Monday, January 21, 2008

Economist's View: "It's an Insult to Keynes"

On a U.S. holiday weekend, the financial markets across the globe have been having a bit of a meltdown, dropping around 5%. As of this hour, late on Monday night, it looks as if the Dow will open Tuesday, down about 500 points.

The U.S. economy is coming into contact with reality, the U.S. financial system is insolvent, and U.S. consumption spending seems likely to decline. The world is not happy with this.

So far, the Administration response has been a stimulus package -- everyone gets a check from Uncle Sam, to spend.

Do I Understand This Correctly? says...
Foreign savers will no longer lend to citizens for consumption (by buying securitized mortgages and such), so the gov will temporarily borrow the money from foreign savers and give it to citizens to spend."

This is supposed to smooth the transition.

It is looking like the Republicans may succeed in pushing off most of the consequences of their catastrophic policies onto the next, Democratic President. That poor schmuck, or schmuckette, will get to "lose Iraq" and preside over a decline in the American standard of living.

Thursday, January 17, 2008

The Choice

The big news this morning is that the Fed Chief has asked the Congress for a fiscal stimulus.

Stirling Newberry explains why: "If we are talking competencies, there are two problems: inflation/devaluation and recession. The fiscal authority, Congress in the US, has just about zero competence to deal with inflation at the present time. That has not always been the case, but it is the case right now. Thus when faced with two problems that require different policies, the Fed should be sent to deal with inflation/devaluation by keeping rates higher, and that means that Congress needs to engage in stablization. It might be preferable to both remove the overworked piece nature of the Fed, and to make Congress more responsible, but that isn't in the cards for the present time."

With both Clinton and Obama tacking to the Right, and Edwards the honest populist sidelined by our incompetent Media, and the Idiot-in-Chief substituting a perpetual temper tantrum for a policy, the country is about to make a profound choice, in the only way profound choices are ever made, in a fit of bloody-mindedness.

If the idea were to do the responsible thing, the analytically clean, economically sensible thing, then Congress would find ways to grant immediate tax relief to the working and middle classes. Maybe, a combination of reductions in income tax and FICA withholding, financed in the case of FICA by an increase in the estate tax, along with a usury ceiling on credit card debt of, say, 12%.

What are the chances? Zero.

The American Empire has gone bankrupt. The national standard of living will have to be reduced, quite substantially, if we are going to have a dollar devalued to the point where America can export stuff, again, and have a positive savings rate, so that we can finance our own investment spending. We're talking some pretty big numbers -- on the order of a 10% reduction in household consumption.

The only way to meliorate that is to take the necessary amounts out of some other pot, somehow.

In other words, on the other side of this debate about a short-term fiscal stimulus is a series of choices, that will have a profound effect on the shape of the country. Choices about how national spending will be allocated and who will own what the socialists used to call "the heights" of the economy.

If progressives get their way, then that reallocation of national spending will include major reductions in military spending, including a withdrawal from Iraq, and eventually, from the Middle East and most of the American Empire abroad. It will include institution of a national health care system, with the object of reducing substantially the amount spent nationally on health care. It will include a major assault on the nation's Media and financial industries. It will include a major increase in corporate taxes and the progressivity of the income tax. And, the U.S. economy will shift direction toward export (and import substitution) with major investments to reduce petroleum dependence.

If conservatives get their way, all of the costs of this hit to the national income will be crammed down on the middle classes. It would be crammed down on the poor, but the poor don't have enough money to make it worthwhile. Social Security will be privatized. The War in Iraq, with all its opportunities for corruption, will continue. Financial services will be shored up, even as the banks are sold off. We will sell off everything from banks to turnpikes to the national parks to pay for oil. Health care reform will founder. Media reform will founder. The country may well enter its death spiral, just as the globe does.

The choice before us is just that profound.

Frankly, I think the country will be better off, if the Congress's attempt to enact a fiscal stimulus fails miserably, and the recession is deep, and the dollar's devalution gets out of control. I wish we were still the kind of country that could take knzn's good professional advice. I think we are more akin to a drunk, who hasn't quite hit bottom, but needs to, sooner, cause they're might not be later.

I wish, too, that a progressive choice were clearly written on the Presidential ballot. Like all progressives, nee liberals, I look on with horror as Clinton and Obama compete to make themselves look acceptable to the plutocracy.

I am not so naive as to fail to recognize that an honest populist/progressive is not viable. (I give you, John Edwards; Al Gore is not even willing to run.)

The dog whistle appeal and the con are now part of Presidential electoral politics. Bush got elected by combining a con directed at one, especially stupid and credulous electoral bloc, and a wink-and-nod assurance of being in on the con aimed at another segment. Clinton and Obama are engaged in the same kind of political tactic, but neither can afford the risk of a wink-and-a-nod at progressives. We, progressives are too literal in our interpretations, and those, who have to be fooled are themselves con artists.

So, we have to not just hold our noses, but cover our eyes and ears, before voting. Pray and jump, and hope there turns out to be a net underneath the fog.

Looking at the two, my bet is for Obama, but I expect the majority of Democrats to choose Clinton. But, the evidence for either is hidden.

Thursday, January 10, 2008

the meltdown

Kevin Drum at The Washington Monthly summarizes the end-of-year economic news, and the news is bad. Really bad. Xmas sales were down 2% and credit card debt was up, 11.3%!!!

I, personally, still don't think this recession will be particularly "bad", but it will be painful, if only because this recession will expose just how hollow the American economy has become and how fragile our prosperity is.

For a rundown on the state of (formerly) American Banking, nothing compares to I won't cite a particular post, but there are several there right now that will sober anyone up. BofA in Fed-sponsored negotiations to acquire bankrupt Countrywide is a good rumor as I write this -- that BofA is negotiating is confirmed fact, but the Federal Reserve sweetening the deal with guarantees is the rumor. If we are that desperate, we are desperate.

The list of leading American banks going abroad for major ($5 and $10 billion) equity investments is also scary news. The American banking system is being sold off. The impetus is pending end-of-quarter and end-of-year financial statements. Without the additional capital in place, some (maybe) all of these banks would have "illegal" balance sheets, unable to meet the requirements of regulatory agencies and underwriters.

This is a very big deal. And, of course, perfect storm material, if there ever was any.