Thursday, May 27, 2010


"US money supply plunges at 1930s pace as Obama eyes fresh stimulus"

Deflation cometh.

Wednesday, May 26, 2010

The Moral Courage of the Obama Administration in Action

NY Times:
President Obama, the Pentagon and leading lawmakers reached agreement Monday on legislative language and a time frame for repealing the military’s “don’t ask, don’t tell” policy, clearing the way for Congress to take up the measure as soon as this week.
It was not clear whether the deal had secured the votes necessary to pass the House and Senate, but the agreement removed the Pentagon’s objections to having Congress vote quickly on repealing the contentious 17-year-old policy, which bars gay men and lesbians from serving openly in the armed services.

House Democratic leaders were meeting Monday night and considering taking up the measure as soon as Thursday. But even if the measure passes, the policy cannot not change until after Dec. 1, when the Pentagon completes a review of its readiness to deal with the changes. Mr. Obama, his defense secretary and the chairman of the joint chiefs of staff would also be required to certify that repeal would not harm readiness.

The measure could enable gay men and lesbians to serve openly in the military for the first time, ending a policy that Mr. Obama, Defense Secretary Robert M. Gates and Adm. Mike Mullen, the chairman of the joint chiefs of staff, all say they oppose.

Representative Patrick J. Murphy, Democrat of Pennsylvania and a leading advocate in the House for repeal, is hoping to attach the proposal to a defense authorization bill that will come up for a vote on Thursday.

In the Senate, Senator Joseph I. Lieberman, independent of Connecticut, intends to introduce the language on Thursday in the Armed Services Committee. In a letter to Mr. Obama on Monday, Mr. Murphy, Mr. Lieberman and Senator Carl M. Levin, the Armed Services Committee chairman, announced support for the proposal and asked the White House for its “official views.”

Mark Kleiman: Obama has been willing to accept the hostility of the advocacy groups in order to get the thing done right. More likely than not in an unjust world, that hostility will continue even after the deed is done. Obama has done some unheroic stuff, but in my book this makes him a hero. Real moral courage isn’t standing up to your enemies; it’s standing up to your friends.

Here's a report on Obama standing up to teh gay:
At a fundraiser for Sen. Barbara Boxer (D-CA) yesterday in San Francisco, President Obama was heckled by an audience member who called on him to "move faster on 'Don't Ask, Don't Tell.'"

Amid boos and chants of "yes we can," Obama addressed the man who heckled him: "We are working with Congress as we speak to roll back 'Don't Ask, Don't Tell.'"

Obama added: "Come on, man, I'm dealing with Congress here. It takes a little bit of time."

Josh Marshall
With the news that congressional Dems, the White House and the DOD have reached an agreement that should bring DADT to an end this year, it's worth remembering how deeply uncontroversial a decision this has become. According to the latest CNN poll, almost 80% of Americans now support allowing gays and lesbians to serve openly in the US Armed Forces.

And it's not even a new number. Public support has been at similar levels for the last few years. I confess that as someone who remembers the early 90s battle over this question, those numbers are about as gratifying as they are surprising to me. But there it is.

So, there we have it. The Obama Administration "gets it done" with 80% popular support.

A clue?

digby at hullabaloo:
I could be wrong, but I'm sensing a shift in the narrative that could finally begin to break down the conservatives' decades-in-the-making consensus against taxation and regulation. With the bipartisan loathing for bailouts, continued economic stress, the arrogance of Wall Street and now the clear professional malpractice of the oil industry, it's just possible that the people of the United States are getting a clue.

I have no proof that this is happening. It's purely my instinct. And I don't know that the malefactors of great wealth will not be able to successfully misdirect once again and declare it all a measure of government failure. But I think the convergence of all these things at the same time may actually be enough to finally make people question their assumptions a little bit.

Well, it is certainly pretty to think it, but, really, does the opinion of the American People even matter?

Sunday, May 23, 2010

Storm Cloud on the Horizon

The Great Financial Crisis of 2008, coming in an election year, after the twin debacles of the Wars in Iraq and Afganistan, and the humiliation of Katrina, should have been the Perfect Storm -- that coming together of political and economic consequences of bad policy with a devastating narrative critique and the ambition of political rivals, to create shift, a change, an alteration in the political and economic structures and paradigms that brought us to this extreme.

