7/23/10

Amid strident and stern and sensible pleas for more federal assistance to the economy, Fed Chair Ben Bernanke declined on Thursday, described in a piece by Sewell Chan in the New York Times. The reality alluded to (or sometimes not) in the article is that the Federal Reserve Bank is almost out of trumps, cards, chips, and its seat at the table in jeopardy. Well, actually there is nothing to take the place of the nearly exhausted Fed, so I guess Mr. Bernanke will continue to sit, whether he can ante up or not.

The Fed has the following responsibilities under the law, as described in the Wikipedia description:

Conducting the nation's monetary policy by influencing monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates.

Supervising and regulating banking institutions to ensure the safety and soundness of the nation's banking and financial system, and protect the credit rights of consumers.

Maintaining stability of the financial system and containing systemic risk that may arise in financial markets.

Providing financial services to depository institutions, the U.S. government, and foreign official institutions, including playing a major role in operating the nation's payments system.

You will notice that the powers inherent in the fulfilling these responsibilities are limited and revolve around money supply and credit. With respect to money supply the balance against inflation is maintained by keeping the money supply growing proportionately to the population, particularly the productively employed sector of the general population. Notice that both inflation and deflation have their own logic and can with sufficient panic and distrust in the economy get out of the control of the Fed.

With respect to credit the Fed stands at the apex of a system wherein each level of lending institutions is dependent on the rate at which the Fed sets its over-night and other rates. Currently there is about one and half percent of rate structure to play with before the Fed has no handle or grasp or control on lending whatsoever. So, quickly, Bernanke's decision to not intervene further in credit is based fundamentally on the fact that he has very little leverage on the system and must wait for natural growth and demand to occur, whereupon his single handle will magically appear and a healthy control system will rematerialize within the logic of supply and demand.

The Fed has other "powers" such as running the "clearings" of checks and other instruments. There is no real monetary or fiscal control here, unless there is a serious panic. Then the Fed could shut down the system in order that the players can take a deep breath and reconsider their options in the light of panic. Emergency loans to specified institutions are possible, but these are mostly designed to avert bottlenecks that occur because of human or system failures elsewhere and to coordinate with FDIC and its cousins.

Understanding Bernanke's dilemma requires at least a cursory look at the rest of the world. The rest of the world begins in Europe in the EU where, as everyone by now knows that the southern and eastern tiers of countries are in various kinds of fiscal emergency, Greece because of, among other things, pension spending that is not supportable by the taxable (actually taxed) gross domestic product. But the problems in the Baltic states and east central Europe do not suggest strength either. Germany and the U.K. are the stronger members of the EU, but neither is the deep pocket that the rest of the EU needs. They are not deep because the politics of fiscal constraint is winning against the more likely to succeed policy of central stimulation.

In the U.S. the same battle is afoot, but with not nearly the number of active troops on the conservative side ... for now ... but with everyone nervous about piling up debt on debt for a someday-recovered economy to pay off. It is a game of "chicken" where the decision to put on the brakes is crucial, but the two alternatives—stopping too soon or stopping too late—are fatal.

If the federal government chickens out and repeats the errors of FDR and his Congresses of 1936-37 then the economy is almost completely sure to double dip into a great or greater recession, enter a period of deflation, yet fail to recover jobs, productivity, or any semblance of healthy growth. Moreover, and crucially, the zillions of dollars spent in the first wave of federal "bailout" and economic assistance will evaporate from the economy as the deflation deepens and the economy does not recover. In essence the debt we have nervously piled up becomes a dead weight around our necks, with each dollar of debt more difficult to pay off.

The imagery of games of "chicken" sometimes has the loser plunging over a cliff onto the rocks below as the winning car screaches to a stop just before the lip of the cliff. So, in our economics, if we do not curtail spending at just the right time, we risk plunging the entire economy into ruinous debt that exceeds our economy's ability to produce full payments on that debt. It becomes uncontrollable and politics being what it is, as cities and states default on their debt the strong urge is to IN-flate our way out of the situation, leaving huge masses of the population experiencing "sticker shock" on food, transportation, and housing. A Weimar U.S. would be a disaster, too.

So, Bernanke has his wary eye on Berlin and London hoping that the best minds there see the correct time and place to being braking their own programs of stimulating their economies. He also, as the article points out, has an eye on the domestic indicators: unemployment, housing starts, domestic production, etc. He must not be sleeping too well these days, because the numbers are not good, and will not be for some time ... a time during which we will have the up-coming mid-term elections, two year later the presidential election, and two years after that another mid-term. All such elections are decisively affected by the state of the economy.

The big question is, then, what are the alternatives to the exercise of the powers of the Federal Reserve System? The answer throws you back into the maelstrom of domestic politics. Congress is voting on a strictly partisan basis currently to extend unemployment benefits and the administration is doing what it can with the domestic budget to get Main Street-sustaining money out into the place where politics originates—locally. But will it be enough, and will the press and pundits understand that this particular game of chicken is unlikely to have a Disney ending? Someone is going to get "killed" if the administration does not handle this exactly right. If the Congress goes Republican then the last two years of an Obama administration will have one arm tied behind its back. How then to manage the tricky business of saving the economy? Frankly, I don't see how any administration could do it without Congress cooperating.

