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Is the U.S. a Japan 2? The Return of Japan’s “Free Fallin” Stag-Deflation and the Risks of a U.S. L-shaped near depression

William Pesek, the savvy Asia columnist for Bloomberg, reports – in his latest column (see below) – my views about the structural crisis faced by Japan that I outlined in a 1996 paper titled “Japan’s Economic Crisis”. Thirteen years later Japan is entering another severe slump that looks like even worse than that of other advanced economies: while in US, Europe and some other advanced economies and China the second derivative of growth and of other economic indicators is turning closer to becoming eventually positive rather than negative (i.e. growth is still negative but GDP may be falling at a decelerating – rather than accelerating – rate) in Japan is still highly negative (i.e. the fall is accelerating and looking like a free fall, a severe case of stag-deflation).

The sad case of Japan free fall is a cautionary tale of what happens when a high flying economy has a real estate and equity bubble that goes bust and avoids for too long doing the painful structural reforms and clean-up of the financial system that is necessary to avoid a long-term L-shaped near depression. Japan had over a decade of stagnation and deflation, then a mild sub-par growth recovery that lasted only three years and is now spinning into another severe stag-deflation. Keep alive zombie banks and zombie corporations whose balance sheets and debts are not restructured as in Japan (zombie banks and zombie insolvent households in the US today) and you end up in a L-shaped near depression.

Let me explain next in this note why the US and the global economy face the risk of an L-shaped near depression if appropriate policy actions are not undertaken…

First, note that Japan made many policy mistakes that the US should and could avoid: it cut policy rates two years after the bust of its asset bubble while the US eased monetary policy aggressively after August 2007; it went into QE (quantitative easing) reversed ZIRP (zero interest rate policy) too slowly; it waited two years after the bursting of its bubbles to do a fiscal stimulus (and reversed it too early with a consumption tax) while the US did one – albeit a failed one – last year and is doing another large one now; it created a convoy system of zombie banks and corporate that were restructured too late while the US may become more aggressive in cleaning up the financial system; it had structural rigidities – like lifetime employment – that slowed down the adjustment while the US has flexible labor markets (with workers moving fast to new sectors/regions where there are jobs once they lose one).

But in many dimensions the U.S. started its financial and economic crisis in a much worse shape than Japan. Indeed, Japan was in much better macro and financial shape than the US before and during its stagnation: high household and national savings and low leverage of the household sector, large current account deficit, net foreign asset position that allowed it to finance its large fiscal deficit during the stagnation via domestic savings. The US instead has had near zero household savings and massive leverage for years, large current account deficits and is the largest net foreign debtor in the world, thus relying on the kindness of strangers or, better, on the kindness of its strategic rivals (China, Russia) or unstable petro-states to finance its twin fiscal and current account deficits.

And the US may make some of the same mistakes as Japan and suffer of similar macro policy constraints that may limit the ability to resolve the financial crisis in a more rapid manner. First, monetary policy – however aggressive – is like pushing on a string when you have a glut of capacity and credit/insolvency rather than just illiquidity problems. Second, fiscal policy has its limits in a worlds where you are already the biggest net debtor and net borrower in the world and where you need to borrow this year $2 trillion net ($2.5 trillion gross) to finance your fiscal deficit while every other country (including your traditional lenders/creditors) are now running large fiscal deficits with the risk of a sharp back-up in long-term interest rates once the tsunami of new US Treasuries hits the market (see the back-up in Treas yields in the last 10 days and the scary signal it sends about coming dislocations in the US Treasuries market). Third, the US is taking an approach to bank recap and clean-up that looks more like Japan (convoy system and delayed true clean-up as the necessary pain to shareholders and unsecured creditors of banks is avoided/delayed) than the successful Swedish outright takeover/nationalization process. Fourth, the market friendly approach case-by-case approach to the necessary debt reduction of insolvent private non-financial agents (corporate for Japan, households for the US) will be too slow as working out one household at the time the debt overhang of 15 million insolvent households will take years when a systemic debt overhang requires an across the board debt reduction (as in Mexico and Argentina) that is not politically feasible – so far – in the US.