Polls show a majority of Americans began to feel the country was off on the wrong track, soon after the War in Iraq started, and except for a brief moment of hope soon after Obama's election, Americans have continued in that pessimistic conviction. Personally, I thought the country was off on the wrong track, when a Pittsburgh billionaire bought a 7-year "scandal" culminating in the Impeachment of the President of the United States. I thought the country was off on the wrong track, when the Supreme Court cancelled an election recount, and appointed Alfred E. Newman as President. I thought the country was off on the wrong track, when the appointed President, a self-described fiscal conservative, launched a massive program of tax cuts for the wealthiest Americans. I thought the country was off on the wrong track, when an Administration lied its way into an aggressive war against Iraq, as a "response" to a terror attack perpetrated by a bunch of Saudi Arabians. But, what do I know?

I'm admittedly fascinated by the "cycles" of history, the apparent patterns of rise and fall, of paradigmatic organization, growth and collapse. Political economy -- the somewhat chaotic, somewhat organized mass behavior of polities, societies and economies -- does seem to find stable patterns in which to channel development and growth, and then, having exhausted the possibilities, to dis-organize in moments of crisis.

The Financial Crisis of 2008 looks remarkably like the culmination of a long political and economic program, traceable, at least, to Reagan, and the ultimate exhaustion of an economic paradigm that goes back to FDR, the New Deal and WWII. Reagan began the process of dismantling the New Deal at home, and the international regime abroad. The Reagan economic program of de-regulation, restricted public investments and tax-cuts for the rich would feed off the entropy of the post-WWII prosperity.

Internationally, the U.S. has led the capitalist order, with the U.S. dollar as reserve currency, facilitating trade and investment. This order, too, seems to have reached a culminating moment.

Key to the U.S. role in the international order has been its role as a consumer of last resort, profiting from its role as issuer of the reserve currency, and leading round-after-round of tariff reductions and market-opening measures. For a long time, those policies both benefitted the world and benefitted the U.S., as the dominant economic position of the U.S. gradually eroded. Much of that erosion was inevitable and even desirable, as other countries caught up to the U.S. technologically and in terms of living standards, and increasing competition benefitted U.S. consumers, as European, Japanese, Korean and Chinese products filled American shelves.

In the Clinton years, the advent of the Internet and the Tech Boom, gave American international economic leadership an Indian Summer revival, but in the Bush years, the costs of hegemony mounted, as the U.S. sold off much of the Middle Class' home equity to buy more electronic junk from China, while American manufacturing was devastated.

When the Financial Crisis arrived, nothing should have been more clear than the need to radically change everything in the structure of the American economy and its relation to the world. Al Gore was quoted in Rolling Stone:
"Right now we are borrowing huge amounts of money from China to buy huge amounts of oil from the most unstable region of the world, and to bring it here and burn it in ways that destroy the habitability of the planet. That is nuts! We have to change every aspect of that."

The Financial Crisis, however, invoked a bi-partisan reactionary response, and an effort, not to adapt through structural change, but, rather, to restore the status quo ante. This reactionary effort has brought about the bear market rally of all-time in the Stock Market, and a calm in banking and international finance. But, the determination to push all the losses on to Middle Class home owners and taxpayers, while holding unharmed, the banks and the financial sector, leaves the country weaker and unprepared.

The Crisis happened because the economic structure could not be sustained. Restoring that structure does not change the fact that it is unsustainable.

Because of the short-sighted insistence of U.S. policymakers on restoring the status quo ante, there will be enormous pressure on the U.S. to resume its customary role as consumer market of first and last resort, so that other countries can use export-growth to lead their economies out of difficulty. To the extent that the U.S. goes along, it will be dis-investing and borrowing massively, once again.

There's not enough seed corn left in the bin, for this to go on for long. And, yet, there also doesn't seem to be the kind of vision, which would allow the U.S. to lead the kind of massive re-structuring of the global economy -- to meet the challenges of climate change and peak oil and ecological collapse, among others -- which ought to be obvious and urgent.

Thursday, May 20, 2010

Our Present

Stirling Newberry: "Our present is defined not by what we hope for, but by how we justify a position of wealth and privilege which we are no longer earning, but are determined to keep."