JB

7/2/10

There is nothing fun or funny about cracking your elbow just wrong and getting a sharp, throbbing, usually short-term, but nevertheless really painful reminder that you have hit your "funny bone." It is not really a bone; it is a nerve line that lies close to the surface of that boney part between the upper and lower arm. It is ironic, by the way, that the elbow is considered one of your best weapons to use in the case of being assaulted on the streets by potential rapists, muggers, bullies or any other sociopathic types. Put that elbow into a solar plexus, an eye, a crotch ... whatever is handy at the moment. It will hurt the assailant and give you a moment to consider your broader options.

My best friend, to digress from elbows for a moment, told me that she thinks the country is headed over a cliff if it is true that in the recent government program to stimulate home buying, prisoners (in prisons for whatever crime) were able access the program and rip off the American taxpayers for upwards of $8,000 a piece. Why, she ranted, can't government see that the person applying for the credit is in prison and, ipso facto, ineligible for the largesse? Why doesn't government work anymore, she concluded in righteous disgust! They're all crooks and liars!

My friend's chagrin has turned to biliousness, and the reason is that her sense of fair play has been offended what appears to be "once too often." She believes that if she hears one story like the prisoners getting government hand-outs, however undocumented, that her separate experience in the hospital observing the indigent "gaming" the health-care system, gives her not only the ability, but the right and responsibility to withdraw support from governments so easily conned.

Two factors missing from her analysis and eventual political catatonia are: quantitative evidence and sound logical principles. She does not know for a fact that there was more than one case of $8000 fraud (fraud only if those in prison were actually prohibited by statute from participating ... which, btw, may have eluded the rule-makers in their rush to get systems primed and working again). Assuming there was more than one case, what was the total damage to the public? Was it 0.000001% of the total spent or 0.0001%? Like the funnybone, the trauma of unfairness and fraud is perceived out of all proportion to the actual damage or injury.

Another misunderstood factor is the logic of government spending that eludes even the most diligent observers, namely, the concept of Statistical Effectiveness in the broadcast method of distribution. Governments spend like homeowners use grass seed. We broadcast seed across the territory to be greened up, rather than taking each seed or dollar individually and planting it in its own little hole. Yes, of course, the homeowner knows that birds will eat some fraction of the seed, that they will poop some of it out in fertile little packages, but on the neighbors' yards. Yes, of course, the government knows that in broadcast method emergency programs there will be waste. They don't advertise their advance expectation for the simple reason that to do so would attract even more birds!

Life is not fair! We come to know this incrementally during our youth as one darned thing after another befalls us. We don't get the attention of the cute, blonde, cheerleader, the pitching position on the school baseball team, any credit for saving money that we could have spent on boutique coffee concoctions, the unfailing love of both parents and spouses, and so on, and endlessly. We learn that the universe really does not care about our little peeves, but we also learn to insulate ourselves from the opportunities for disappointment. We learn to keep our elbows in, but then something major happens and our funny bone achingly stings for what seems like hours.

When there is a major event like the Great Recession of 2008 and its aftermath, we hunker down and prepare for whatever kind of austerity and pain and disillusionment that may come our way. We can hold this pose for a limited time however. Hunkering is hard on the psyche, and so we break posture from time to time to stretch a muscle or listen for good news. When the news is that the birds have eaten "all the grass seed" we are alarmed and outraged, stopping only momentarily to actually notice that the vast majority of the seed remains on the fertile ground.

So, today Paul Krugman in the New York Times has good reason to be critical of the outraged and "tired of hunkering" among us. He knows that outrage and bad news spread faster than confidence and good news, so he is warning us like a bumped elbow that the pain we have now is but a trifle compared to what we will have if we don't stay hunkered down long enough to solve this recession.

JB

6/28/10

Post Economic Trauma Stress Disorder is the topic today. The world leaders in Toronto have decided that reduction of sovereign debt must be addressed, but President Obama's absolutely accurate call for patience and caution was heard. Perhaps Dr. Paul Krugman's point of view is finally being heard, too, but perhaps not. Krugman (and many, many others, by the way,) is quite positive, (and so am I), that we are circling the drain of a very long, protracted, and ultimately catastrophic "lost decade" depression, all for the lack of the necessary rationality to assess our true economic position. We see in the public discourse strident calls for fiscal stringency, but these are panicked and irrational responses, and there is a reason why they appear at this juncture.

James Carroll in the Boston Globe this Monday morning seemed to be saying something very much in parallel to Krugman. He writes of the total effect of long wars and thousands of casualties on the public at large. He is eloquent in describing the narrowing of the public imagination and the search for simple answers.

But, it is not just war and vivid casualties of war that affect our national psyche, our combined mood, our daily sense (or lack of it) of promise for the future. Clearly, the economic debacle of 2008 that now continues to be holding huge, almost incomprehensible numbers of people in the U.S. and even more abroad hostage to hopeless unemployment is just exactly that sort of traumatic experience that gives us the psychological and intellectual blinders that lead us to seek simplistic answers to vital, but complex questions.