Thus, even if the US were to do everything right and fast enough (on the monetary, fiscal, bank cleanup and household debt reduction) we would still have a severe two year U-shaped recession until early 2010 with a weak recovery of growth (1% or so that feels like a recession even if you are technically out of it) in 2010-2011. But if the US does not do it right this severe U-shaped US and global recession may turn into a nasty multi-year L-shaped near depression like the one experienced by Japan. We don’t have to go back to the Great Depression (when output fell over 20% and unemployment peaked over 25%); even a stag-deflation and Near-Depression like the Japanese one would be most severe for the US and the global economy. And while six months ago I was putting the odds of this L-shaped near-depression at 10% or so such odds have now risen to one third.  So time is of the essence and the clock is working against US and global policy makers. The time to stop dithering is well past; and the time to implement a program of forceful, coherent, credible, globally-coordinated monetary, fiscal, financial clean-up and debt-resolution is now.  The US and global economy are truly risking a near-depression if the policy reaction is not bold, aggressive, sustainable and credible.

And here is Pesek’s column:

Roubini’s Gloom Gets Traction in Panicky Tokyo: William Pesek

 

Commentary by William Pesek       

Jan. 23 (Bloomberg) — The champagne must be flowing at Toyota Motor Corp. headquarters.

It just ended General Motors Corp.’s 77-year reign as the world’s largest automaker. Toyota also is looking ahead and going full circle in terms of management: It just named the grandson of the company’s founder as president.

The celebrations and nostalgia will be short-lived, and not just because Toyota is forecasting its first operating loss in 71 years. It’s on the frontline of an economic plunge that might push Japan into another “Lost Decade.”

That’s a strong statement, and one that’s worth exploring in Japan and beyond.

Economic data coming out of Tokyo have been atrocious. Exports, for example, plummeted 35 percent in December from a year earlier. That was the sharpest decline since 1980 (there are no comparable data before then). Exports were the main driver of the recovery that now has died a very sudden death.

With nothing self-reinforcing about Japan’s expansion, Asia’s biggest economy seemed to go from 120 kilometers (75 miles) per hour to zero in all of a week. Now it’s going in reverse, and picking up speed.

Global demand for cars and electronics is drying up fast. Toyota, Sony Corp. and Honda Motor Co. are shedding thousands of workers and closing production lines as profits and sales dwindle. It’s just the beginning as the U.S. and Europe sink.

Japan Blindsided

The global crisis blindsided most Japanese executives and politicians. Much of the chatter in 2008 was about how Japan’s cash-rich banks would play a white-knight role for a Wall Street in turmoil. Mitsubishi UFJ Financial Group Inc.’s $9 billion investment in Morgan Stanley was seen as the first of many such deals.

As 2009 unfolds, the folly of that view will come into sharper focus. Yes, Japan’s government has the resources and borrowing potential to forestall a meltdown. The roughly $15 trillion of household savings is a comforting counterpoint to press reports of rising Japanese poverty and homelessness.

Yet Japan will have the same problem as China this year. Both economies can hold their ground when others are booming. With the U.S and Europe in deepening recessions, all that’s left is domestic stimulus.

That goes for Asia, too. Singapore may contract a record 5 percent this year. In South Korea, industrial production fell by the most on record in November. Officials in Indonesia, Malaysia, the Philippines, Taiwan and Thailand are struggling to boost slowing economic growth.

Lost Decade

No serious economist thinks Japan is going to crash. Yet the odds of another 1990s-like period of negligible growth and deflation are increasing as economies such as the U.S. risk a similar fate.

Minimal household savings, sliding home prices and dwindling retirement accounts leave Americans with one option: thrift. The specter of Americans consuming less is prompting a rapid reassessment of Japan’s prospects.

“We’d better get ready for a three-year recession,” says Hiroshi Yoshikawa, head of the government committee that charts economic cycles. The decline “will be very severe, not only in terms of duration but also depth.”

Richard Jerram, chief economist at Macquarie Securities Ltd. in Tokyo, headlined a Jan. 20 report: “Panic on Jobs.” Yesterday’s was called “Unprecedented Contraction,” arguing that the speed of declines in exports and production “is more than twice as fast as anything on record.”

Roubini in 1996

Such trends are engendering the kind of gloom envisioned by market seers such as Nouriel Roubini. The views of the chairman of Roubini Global Economics LLC in New York are worth considering. That goes both for what he’s saying now — that Japan is in for a severe recession — and more than decade ago.