A Rationalization Engine

Matthew Yglesias -- normally my hero for his clarity of thought -- falls for the Libertarian gambit.

He reports that Rand Paul, the libertarian nominee of the Republican Party for Senate in Kentucky "admitted that under his brand of libertarian conservatism he can’t support the 1964 Civil Rights Act or other non-discrimination legislation as applied to private businesses."

Yglesias, to his shame, endorses the libertarian excuse:
The point to make about Paul, however, is that what he suffers from here is an excess of honesty and ideological rigor not an unusual degree of racism. Basic free market principles really do lead one to the absurd conclusion that government regulation of private business is a greater evil than institutionalized segregation. That’s why Barry Goldwater, William F Buckley, the Young Americans for Freedom, and the other progenitors of the postwar conservative movement all opposed the Civil Rights Act and the civil rights movement. And, indeed, under the kind of hyper-restrictive construction of the constitution that today’s rightwingers use to say the Affordable Care Act is unconstitutional, the Civil Rights Act would probably also be invalidated.

"Basic free market principles" lead to no such conclusion at all. On the contrary, non-discrimination laws are in an ancient, common law tradition, which requires those businesses that offer public accomodation, like restaurants and hotels, to serve all, who present themselves in good order. The efficiency of competitive markets, enshrined in economic theory, presumes that the participants are not undermining the social fabric, with organized efforts to make a subgroup of the society, second-class citizens.

Libertarianism, in fact, is just a rationalization engine, a philosophical apparatus for generating arguments in support of a policy position, while obscuring the true (reprehensible) motives for it.

As Matthew observes, Rand Paul "goes out of his way to explain that he doesn’t actually favor segregated lunch counters, he just thinks it would be wrong to do anything about them. Similarly, I suppose the Cato Institute’s Dan Mitchell would tell you he doesn’t actually want poor children to suffer from starvation or malnourishment he just thinks it’s folly to try to do anything about it . . ."

Denial is a tell.

Since the argument of the libertarian is false, there's really little use in arguing with it.

Of course, many actual libertarians are "sincere" -- they are just fools, who have discovered that libertarian ideology allows them to generate dozens of seemingly sophisticated, philosophically impressive opinions and arguments. And, they like winning the battle of the water cooler.

But, mostly arguing with libertarians is a confusing waste of time. And, it is undermines democratic deliberation, because there's no compromising with such false rationalizations. Compromises between opposing interests, with opposing desiderata are possible, but a compromise with a false principle? What is that?

Wednesday, May 12, 2010

A Complacent Capital

Matthew Yglesias » A Complacent Capital:
If you had asked me in 2006 about the political reaction to 10 percent unemployment I would have said “total freak out!” Heck, as late as 2009 I would have said “total freak out.” After all, the Obama administration was projecting 10 percent unemployment as a nightmare scenario in which there was no policy response to rising unemployment. The specter of 10 was supposed to prompt a freak-out. Well now here we are at 10 percent unemployment and there’s an eerie calm. The Rapidly-Changing Issue Environment and What It Means
We are in one of the longest sustained periods of voter dissatisfaction in modern history. Except for a few weeks in the spring of 2009, perceptions of the direction of the country have been strongly "wrong track" since the invasion of Iraq in 2003. That is seven years. The only comparable period is 1973-1983. This helps explain why we are in the middle of a third successive "change" election. Moreover, trust in government to do what is right is at an all-time low. In a Pew Research Center poll last month, less than one fourth (22%) of respondents said they could trust government most of the time. This is one of the lowest percentages in more than 50 years. goes on to note a number of indications that Republicans -- and extremely, irrationally conservative Republicans, at that -- will sweep into office.

Democrats have had two change elections, to change something, anything that dissatisfied the country, and they've done nothing, but confirm the policies of the worst, most unpopular President since Herbert Hoover.

Tuesday, May 11, 2010

Here Is Why the Fed Cannot Simply Continue to Inflate Its Way Out of Every Financial Crisis That It Creates

Jesse's Café Américain: Here Is Why the Fed Cannot Simply Continue to Inflate Its Way Out of Every Financial Crisis That It Creates:

The return on each new dollar of US debt is plummeting to new lows according to figures from the Federal Reserve. . . .