There is a paradoxical aspect to what I will call the Obama/Krugman synthesis of ideas. Krugman is writing as a journalist-intellectual and can speak much more forcefully to attract the necessary attention. President Obama on the other hand needs to be more circumspect than anyone on the planet, for in the last analysis, if anything goes wrong, the critics will be all over him. The paradox, however, is that neither of these exponents of the historically proven way out can say publicly what the benchmarks are that will guide them from current, necessary deficit spending to future necessary deficit reduction policies, BECAUSE publishing the benchmarks will lead strong unscrupulous players to simulate those conditions, to take advantage to achieve windfall profits. The situation is very much analagous to the Heisenberg Uncertainty Principle, which says that an observer cannot help but effect the outcome of an observation.

Obama's hope is that, while attempting to help the financial sector and then the industrial/commercial sectors back to their feet and to a reasonable strength of enterprise purpose that will sustain recovery, he can argue, cajole, and squeeze the leaders of other economies around the world into compliance with a system that works. He needs to do this without rubbing in their faces the obvious truth that the American economy is the strongest, leads, and must recover for all other economies to recover. At the same time he must let them know that global interdependence means that sovereign disregard for the agreed-upon way out, will mean the failure of the American recovery and inevitably the collapse of the world economy. He must convince an entire planet, a jumble of uncoordinated and purposely selfish economies, that for the long run recovery they must be rational against all the strong appeals by the traumatized and stunned to surrender to simplistic answers. It is quite a trick, but as Krugman and others correctly point out again and again, week after week, it is the only way ... short of sacrificing a generation or two of our planet's human beings to the gnawing incapacitation of unemployment.

JB

5/7/10

Paul Krugman in the New York Times compares Greece to California to achieve an analogy about feckless economics. I am sure that Calfornians don't care what he says about them. They seem to be impervious to the facts of how bankrupt the California government is. Education and prisons are competing on a playing field probably best described as swiss cheese ... that is, with enormous holes in the logic of things.

Greece on the other hand is caught up in the California dream of 1949, seduced by the sirens of European prosperity, but with very little to suggest that they have the industry or enterprise to sustain that lifestyle for themselves. And, believe me (and Dr. Krugman) they must do it for themselves, because there is no Washington government in Europe to bail them out, just financiers harumphing at their desks, wondering how to make a profit out of the situation.

To be fair, some see the problem for what it is, namely a huge flaw in the EU concept of an economic/currency union without a central government to regulate and monitor. Krugman may be right that Greece will eventually follow its own destiny outside the EU. I think he is being an alarmist, for Merkel and the Germans are not likely to let the crack in Athens turn into a north - south fissure in all of Europe.

JB

4/11/10

In the Sunday New York Times Magazine Nobelist Paul Krugman spills out on the table a variety of thoughts and facts and a couple scenarios about global warming policy and economics. He is lite on scenarios, and being at the epicenter of one of them he does mention—his example of the the American southwest becoming a permanent dust bowl—I can see and viscerally feel why he avoids the issue. In fairness, Dr. Krugman, the probability of a nine degree increase here in temperatures over the next century is slight compared to a similar but more devastating rise on the humid east coast or the upper plains. But, you would not want to mention those areas for fear of providing the residents with even more reason to dig in their heels and continue their disbelief.

Krugman's long article is worth the time, and I urge you to read it. The Master's is on TV today and provides a perfect backdrop for this important article. Krugman's other significant "scenario" is a less well understood situation in western Atlantic. The possibility of the Gulf Stream dissipating has been talked about for a long time. We just do not know what the increase in sea water temperatures at the surface off the Bahamas and the Antilles will do to the Stream. There is a possibility that it will strengthen the Stream and contribute to warmer temps across the northern Atlantic and on into western Europe and over the top of Scandinavia. The further north such a warming went the faster the process of releasing methane from permafrost would be, accelerating global warming and increasing chaos in relatively contemporary climates and ecosystems. Of course, if the Stream dissipates, then the UK and northwest Europe will become increasingly untenable.

So, the problem that Krugman discusses is how to galvanize politics and "special interests" into a coherent and maximally effective "social" plan to combat our own climate-changing effluents. Krugman says he is most in favor of a "big bang" approach, but I am not sure he has convinced me that that is the best way, or the most plausible politically. On the other hand, I am quite certain that the idea of loving future generations will be a non-starter, that we are about as hyped on the concept of global warming as we will ever be ... short of really chaotic and destructive weather focusing our attention on climate change.

In my generation the problem is almost completely a non-starter. In suburban Tucson new SUVs are a plague, though happily driven by aging citizens whose sense of impending senescence leads them to believe they are safer in these behemoths. Human nature is to take short term actions that protect the self and family over long term actions that protect the neighbors. Human beings of all ages live by the illusion of survival by the "skin of our teeth."

You have seen the House of Representatives pass a "cap and trade" bill that will not go through the Senate. It will not pass the 60 vote test because the GOP is playing a different game, a game of "chicken" founded on the belief that the mid-term elections this fall will significantly reduce the Democratic majorities, perhaps even deliver the Senate into GOP hands. The Tea-Party folks who feel slighted by the Bush-Obama policy to direct recovery efforts down from Wall Street will vote mindlessly for candidates whose understanding of global warming is sketchy at best and predominately disbelieving. As a prediction, then, I feel confident that almost nothing serious will be done by Congress for the next ten years. Of course the green will fade to yellow during this time and our descendants will have a hell of a time recovering from our self-centered behavior.