In November 1996, Roubini delivered a speech in Tokyo titled “Japan’s Economic Crisis.” What is striking when reading Roubini’s remarks then is how, with a few changes here and there, many of them are just as relevant in January 2009.

“The different social culture and history of Japan suggest that Japan will not and should not follow the brutal ‘Wild-West’ American model of restructuring and reform,” Roubini said. “However, there is need in Japan for major structural reforms and economic deregulation in order to foster entrepreneurship, risk-taking, innovation and long-run growth.”

Fast Action

Roubini added that “delaying these reforms will not help because short-run reduction of the pain might lead to more serious problems in the long-run.”

Prescient words. Because Japan did delay much-needed economic changes, it’s now in a very bad way. The Bank of Japan has already failed to boost growth by cutting interest rates to zero. Japan has already tried, and failed, to create a thriving domestic economy with massive public spending.

The BOJ and the government will pull out all the stops to keep a recession from becoming a depression. Wealthy Japan is far better positioned to stay out of the abyss than peers in Asia. Yet Japan won’t be making the changes needed to prepare for a rapidly aging population and or help it to thrive in a region in which its standard of living is too high to compete.

Unless officials in Tokyo act fast and furiously, Japan risks another lost decade. Or something even worse.

(William Pesek is a Bloomberg News columnist. The opinions expressed are his own.)

 

364 Responses to “Is the U.S. a Japan 2? The Return of Japan’s “Free Fallin” Stag-Deflation and the Risks of a U.S. L-shaped near depression”

OnionFebruary 3rd, 2009 at 7:02 am

So Japan tried something (ZIRP, QE), it didn’t work, and the conclusion is the US should do it quicker?ZIRP flooded the world with dollars through the carry-trade/ off-shore tax-haven/ hedge fund nexus and was a malignant contributor to the credit bubble. And that was just from one country! God knows how sick things will look with a ZIRP planetWe’re in uncharted territory. No-one knows the right thing to do. Not even the great Prof. I know what we should do. Not start from here

MedicFebruary 3rd, 2009 at 7:16 am

What happened to the bank triage? How about we figure out who can survive and figure out who has no shot and not waste resources on the lost causes? It must be the medic in me that thinks that we are currently pissing away resources here by keeping the zombies open and operating. Well, nature is cruel and it always wins. Let them die.As for the debt forgiveness for the masses – this makes more sense than covering the bad debt of the banks. The banks don’t keep the economy running – the consumer does, at least in our economy. I am so sick and tired of our tax dollars and our kid’s futures being placed into the vaults of banks who will keep them as slaves for the rest of their lives.What’s that I smell in the air? Is it a revolution?

NourielFebruary 3rd, 2009 at 7:33 am

Medic, my bank clean-up proposal fully includes a banks triage, i.e. government shut down and takeover of the insolvent ones. My article is clear takeover/nationalization of insolvent banks is an essential element of the bank clean-up process. Clear?

MedicFebruary 3rd, 2009 at 7:41 am

Professor -Thank you for the clarification (I’m still working on the second cup of coffee).On another note – how did we get to this space where individual banks have gotten too big to fail? What happened to our anti-trust laws? Don’t they apply to financial institutions and if not, how about fixing that little issue so we don’t face this again?