The ability to expand debt is contingent on the ability to service debt. If the cost of the debt rises over the net income of the country's capital investment, or even gets close to it, the currency issuing entity is trapped in a debt spiral to default without a radical reform.

In other words, if each new dollar of debt costs ten percent in interest, largely paid to external entities, and it generates less than ten cents in domestic product, it is a difficult task to grow your way out of that debt without a default or dramatic restructuring.

So we are not quite there yet. But we are getting rather close on an historic basis. Without the implicit subsidy of the dollar as the world's reserve currency it would be much closer.

As it is now, this chart indicates that stagflation at least, rather than a hyperinflation, is in the cards for the US. But the trend is not promising, and the lack of meaningful reform is devastating. . . .

The economy is out of balance, heavily weighted to a service sector, especially the financial sector which creates no new wealth, but merely transforms and transfers it. With stagnation in the median wage, and an historic imbalance in income distribution skewed to the top few percent, with the banks levying de facto taxation and inefficiency on the economy as a function of that income transfer, there should be little wonder that the growth of real GDP is sluggish in relation to new debt.

Or as Joe Klein so colorfully phrased it, the elite have been strip-mining the middle class in America for the past thirty years.

Along with the 'efficient market hypothesis,' trickle-down economics is also a fallacy. This is why the stimulus program being conducted by the Federal Reserve, in an egregious expansion of its authority to conduct monetary policy, in subsidies and transfer payments to Wall Street is not working to stimulate the real economy. It merely inflates the bonuses of the few, and extends the unsustainable.

So obviously one might say, "The Banks must be restrained, and the financial system reform, and the economy brought back into balance, before there can be any sustained recovery."

Plus they just enjoy ruining things for other people.

digby at Hullabaloo contemplates the psychology of the right, and recalls a family experience: "I'll never forget sitting in a crowd of wingnuts at a family gathering watching some footage of the Exxon Valdez spill and watching them all laugh uproariously at dying, oil covered birds flopping around on the beach."

Consider the previous post and this one together.

Politics -- at least the part of politics, which is ideas and rhetoric, as opposed to interest and personal ambition -- is a product of human ambivalence combined with the need to reach collective decisions.

Assemble any small group, and you will see the process in operation. To get along in a group, each person has to choose what they will say, and when, while choosing also when to allow others to speak. Automatically, almost, we choose our identities, we choose what ideas to specialize in expressing.

I would allow that laughing at a dying bird is one of several responses any human has available, not unique to someone with a peculiar pathology. The pathology lies in not caring to self-govern in a way that suppresses that impulse, in favor of a higher rank order for empathy.

In other words, it is a social choice.

As American politics has simplified and become a single continuum of worldviews, what divides our politics is more and more this kind of choice. And, one side of our politics is choosing greed and destruction and torture and corruption and cheating and waste.

And, he's good with that . . .

Jesse's Café Américain: Trading in Hubris: Pride, Overreach, and the Inevitable Blowback and Consequences
I had a conversation this morning with a trader that I have known from the 1990's, which is a lifetime in this business. I have to admit that he is successful, more so than any of the popular retail advisory services you might follow such as Elliott Wave, for example, which he views with contempt, a useful distraction for the little guy, the same way that casino operators view most gambling systems except counting cards. He is a bit of an insider, and knows the markets internals and what makes them tick. I remember a time when some of the more obvious market shenanigans used to bother his conscience a little. But he is well beyond that point now. . . .

He thinks the euro is done, and the dollar will remain the sole currency. His attitude is, "What will replace it?" He cannot even imagine anything different than what we have today. But interestingly enough he does not believe that the US government is running things. "Things are being run by a new world order, and have been for some time." He said that so matter of factly that it made me catch my breath.

And he's good with that. Does not bother him in the least little bit, as long as he is making money. And that is where our conversation started to go downhill, quickly. I was in no mood to hear his usual perspective on the future and the triumph of the willful.

If there is a new Mussolini in the US to maintain order, he's good with that. If they start putting people on trains to resettlement camps in the southwest, he's ok. If there are starving people in the streets, it doesn't bother him because he lives in a gated community. If the middle class gets crushed by a new market crash that is ok. He made a killing shorting the Crash of 1987, and was able to enjoy the resort where he spent the winter even more than ever because they were so few people there.