JB

2/22/10

Nobelist economist Paul Krugman devotes his column this rainy (in Arizona) Monday to the Republican strategy for dealing with what they find most obnoxious. Dr. Krugman lingers on the strategy and the inevitable consequences, but you did not hear it first from him ... or me ... several years ago, this so-called strategy has been party of a generation's view of the world, and like the animus that motivated the Wallace group from the deep south, the reason for the GOP strategy is pure Social Darwinist selfishness.

Social Darwinism says that society is like an organism and that individuals within that society are like individual animals in a state of nature, that is, these individuals survive OR NOT depending on whether or not they are fit for the situation into which they are born. That is about as succinct a statement as you will find on this subject, and it is packed with associated meanings. First the idea that societies are organisms dates back at least to Hegel and his dialectic, which (as you will recall) tells us that human progress is the result of antagonistic forces (thesis and antithesis) struggling for survival and emerging as a new synthesis. If you read Hegal deeply you will discover that "antitheses" are not like anti-matter, something that will cause annihilation when one becomes involved with it. Anti-theses are "problems" and mental constructs, the emergence of which into one's life is accomplished by chance, design, devine intervention, and several other ultimate causes. Hegel is murky and so are his "syntheses" which are supposed to be new things or ideas in the world. Suffice it to say, though, that everything in Hegel remains, but gets reshuffled and mixed up together, much like organisms eating their way across a petri dish, a savannah, a city-scape, or a epoch.

Also the GOP idea of Social Darwinism then assumes that the chance of birth is one of the problems of the individual, not of the society. You can deconstruct Social Darwinism along this axis: is responsibility for chance happenings the dialectic problem of society or individuals. They put it on individuals and completely turn their societal back on the unfortunates that come to bat with two strikes on them. Liberals take precisely the opposite point of view.

So, after a lot of philosophizing and word-smithing you come to the idea that "starving the beast" so you can drown it in the bathtub is just a metaphor for drowning the unfortunate and misfortunate in society because they are just too much trouble ... and by the way ... helping them is a burden to folks who were to the manor born or scraped and grappled their way to wherever they think they are above the rest.

Krugman's essay leaves the idea that a socially intolerable situation is going to develop and that's what the GOP wants to happen ... their version of the drowning event. But, think about it. If the people who are closest to the fan finally realize that their butts are the next to be sacrificed, will they protect the fan or their own butts, or will they simply turn off the fan. Will they see government as the problem or not? The fact is that no one really knows, except you and I. We know that the history of revolutions ends with individuals watching all remnants of civilization and security and the good things of life disappear, and so they institute strong government to make things better. This happens always. It means that the social and political revolution the GOP thinks it wants will (if history and human nature are any guide at all) turn out to be more government not less, achieved through bloodshed, needless destruction of the civil infrastructure, and awful excesses directed at minority groups, women, and children.

JB

2/11/10

Last week we discussed the problem that Greece is posing to the EU, the probability of a prolonged default on its debt, its inability to square productivity with the benefits the Greeks want, and a subset of that, the disparities and antagonistic aims of the economic sectors within Greece, especially the agricultural sector. Greece is—and has been—a poor country by in large, despite the occasional Onassis. It's middle class is narrow and politically besieged by cultural values that no longer represent the aspirations of most Greeks.

But, the truth is that Greece is broke and a failure of the Greek government to come to grips with its budget has forced Germany of the "deep pockets" to take up the slack ... and perhaps the cudgel ... and certainly the fate of the EU.

One seeks perspective on something like this. Why all of a sudden are Greece, Portugal, Spain, and Italy (the southern tier) all hanging by a thread? The answer is not the climate. Southern Europe does, however, share a cultural value that does not predominate in the north. If you have spent a good deal of time in the Mediterrean area you know that "industriousness" is not the main feature of these cultures. This is not to say that Italians do not make great, fast, and beautiful cars, or the Greeks wonderful vacation experiences, or Spain, or Portugal, but they do not register on the "industry" scale like Sweden, Germany, the UK, the Netherlands, or France. The difference goes way back and is set in a concrete of nostalgia and choices made about what is important in life ... and it is not back-breaking, pencil sharpening, money-grubbing industriousness.

So, the meltdown of the New York financial system had immediate repercussions around the world. Smaller economies depended on the U.S. and others to maintain the momentum and flow of credit. When that ended and froze, the countries that were subsisting on the eddies of the global economy began to drown in their own profligacy, their mismatch between resources and expectations. The White House understood this and has done what it could to put the top back on the house of Finance. But as with Main Street in America, the wobbly condition of the lesser economies threatens the entire structure again. Germany cannot do it alone.

Germany, I can guarantee you, is talking to Washington right now. The disquiet is being masked by deliberate silence. EU wants (and needs) to believe that it is a self-sustaining and organic entity. Maastricht is less than twenty years old, however, and the ties that bind the EU together are threads, not burly cables. EU could fail for lack of confidence as easily as for lack of economic solvency. Both are on Obama's plate ... and you will not hear much about it, but keep it in mind.

JB

1/17/10

This morning's Sunday New York Times has an article about the distractions we encounter with new technology, like the cell phone, and how dangerous it can be just walking across the street with your cell on your ear listening to a list of grocery items you need to remember to pick up on the way home this evening. Drivers, too, of course. They have much more mass in their hands and their inattentiveness will cause grievous damage when they lose their focus. We used to laugh at people who tripped over their own shadows when chewing gum, but are any of us so different about much bigger things—like the alarms about our prostrate economy.