KPMG KPMG/Angry Citi investorFebruary 3rd, 2009 at 7:45 am

KPMG KPMG KPMG. The U.S. would be lucky to be a Japan 2, though it seems highly unlikely the U.S. can even achieve such wonderful economic success that has seen the Nikkei decline from over 30,000 to 7,000. The U.S. unlike Japan is a 70% debt financed consumption based economy unlike Japan which is a savings and production based economy. It took Japan 20 years to arguably rid all its banks fraudulent financials of there bad debts. Everyone knows the financials of the banks are fraudulent but no one seems to care, why? The answer can only be the accounting firms are well connected to the global social fascist cabal.How will the recessions ever end as long as the financial statements remain fraudulent? The balance sheets and business model are crap and everyone knows, why continue the charade? All the accounting firms are paid by their corporate masters to issue fraudulent financial statements, there can be no doubt all the banks like Citi are bankrupt yet KPMG keeps signing off on its fraudulent financials, why?Why does anyone believe any of the fraudulent financial statements? Why does anyone listen to anything KPMG or other auditors have to say? Most of the banks are bankrupt yet the financials keep rolling out, no problem. As an angry Citi investor, I have tried to piece together how I lost most of my money.KPMG audits many of the financials with all their SIV creations which are used to off load bad loans so the losses don’t have to be recognized on the financials in an Enronesque fashion like KPMG’s client Citi (which is bankrupt).Of course KPMG’s never ending quest for fees does not stop with fraudulent financials, it also purveyed what Mike Hamersley would describe as fraudulent corporate tax shelters (not withstanding Hamersley’s willing participation in many of them) used by most of KPMG’s big banks including Citi, like the REIT transaction which eliminated tax on real estate loans; back to back loans or rate swaps creating interest deductions; financing arrangements generating noneconomic foreign tax credits; the list goes on forever. All KPMG’s big banks used the strategies to eliminate taxes and create what Hamersley would describe as fraudulent book income (except of course for Hamersley’s own tax shelters).Tim Flynn is a banking guy and was brought in to purportedly clean up KPMG in 05. Yet Flynn prior to his appointment as KPMG CEO was a high level KPMG audit partner before taking over for O’Kelley and had most of his clients involved in all the fraudulent accounting and questionable tax shelters (which according to Hamersley were fraudulent).There can be no doubt about the fraud as beginning as early as 2003 many were predicting the implosion that would result from the unsustainable lending patterns of KPMG’s banking clients. In fact, most of KPMG’s banks are bankrupt, what to do?Flynn decided to throw a bunch of tax partners having nothing to do with all KPMG’s bankrupt banks under the bus for individual shelters which were miniscule in relation to all KPMG’s failed fraudulent audits.Flynn hired Bennett and Holmes to do his dirty work and assist with the DOJ. Flynn had Bennett and Holmes lie to the DOJ according to an email wherein Joe Loonan KPMG’s head lawyer stated that he did not know if any of the allegations were true (“freedom is just another word for nothing left to lose”). Then to seal the deal Flynn denied legal fees to the tax partners he threw under the bus to the DOJ, even Ernst and Young paid its partners legal fees. Why would Flynn do this after O’Kelley had promised to pay the legal fees?One can only infer to hide the greater tragedy at KPMG, all of the failed fraudulent audits (not to mention after Flynn cut his deal, KPMG was awarded the audit of the DOJ). If I were a KPMGer, I would not only be extremely concerned about all the civil litigation that is coming for the fraudulent audits but the potential criminal actions that must be coming once the books are scoured (which you know they will be in the civil litigation plus the fraud is relatively easy to discern) because KPMGer’s must know by now the first thing Flynn will do is throw you under the bus and cut off legal fees.As a decimated Citi investor I am looking for any KPMGer to come forward and tell the truth.Angry Citi shareholder

HayesFebruary 3rd, 2009 at 8:34 am

NR has indicated that there is now an almost one in three chance that near depression will occur.His prescription for prevention of such a scenario: forceful, coherent, bold, aggressive, sustainable and credible policy implemented rapidly on a global basis.One in three seems very very optimistic and that assumes his prescription is correct.

GuestFebruary 3rd, 2009 at 8:37 am

I know from a personal stand point being a baby boomer and having lived thru the ups and downs of Americas financial system, i have once and for all swore off debt in any form. It is in my best interest to pay off debt as fast as possible save as much as possible and forget the 401K as it takes more from me than it gives back. Time is not the friend of baby boomers if they want to retire before they die. The retirement of most baby boomers have been cut in half and for others even more, I will not be participating in any future recovery of Americas financial system as time for securing my retirement will not allow for any risky investments and all investments appear risky to me at this time. The professors track record is a good one, as for me if I were just starting out I would not waste my time with a 401K, If I had bought Gold with the money that went into my 401K I would be in much better shape today.

MorbidFebruary 3rd, 2009 at 8:42 am

Second, fiscal policy has its limits in a worlds where you are already the biggest net debtor and net borrower in the world and where you need to borrow this year $2 trillion net ($2.5 trillion gross) to finance your fiscal deficit while every other country (including your traditional lenders/creditors) are now running large fiscal deficits with the risk of a sharp back-up in long-term interest rates once the tsunami of new US Treasuries hits the market (see the back-up in Treas yields in the last 10 days and the scary signal it sends about coming dislocations in the US Treasuries market).

