars or trillion dollar handouts to rich bankers. They only talk about taking things away from little people. It is not the Bush/Cheney, Obama, neocon wars that are in the cross hairs; it is Social Security and Medicare.
Other Obama economic officials, such as White House economist Larry Summers, a former Treasury secretary, have called for a middle class tax increase. The problem with this “solution” is that a good part of the middle class is now jobless and homeless.
Money will have to be found somewhere if the Fed is to avoid printing it. During the Clinton administration a Treasury official proposed a 15 percent capital levy on all private pensions to make up for their tax deferral status. This idea didn’t fly, but today a desperate government, which has wasted $3 trillion invading countries that pose no danger to the U.S. and wasted more trillions of dollars combatting a crisis brought on by the government’s failure to regulate the financial sector, is likely to steal people’s pensions as well as to gut Social Security and Medicare.
The reason is that the dollar’s role as reserve currency is at stake. If the Federal Reserve has to monetize the federal deficit, the world will turn its back on a rapidly depreciating dollar. The minute the dollar loses the reserve currency role, the U.S. can no longer pay its bills in its own currency, and its days as a superpower come to a sudden end. Wars can’t be financed, and Washington’s pursuit of world hegemony will hit a brick wall.
The power-mad denizens of DC will do anything to further the expansion of their world empire.
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