No. We are not better. Hardly anyone is talking about the continued increase in unemployment. Sixty-five thousand more jobs were lost in December! That amounts to about a quarter million people directly affected in their families. What about this? Should we be worried, angst-ridden, taking to the streets, pulling up the cobblestones and erecting barriers behind which we can stage our revolution? Perhaps not, but we should not be letting Congress and the White House off the hook either. There are things that the federal government can do and is currently not doing to ameliorate the hardship and pain and disaster that visits on the unemployed.

So the latest warning in the news ... also no one talking about it ... is that inflation is not moving up, not moving down, but just sitting there, sort of waiting for something else to happen. Something did ... something negative. Did you read in the news the other day that December retail sales were DOWN? Yep! Down and this is the season when many retailers make or break their year.

Here in the southwest where I am currently living the malls are eerily quiet and many stores are just gone, leaving empty spaces between those hanging on for dear life. Of course this leads to fewer shoppers and the survivors soon enough find they cannot survive. It is like the effect of CO2 in the atmosphere setting of thaws in the permafrost which releases methane with its quadrupling effect on greenhousing our atmosphere. One thing leads to another ... yet we choose to remain oblivious, distracted, in harm's way.

JB

12/13/09

Frank Rich's column this Sunday is a departure. It reads like a NYr movie review, but it is deadly serious about the fatal distortion in American economics, particularly the problem with finance holding the throat of all the rest. Rich is absolutely correct that we must fix this before it kills us. No other issue is half as important. The mid-terms will hang on whether the Democrats in Congress have the courage to tell the lobbyists to go to hell!

JB

11/25/09

Statistics can be deceiving. Statistics can mask truth and disguise falsehoods. Presenting statistics is an art form, for the manner of presentation, down to the color palette used can imply much that the numbers cannot.

Take for instance this "unemployment map" provided by The American Observer. Look at it now; play it through to the end.

Did you notice that 8.5% and 10+% unemployment are represented in the most somber dark purple and black? Did you follow your own county and miss what was happening elsewhere? Did you wonder about the wide open spaces shown out west? Did you remember that we now have an average national unemployment of 10.2%? Do you still think the map was biased or slanted one way or another?

Of course it is biased. Its colors are intended to give you a "worst case" impression of the relentless loss of jobs across America. It is as if darkness falls across the face of the land. But has it? What about the real statistics that indicate pockets and regions of 17% unemployment and 30% unemployment among Black American males? What color is left to show the despair in these precincts? And what do these statistics mean? Do they show a two pound roast chicken on the Thanksgiving table instead of a twenty pound golden brown turkey? Do they show what will happen at Christmas?

The sad fact is that unemployment, however unpleasant it is to conceive and behold, is increasing and Obama's government is doing precious little at the bully pulpit or through Congress to turn this around. Yes, I know the economic stimulus package has brought about new optimism in housing and automobile sales, but you cannot eat optimism or wrap it up and put it under the Christmas tree.

Paul Krugman and a host of others are quite clear that we are not only headed in the wrong policy direction, but that it is already too late to prevent agonizing years of continued unemployment. It seems that Advisor Summers and Secretary Geithner believe that the market will produce the needed jobs and that their duties as stimulus wielders are over. They are obviously wrong.

But, disaffection with Obama and his crew is beginning to get down close to the bone. Maureen Dowd is beginning to call it like she has been seeing it for the past few months. There seems to be a serious problem at the very top. Yes, of course, Larry Summers is an arrogant person, and Tim Geithner a conspicuously opportunistic parasite, and Rahm Emanuel a profane, cynical, arrogant martinet and bully, but Barack Obama is beginning to be discerned among the shadows of this cave, and the apparition is not pleasant.

Both Dowd and Frank Rich let loose this past Sunday with columns about the tone-deafness of the Obama administration and indeed the Washington punditocracy. Palin and by extension Beck, Limbaugh, O'Reilly and the rest of the Fox propaganda machine represent a reality in American life, a reality not far removed from the unemployment map you saw. Dowd and Rich wrote about Sarah, and truthfully, Sarah is the graceful side of a pure seething anger right now. She appeals to every wound—real and imagined—suffered since the Great Society, since Rowe v. Wade, since Vietnam, since 9/11, since Affirimative Action, ... you name it. Change came and people were jostled, hurt, maimed, and soldiers killed ... and the anger about this is very, very real.

Obama will soon present his "plan" for Afghanistan and we all know that 30,000 more troops will be sent into that country to ... what? ... defeat the Taliban for once and for all? Is that possible? Where are these troops going to come from without a draft? How many deployments and how long can we and our troops stand this? These are not the jobs we want and need. Main Street jobs is the key, but Obama and his crew have done virtually nothing directly to create jobs. I am telling you now that this will back up on him and us, and the devil take the hindmost!

JB

11/21/09

Nearly eight months ago I wrote an essay entitled "End of the Marshall Plan" in which I noticed that President Obama had deftly and fairly quietly defined an end to several generations worth of American economic policy. He, in effect, said that the Marshall Plan was over. Europe—and by extension the rest of the world—is on its own from now on. The world's largest economy, the world's largest base of planetary consumerism is done. The cost is too great, the penalties too steep. We are finished.