Could someone explain what the bold portion of the above quote means? Are they having trouble selling the Treasuries? Or is the interest rate on the Treasuries increasing?Thanks,

MedicFebruary 3rd, 2009 at 8:50 am

Guest -If you would have put your money under your mattress you would have been better off. The 401k and the advice that investments would mean security in the future were bad at best, yet they were handed out as gospel by the government and financial advisors alike.This is not a conspiracy, but it is an example of what happens when all of us stop questioning what we are told and trust people who claim to have our best interests at heart.Blind Faith was not just a great band, it is also a bad idea.

Amar HarolikarFebruary 3rd, 2009 at 9:07 am

Professor Roubini,Beautifully articulated. The US Government has a strong economic team. I wonder why its dithering to propose bold action. Probably to delay the pain as you mention.I am from India and things are bad here, but not as bad as in US / UK / China/ Japan. Next two years, I expect the growth to come down to 5% from 9% levels in the past few years. For India a 5% growth rate is equivalent to stagnation. If US / Europe / UK go into a ‘near depression’, I expect growth rates in India to fall further , probably to 3% levels – and that’s equivalent to severe recession for India.China is taking decisive action with its fiscal stimulus. Now its up to US/ UK/ Europe to take strong action. Hope they do and do it soon.http://taxationindia.blogspot.com/

Little SaverFebruary 3rd, 2009 at 9:09 am

I guess, the inreasing interest rates on the Treasuries are caused by investor reluctance to buy them. The supply of Treasuries is too high and increasing fast. More supply, less demand = lower prices, higher yield. The bad news is that the government debt will become more expensive and a more general increase in interest yields can’t be excluded. This may have a very negative influence on future economic activity.

GuestFebruary 3rd, 2009 at 9:19 am

Medic,This was a planned and calculated crisis that was to provide a lifeboat to the banksters/corporatists before the Titanic sunk. Therefore, as Geithner – Trilateral Commission member – recently told us, he is going to do all he can to not nationalize the banks. He has no intention of destroying the source of power and gain the powers that be have fought for since 1911.Sen. Barry Goldwater wrote in his book With No Apologies: “In my view, the Trilateral Commission represents a skillful, coordinated effort to seize control and consolidate the four centers of power: political, monetary, intellectual, and ecclesiastical. All this is to be done in the interest of creating a more peaceful, more productive world community. What the Trilateralists truly intend is the creation of a worldwide economic power superior to the political governments of the nation-states involved. They believe the abundant materialism they propose to create will overwhelm existing differences. As managers and creators of the system they will rule the future.”

FEDupFebruary 3rd, 2009 at 9:29 am

totally agree! no one fully understands the extent of this problem and hence the BEST solution primarily because banks and insurance companies have been running this country for so long that they have gotten very comfortable with operating their “heads I win, tails you lose” casinos with NO transparency and regulation which is just laughed at by the elite. Of course they should fail or at least be nationalized with every dime of profit being sent back directly to the taxpayers, but as NR has stated so many times before, the govt is following the philosophy of allowing these viral corps to “privatize their gains while “socializing their losses”. It is a tragedy of the highest degree that our leaders answer to the banks FIRST and to the public LAST!

MorbidFebruary 3rd, 2009 at 9:35 am

Little Saver,Thanks. I guess the weakness in Treasury sales is a vote of no-confidence in the USA’s bail-in & bail-out approach to say nothing about the shopped-out consumer. Why enable an addict only to ensure the devaluation of the trillions of debt being held. Further it means we are headed into inflation as the Fed. will have falling tax receipts and ballooning interest payments. They will have to monetize all this which devalues the USD.I just don’t see how this Humpty Dumpty can be put back together again. We have gone over a cliff and are in free-fall. Hoping to hit a ledge (stimulus) on the way down.What is wrong with the above reasoning?