I would like to say he is an outlier, a one of a kind. But he is not. He is typical. He is driven purely and almost solely by personal greed, and he makes no bones about it. Life is a war, and he wants to conquer you.

But he is not a monster. If you met him you might like him. He's affable, conservative, a decent conversationalist, and personally well kept and engaging. But he is missing something, like the derivative of a human being. If you talk about the 'bad guys' he doesn't identify with them. He thinks he is 'us.' It's never occurred to him that he is the problem. Because his value system is utterly one dimensional and egocentric. In some ways he is the most intelligent twelve year old I have ever met. But I am sure he considers me a fool and an idealist. And I might agree. But it is not so much who you are, but why. Who or what do you serve?

He is a microcosm of Wall Street, and the prevailing attitudes in the Big Banks in particular. If you wish to form public policy, if you want to create a stable system, one based on human values, never ask a trader or a trading company for advice. They are incapable of framing the question in a way that will provide you a workable answer. What is good is whatever works for them in the most narrow definition of the terms. They think they are being altruistic when they take a little bit of a haircut on terms that are already well into the realm of usury.

The problem is the ability of Wall Street to buy power and influence among the regulators and politicians, and bring their unbalanced world view to bear so heavily on the formation of public policy and governance.

That is not to say that they are necessarily bad people. They are what they are. It's just that they need to be restrained by regulation, and certainly should not be in the driver's seat of anything outside of their own accounts, and those with external supervision and transparency. But certainly not in control of things in general, of running the system by proxy, which is where they are today. Or at least where they think they are.

Wednesday, May 5, 2010

Existential Threat

Economist's View: Galbraith: The Role of Fraud in the Financial Crisis
From the Statement by James K. Galbraith, Lloyd M. Bentsen, jr. Chair in Government/Business Relations, Lyndon B. Johnson School of Public Affairs, The University of Texas at Austin, before the Subcommittee on Crime, Senate Judiciary Committee, May 4, 2010:

the country faces an existential threat. Either the legal system must do its work. Or the market system cannot be restored. There must be a thorough, transparent, effective, radical cleaning of the financial sector and also of those public officials who failed the public trust. The financiers must be made to feel, in their bones, the power of the law. And the public, which lives by the law, must see very clearly and unambiguously that this is the case.

Tuesday, May 4, 2010

What they did

Atrios of Eschaton:
"Basically the Fed printed a huge amount of money. Some of that money they used to do what TARP was originally supposed to do, buy up Big Shitpile at inflated prices. Some of that money they lent to banks at basically 0 interest. Of course there were plenty of other things they could have done with 2 trillion bucks, if preserving the executive compensation at megabanks wasn't thought to be crucial for the survival of the economy. They could have dropped it from helicopters. They could have paid off mortgages directly. They could have given it to state governments. They could have bought me a SUPERTRAIN. But, no, they decided that propping up an obviously failed system of financial intermediaries was the important thing, so that's what they did."

Much has been made, for propaganda purposes, of the Big Banks (most of them, anyway) repaying loans with interest, and redeeming equity investments. As Dean Baker explains, this doesn't signify.

Bank Bailouts: Goldman's Debt to Society - CEPR:
"At the time the government made money available to the banks through TARP and even more so through the Fed, liquidity carried an enormous premium. The major banks charged each other 5 percent interest on 90 day loans because they did not have confidence in their ability to survive.

In this environment, the government stepped in and providing banks with huge amounts of money (we don't know exactly who got how much because the Fed refuses to tell us what it did with our money), at a cost far below what they would have been forced to pay in private markets. The banks could lend this money at enormous premiums or use it to just buy government bonds and pocket the difference in interest rates. As a result, most banks have been able to get back on their feet.

As a bookkeeping matter we can say that the government 'profitted' from these deals in the sense that it got interest on its loans. (It also received warrants from banks that it sold at a profit.) However, as a practical matter, these profits no more benefit the government's accounts than if the Federal Reserve Board just printed the same amount of money and handed it to the Treasury by purchasing government bonds. Unfortunately, few reporters covering the economy and the bailout understand this point, so they end up writing pieces that imply the country was somehow benefitted by the fact that the banks repaid their loans with interest."