I remembered that essay vividly as I read the Boston Globe Saturday morning noticed that of the country's major newspapers only the Globe has the courage to tell its readers what the prognosis is for the holiday economy. It is bleak. In a way, if you read the last statement made in the article, it ties right in with the whole concept of change in America, the long overdue realization that consumerism does not produce jobs in America. It makes producers greedy for "more" and they ship their factories out to low-income economies where they also can avoid environmental regulations.

Who knows whether the Great Recession of 2008-2010 will turn the trick or not. Consumerism is very addicting and the panoply of goods, especially high-tech "toys," is likely to enthrall the society again and again. Still, though, there is a palpable sense abroad that enough is enough. We have seen the country sink deeper into debt with China, and yet China does not liberalize. The dominos do not fall. The ideology of free-market consumerism does not convert foes into friends.

Of course, the prospect of another poor performing winter holiday sales season implies much more than broad brush "end of an era" pronouncements from retired historians. It is sure to set off another cascade of bankruptcies in both retail and manufacturing and consumer banking. This will mean even higher unemployment statistics for 2010, stats that are already locally at 15% in some areas. For historians dismal economic stats like these are, in fact, the engine of significant change. The worse it gets the stronger the pressure to change our "wicked" ways.

The Obama administration would be astute to see the political fallout from this. Clearly they are not responsible for the crash or for the underfunding of the stimulus package, but they are inexorably being seen as responsible for the lack of recovery on main street. Dumping Obama in 2012 might seem like the right thing to do, given the (widely seen as) ineffective activities of the White House during all of this, but the mid-term elections a year from now may obviate the 2012 issue. If Republicans turn the Senate and chop the Democrat's lead in the House in half, the message will be clear enough.

Personally, I think it is the beginning of a new era, and I am thankful for it, but I am cautious as well, because the changes necessary to move us off the addiction of consumerism are going to have repercussions throughout the culture and, indeed, across the planet.

JB

11/15/09

If you have been paying attention, you will have noticed that the economy is not in very good shape, despite professions of confidence from Washington and Wall Street and particularly the stock exchanges. If small businesses are the key to employment, and you did not hear this from me—you heard it from Washington endlessly this past year—we are not out of the Great Recession by a long shot. Unemployment continues to spiral downward. This means that small businesses are not healthy or confident or hiring. Unemployment reached 10.2% as a national average in October, while "underemployment" (a clear sign that the government can read minds and intentions) is pegged at 17.5%. Some areas are very hard hit, Michigan for instance.

Small and medium-sized banks—not big enough to be kept from failure—continue to close their doors over ugly weekends as FDIC accountants march in and decide whether there is any good timber in the structure. Most depositors are covered, of course, but there's nothing like a hiccup in the midst of swallowing whole the administration's scheme to spread oil on the trouble waters of our national economy.

In Sunday's Washington Post there is finally a leak in the conspiracy of silence about the true situation. The leak is important in and of itself—as a leak. It is true that Paul Krugman and others have been writing for months about the inadequacy of the federal response to the crash last Fall. It is also true that the administration has not denied or countered the Krugman thesis, except to ignore it and to continue on the path of propping up Wall Street (sans Lehman Brothers) for the world to see.

The Post article is eerie in several ways and asks questions I have been asking since the stock market began to "recover." Who is buying? Why are they buying? The answer is that the Dow-Jones is a Potemkin Village, manipulated by four banks (!) to give the impression of confidence to a nation of investors that just had been thrashed in the crash. Part B of this is that the four banks are now beginning to see that they cannot hold up the ruse indefinitely, so with the aplomb of a arborist out on a limb, they are trying to scramble back to safety with a chainsaw whining away on their only visible means of support. The invisible means of support, Geithner, Summers, and Bernanke will soon be asked to get under the emerging debacle and hold the safety net (again)!

The Post article cannot possibly contribute to confidence. The truth is that "confidence" as a racket cannot be sustained. Confidence as an emotion of exuberance and courage will dwindle away, even as President Obama tries to explain to the Chinese this week that their holdings of US debt instruments will drop like lead balloons from the winter sky if China does not cooperate in trying to salvage the world economy.

The most annoying things about the administration policy at this point are that Krugman's first principles were thought to be too draconian and too bitter a pill for the American psyche to metabolize. How much better it would have been for someone in authority to just tell the damned truth about how much was lost and what damage had been done. Clearly George W. Bush understood (in his own fratboy way) what a dangerous situation Wall Street had created. Why else would a GOP conservative even consider a $772 billion dollar bailout? It was 180 degrees from his brand of orthodoxy ... and that was our first clue. The second clue was that John McCain who actually believes in the free market mythos did not have a clue what to do. Letting Lehman go is another clue that the situation would soon engulf the U.S. Treasury and lead to yet untold implosions, so it was sacrificed to save a moment in time and a few bucks to support the rest.

The Post article can be viewed optimistically, you know. It will be seen as a sign that Americans can now "handle the truth" (to evoke Jack Nicholson in Gitmo). I am not so sure, but I am willing to lean that direction on the principle that Americans are far more ready to hear than governments across the planet were in November 2008.