GuestFebruary 3rd, 2009 at 9:43 am

Once in a while someone on this blog asks, what is socialism? The government plan below is fascist socialism — to “have the taxpayer share in the cost of reducing mortgage payments…shielding lenders from default after they loosen loan terms for struggling borrowers.”As Samuel Gompers wrote in “Seventy Years of Life and Labor”: Socialism holds nothng but unhappiness for the human race. It destroys personal initiative, wipes out national pride…and even plays into the hands of the autocrats.” The autocrats are taxing the people to replenish their persosnal wealth, leveling all Americans to one low common denominator. The love of money is the root of their fascism — seizure and destruction of the economic life of America’s middle class their means.Obama Foreclosure-Relief Plan May Guarantee Rewritten LoansFeb. 3 (Bloomberg) — The Obama administration is considering government guarantees for home loans modified by their servicers, seeking to stem the record surge of foreclosures that’s hammering U.S. property values.The proposal, which may also have the taxpayer share in the cost of reducing mortgage payments, is aimed at shielding lenders from default after they loosen loan terms for struggling borrowers. Comptroller of the Currency John Dugan, who regulates national banks, said yesterday that “working out the details of it is still something that’s ongoing.”“We need to help more people stay in their homes” through helping mortgage lenders make more loan modifications, James Lockhart, director of the Federal Housing Finance Agency, said in an interview with Bloomberg Television yesterday. “I’m pleased that the new administration is starting to work on that area.”President Barack Obama’s team is preparing the biggest effort yet to arrest foreclosures, part of a three-pronged attack on the financial crisis that also aims at restarting business and consumer lending and overhauling regulation. As banks dump on the market the properties acquired through borrower defaults, they are contributing to the biggest slide in property values since the Great Depression.Bailout PlanTop officials continued their series of meetings yesterday as they examine options for the next phase of the government’s financial-industry bailout. The biggest challenge is finding a way to value banks’ toxic assets so that the government can buy or insure them while providing some limit to taxpayer losses, Dugan said. An announcement on the strategy may come early next week, an administration aide said.Treasury Secretary Timothy Geithner gathered with Dugan, Federal Reserve Chairman Ben S. Bernanke and Federal Deposit Insurance Corp. Chairman Sheila Bair. Geithner and White House economics director Lawrence Summers also met with House Financial Services Committee Chairman Barney Frank…http://www.bloomberg.com/apps/news?pid=20601087&sid=axbAdJ_Fb_ds&refer=home

FEDupFebruary 3rd, 2009 at 9:44 am

COME ON YOU DEEP THINKERS: WHY NOT allow everyone to temporatily reset their interest rate on mortgages, credit cards, car loans etc to 3-4% (immediately giving more money to people) and to double the amount of unemployment benefits (again this is more money to the people) and either nationalize the banks or chop them up into profitable entities and to let the unprofitable ones fail? These measures could be done immediately and have immediate effects on the economy. Should not every cent of the borrowing of the public’s money go directly back to the public?

jeff fisherFebruary 3rd, 2009 at 9:46 am

Time for change:We need an honest banking system with 100% reserves.Problem solved.Time for Banks to live in the real world and free market.Intervention fails and creates worse conditions.How many times must Mises be proven correct before we destroy our Society?

GuestFebruary 3rd, 2009 at 9:47 am

ZIRP and QE worked. Japanese started too late and that caused the lost decade. Read Professor’s article.It is true that money printing got us into this mess. Blame that on Republican free market lovers like yourself.Now Fed has no choice but to print more money to get us out of the trouble, if that still can be done. That is the right thing to do, just look at Japan and Sweden. Again, please read the article before commenting.

MedicFebruary 3rd, 2009 at 9:49 am

“But I’m near the end and I just ain’t got the timeAnd I’m wasted and I can’t find my way home.Come down on your own and leave your body alone.Somebody must change.You are the reason I’ve been waiting all these years.Somebody holds the key.But I’m near the end and I just ain’t got the timeAnd I’m wasted and I can’t find my way home.”- Blind Faith

GuestFebruary 3rd, 2009 at 9:51 am

For more information on the Trilateral Commission and Council of Forgein Relations and how its members ave dominated every presidency since Carter see -http://www.augustreview.com/news_commentary/trilateral_commission/obama:_trilateral_commission_endgame_20090127110/http://www.augustreview.com/news_commentary/u.s._elections/obama_and_mccain%3a_pawns_of_the_global_elite?_2008080597/http://www.augustreview.com/issues/globalization/the_trilateral_commission%3a_usurping_sovereignty_2007080373/