JB

11/14/09

You may have seen a fleeting reference a week or so ago to a new proposal in the Senate to break up the big banks—those which were deemed too big to fail. Senator Bernie Sanders for Vermont is the activist behind this effort. Please take a look at commentary on this issue and sign the petition.

JB

11/11/09

Senator and one-time Presidential nomination hopeful Christopher Dodd of Connecticut, sitting in the Senate Banking Committee has come up with a regulatory plan that is worth studying ... even if it does not have a chance in hell of getting into law. As reported this morning in the Washington Post. Dodd's plan is to relieve the Federal Reserve Board and Banks of their responsibilities for regulating the operations of the nation's commercial banks, leaving them with the conduct of "monetary policy" only. I like this idea of the face of it, since the current situation has the Fed regulating the immediate and direct outcomes of the Board's decisions. In effect the Fed is regulating itself ... and good luck with that!

Although it is buried at the bottom of the article, the regulation of bank operations and decision making will probably fall to FDIC, which under its leadership has stood up to both Bernanke and Geither and which has garnered quite a bit of preliminary support in Congress ... if not the White House.

I believe that if Dodd and Frank (in the House) can wade through all the lobbying and threatening from Wall St., Obama will come around. Summers and Geithner will be entrenched, but a good hew and cry from the vox populi ... as with Health Care Reform ... should make this possible. The alternative, of course, is to put your marbles into gold and store it in the Caymans!

JB

11/6/09

Both the NYT and the Washington Post ran articles today "explaining" the resurgence of the Dow-Jones Average over 10,000. Later on, however, the Post revealed the net loss of jobs in October to be 190,000. This is a medium-sized city worth of people who will be having a very glum holiday this year ... at a minumum.

If you look at the graph of the recent market activity at the top of the linked article you will see a classical left shoulder, neck, and the beginnings of a right shoulder traced out in the ending values of the DowJones. I am no expert on stock market numerology or grapholalia, but the econopundits say that a two shouldered apparition is not good. We are headed shortly for a right "elbow," which is anatomically much lower than a right shoulder.

If you look at the histogram on the righthand side of the article near the top you will see portrayed the number of jobs lost by month over the past year ... and hopefully you will notice that these are all negative numbers, hanging from the line that would represent economic health. The decrement of job losses for October is what set the market above 10,000, so wildly avid are the traders for some good news ... even if it is negative good news ... and even if it is "seasonally adjusted," cooked, and presented AS IF things were getting better. You ask the nearly 200,000 laid off this past month how much better things are!

As Paul Krugman wisely comments today in the NYT, Obama is facing not his Rubicon, but his Anzio beachhead. True to his long-standing belief that the Administration is doing too little ... and in fact may be foreclosed from doing anything much more ... Krugman is aptly suggesting that the forces are in place to make the xmas retail and first quarter 2010 into that slippery slope that nearly brought our country to its knees 75 years ago.

JB

11/5/09

The Recovery is Beginning to Fail also published as Talking Our Way Out of the Recession

There is a tendency to seek ... and to find ... simple answers to complex questions and situations. We like to be able to wrap our heads around a couple or a very few pithy comments and pretend that they are the summation of truth on a subject, the nub of explanation, the enlightenment that we were desperately short of just before. The economic situation is very much like that, and the ranting you hear about how it's going has major components grounded in simplism.

One of the truly exasperating explanations and commentaries is that Obama and his crew are deer in Wall Street headlights and have caved in completely to the moguls and their kin. As I reported to friends a little while ago, most of that kind of rant are little more than snapshots taken in the middle of a movie, pictures of ravenous beasts munching on the remains of some poor unfortunate impala, proving only that the movie has scenes set on the savannah in Africa, but not one thing about the plot or the main characters.

Here's an explanation that is not simple and not very palatable, so I think it has some merit. The Bush Administration began bailing out the defaulting banks. Secretary of the Treasury Hank Paulson, no less (and quite a bit more) grounded and nurtured in the culture of Wall Street got Bear Stearns covered by JPMorgan Chase when it toppled of its own bad business acumen. Then when Lehman Bros. toppled, a much larger institution, with Merrill Lynch in the background clawing for resources and Citicorp (not to mention Wachovia and Bank of America and several others) also gasping for capital the decision was made to let Lehman go. When this happened the crash came ... just before the election.

What ensued before, during, and after the election, but before the Obama Administration was inaugurated was a rapid deflation of the economy, a virtually total freeze on credit for any purpose, a major contraction of production, sales, all led by the housing industry, which was thought to have a momentum and safety all its own ... a sort of flywheel effect ... but now damaged, out of balance, and spinning out of control, values plummeting.

Some of the credit default swaps and other forms of "derivatives" designed to spread natural credit risk around and thereby attenuate the risk were purchased and traded abroad, particularly in Europe. Soon European banks, including all the banks of Iceland, the Bank of Scotland, and major institutions all over the Continent were gasping for air. The derivatives were just the fuse to ignite panic about other forms of mischief that banks and investment corporations had become accustomed to (and rich beyond their wildest imaginations). The crash in New York spread world wide and soon countries like Russia were seeing two decades of capitalism kick them in the teeth.

Enter Barack Hussein Obama, inheritor of the worse financial ... and monetary ... situations ever, two wars, and several hot spots threatening to boil into Third World War proportions: Iran and Israel. The question begging for answers was "what should be done first?" The simple answer is that Obama and his advisors recognized that if the situation in the U.S. were allowed to deteriorate much further, the consequences (several) abroad would insure that a world wide depression would occur, bringing with it untold political consequences abroad ... and domestically if it really got bad.

So, job #1 was to stabilize the world financial markets by taking a posture and doing at least the minimum necessary to stabilize Wall Street, the very center and heart of world finance. One should mention at this point something not quite so simple, but just as important. The U.S. dollar is and has been the "reserve currency" of the world since the Breton Woods Agreements during WWII. This means that the U.S. dollar is the denomination of all (significant) financial dealings, with value cross-referenced to the US$. The Breton Woods Agreement called on the U.S. to maintain a trustworthy currency and in exchange all the rest of the world would grant to the U.S. the benefits that accrue to being the financial hub.

Two generations of Americans, and in particular two generations of U.S. corporate and Congressional geniuses, forgot the first part of the Agreement—that the U.S. has the responsibility to maintain a stable currency. The U.S. clearly indicated to the world that this had been forgotten when we inflated our currency after the Vietnam War and in effect shipped a major part of our national debt for that adventure to foreign holders of Treasury bills. They were annoyed, of course, but saw that thirty or forty years downstream they were locked in. This provides them incentive, by the way, to get as rich as possible as fast as possible, richer and faster than U.S. players hopefully, so as to have some kind of leverage over U.S. fiscal policy.

In the November 5th edition of the New York Review of Books there is an article by Jeff Madrick about Obama's failure to implement timely and sufficient regulations over Wall Street. And, true enough, there are articles all over the place about how Goldman Sachs and others are back to their old business of creating derivatives, making obscene profits, and paying themselves even more obscene salaries and bonuses.

I am sure that Obama does not like this, and he has gone to Wall Street himself and said so. Still, there should be more than just me thinking that Wall Street is playing into the hand of Obama's more vital game abroad. It is essential to the U.S. that we remain for the foreseeable future (ten to twenty years at least) the owner of the planetary reserve currency and all that brings to our vastly over mortgaged domestic economy. The natural excesses of the arbitrageurs of Wall Street are a clear sign to the world that Wall Street is back on its feet ... and also that Wall Street is not the puppet of Washington (to anyone familiar with Plato's Allegory of the Cave).

And, if the explanation of Bernanke's, and Summers's, and Geithner's activities and supposedly weak response to regulation is not convincing, you need only look everywhere else to get a context for "recovery." California is sliding into the Pacific financially, unable to control by line-item-veto or any other means a ruined economy and governance process. 2009's deficit of $7 billion promises to be $15-21 billion in 2010. Next door, Arizona with a trifling economy is $3 billion down the tube with no relief in sight.

Michigan has double digit unemployment matched by several other heavily industrialized states. Unemployment is driving retail sales into the ditch and early signs of the Xmas buying period promise to be not only dismal, but as contagious as swine flu, also having its effect on the nation's economy.

Meanwhile banks in Florida (and elsewhere) are closing (or on Friday evenings being closed by FDIC). The total number of small and medium sized banks topped one hundred a month or two ago, and the rate is accelerating with several hundred banks expected to fail next year.

Foreclosures are up, despite valiant if inadequate efforts to get banks to renegotiate mortgages. It seems that bank officials just do not know where to begin trimming their profit-motivated sails, so they hope they can sail over the reefs and shoals, ... but of course they cannot.

Then there is the stock market, which took a 2.5% tumble on last Friday from the opening bell. This was not a sell off set off by some bad news somewhere. It was a sell off over due from bad news everywhere, including Pakistan and Afghanistan and Iraq and Somalia and Iran and Main Street. Yet Thursday this week it surged ahead again on erroneously reported unemployment news which was 190,000 not 165,000 as first reported. Which is to say, btw, a medium sized city just went down the tubes.

The 2009 TARP funded at mid-low level by the Congress, a mere $772 billion bail out, seems to have averted a steady plummet into the darkness of a national and worldwide depression, although there are those who are not yet satisfied that this is the case. At least Paul Krugman, an earnest critic of the TARP's low funding and the Administration's weak-kneed application, thinks it probably has been avoided for now although in a more recent article he says that Obama's soft, timid landing on the hostile shore will bite him bad and soon.

The great party game of the day is predicting whether the recovery will be V-shaped, that is down quickly and up quickly ... and highly unlikely ... or L-shaped, that is down quickly and staggering out and up over a long indeterminate period, or W-shaped, with a double dip into the wilds near depression, or some other branding iron shape with multiple recoveries each less satisfying than the last.

Ultimately, the current recovery is at least partly a matter of propaganda from Wall Street and Washington. That much is clear ... and as much as it is propaganda, it is a dangerous finagling with the truth of where we are. To be sure we never know exactly where an economy is, but we do have some confidence in predicting trends ... and believe me the current crisis was predicted years before it happened and even predicted by me months and months before the crash. Obama and his advisors would do well to make a clean break with the "attaboy" propaganda designed to keep people from absolute panic.

They should begin to bail out states that have shown evidence of fiscal maturity, but are hanging by threads over the precipice, out of control through no real fault of their own. This may not include California, alas, but clearly California, the world' 8th largest economy cannot be allowed to fail ... either.

JB