GuestFebruary 3rd, 2009 at 9:53 am

USA is not a Japan 2 because, for one thing, Japan does not spend endless amounts of their currency on their military;-)Pentagon may have protected USA physically but has destroyed it economically.HARTUNG/PREBLE: Defense doesn’t need stimulushttp://www.washingtontimes.com/news/2009/jan/28/defense-spending-doesnt-belong-in-stimulus-plan/

As the Obama administration and Congress move forward with a multifaceted economic-stimulus package with a price tag of hundreds of billions of dollars, yet another interest group has staked its claim to a share of those funds — the nation’s defense contractors.The arms lobby and its supporters in the think-tank world have made their case in a series of ads, articles and talking points. Martin Feldstein of the American Enterprise Institute describes defense spending as a “great stimulus.” Weekly Standard editor Bill Kristol agrees. Noting that the military was “spending all kinds of money already,” Mr. Kristol wondered aloud, “If you’re buying 2,000 Humvees a month, why not buy 3,000? If you’re refurbishing two military bases, why not refurbish five?”Such comments ignore that military spending is supposed to serve one central purpose: advancing U.S. security. The defense budget is not a jobs program, nor should it be….

economicminorFebruary 3rd, 2009 at 9:55 am

Imagine your in a car driving along a mountain road with drop offs of a thousand feet at 100 mph on a road that is only safe at 45. You miss a curve and go flying out into the space. 1000 feet below is a rocky ending and now you are wondering what to do?Here read this from the ContraryInvestor.com Monthly ObservationsWe have to much consumer debt and it is just starting to unwind.When a bunch of people go out on a spending spree and dine out at fancy restaurants and buy fancy cars and big houses that cost huge piles of money and their income doesn’t support this and then they borrow more to go on vacation and send their kids to school. All on borrowed money that they can’t possibly repay. (I know this is an exaggeration and some actually got into debt because of a broken down health care system and others for other good reasons but this is just a story).And the whole business community goes on a spending spree to supply them with new malls and new resorts and new golf courses to play on all with more borrowed money as if all their customers could actually afford all the stuff they were buying…And then the day comes when all these crazy people can’t make the payments on all their past expenditures and now you say no one know the right thing to do!That is a laugh! They are floating in the air, above a rocky crash and they didn’t even bring parachutes… What is going to happen? What can anyone do? Where is Superman or the Terminator or the Transformers or any one to save them?This thing is going to crash and there is nothing any one can do at this point. The best bet would be to print the money and send it out to everyone and let them pay down their bills with it instead of giving it to the banksters and insider traders.But the system is broken and those who pull the levers only know one thing and that is pay offs and bribes because that is what worked to get them where they are. They are so far up in their ivory towers above the clouds that they can not see the ground… Much less the wreck that is about to happen. They don’t realize that the cars that flew off the road is full of C4 and is headed for the base of their tower either… With an impact detonator.All you can do now is pray! As there really is no where to run to.

GuestFebruary 3rd, 2009 at 9:56 am

Sorry to hear about your financial loss. Unfortunately the whole system is more corrupt than anyone could have imagined. The situation is made more hopeless in that so far there is no discussion of bringing the criminals to justice.

GuestFebruary 3rd, 2009 at 9:59 am

More Profs To Leave Harvard For Obama | from the “Harvard Crimson”January 29, 2009 — Economics professor Jeremy C. Stein and Kennedy School professor Jeffrey B. Liebman will soon vacate their posts at Harvard to take positions with the administration of President Barack Obama, adding their names to a growing list of Harvard intellectuals headed for the nation’s capital.News of Stein’s decision to go “off to Washington” was included in an e-mail sent to economics graduate students on Tuesday…[Lawrence H.] Summers, the former University President, was named director of the National Economic Council in November.Stein, whose research has focused on subjects such as behavioral finance and stock market efficiency, will be joining Summers, Harvard Law School professor Cass R. Sunstein ’75, and a handful of other Harvard professors in the Obama administration.Liebman will also be in Washington—helping to oversee the policies and management of federal agencies as the new executive associate director of the president’s Office of Management and Budget.In the late 1990s, Liebman served as special assistant to the president for economic policy and coordinated the Clinton administration’s social security reform technical working group…Stein has been at Harvard since 2000, serving also as a research associate at the National Bureau of Economic Research in Cambridge, and, in 2008, as the president of the American Finance Association. Prior to Harvard, he spent ten years on the finance faculty of MIT’s Sloan School of Management…Owen A. Lamont, a visiting lecturer in the economics department who will take on Stein’s duties, said, “Harvard is a top university, there’s always going to be times when the country needs a Harvard professor.”http://www.thecrimson.com/article.aspx?ref=526216

economicminorFebruary 3rd, 2009 at 10:01 am

Professor,What is done with the mountains of consumer and business debts that can’t be serviced? How will fixing the banks fix this? Is it your thoughts that the banks can just go back to lending to people and businesses who already can’t pay their bills? Won’t the banks, through their traders, just use the liquidity to game commodities again? What else are they going to do with all this new liquidity if they have few borrowers who can repay? And won’t this just cause those on the margins to be insolvent even faster?

GuestFebruary 3rd, 2009 at 10:01 am

Doesn’t appear to be the “public’s” money anymore. We banked it in the U.S. Treasury and the bankers took it.

MorbidFebruary 3rd, 2009 at 10:05 am

Shrink Defense Spending By Halfg,If you shrink the defense spending by say half, how many jobs would be lost?I think it is high time for the rest of the free world, including Japan, to start spending their national treasure on defending themselves instead of the USA doing it for free.The same with Europe. Why should the USA stick their nose into the Iran bomb stuff – let Europe sort it out since Iran is on their doorstep.Further we should pull out of Afghanistan – let Russia, China, and India deal with the mess.

I don't get it - why is this so?February 3rd, 2009 at 10:20 am

Let’s say Bob the builder gets hired by a businessman to help build his new factory. In exchange for helping the businessman get started, does Bob get paid a cut of the businessman’s profits for the rest of his days? No. Bob will never see such a deal. The conservative scoffer out there who says such an arrangement would be absurd is quite correct; if you want to derive a continuing piece of the action, you need to make a continuing contribution.And yet Charles, the man who puts up the money – paper symbols of imaginary value – to pay Bob to build the factory DOES get this absurd deal. Charles gets income from the business for as long as he owns his shares. He helped get the business started, got that money back, and he makes profit without lifting another finger. Labor is daily, continuing help building the business, so why is Charles getting paid for help given ten years ago and Bob is not, while labor is working for stagnant and/or declining wages?

GuestFebruary 3rd, 2009 at 10:27 am

The people are being forced/tricked to give money directly to the banksters: the money isn’t even allowed to go through the hands of the people on its way to those at the top of the killer human pyramid. Why when the world is at stake can’t we just say globally that at LEAST for now no one is allowed to get more than a 2% return on ANY investment? The world could rejoice and relax!

economicminorFebruary 3rd, 2009 at 10:29 am

I don’t like it for multiple reasons.1/ it rewards bad thinking and bad planning2/ it interferes with the free market setting rates. Interest rates were suppose to be a factor in determining risk. So now high risk gets the same rate as NO risk?3/ Why have credit ratings if every one gets the same rate no matter how poor they are at repaying.4/ this assumes that the government can borrow at lower rates? Or does any one care if the government has to pay 6% or just print the money? Which when we buy over half our liquid fuel and many other resources from over seas, what happens to the real cost of things with this kind of policy? When oil goes back up to $100 or steel or copper or TV’s go way up and the consumer gets squeezed by rising prices, then what? Lower the rates to 0%… This does nothing to positive long term so what’s the point? It may do nothing short term as there is to much inventory and wages and incomes are declining… So the most likely scenario is for real estate to continue to decline and foreclosure to continue no matter what…This is just a smoke in mirror BS Orwellian no fix fix to make people think that something can be done. And what is wrong, like transparency, trust, and all the real problems with why things don’t work right are just being ignored…I say, give it up! Quit wasting every ones time and money!This does nothing to fix why GM can’t make a profit or why hospitals are laying off and can’t make a profit or why Intel is closing down US plants while keeping their new one open in Vietnam, etc..

economicminorFebruary 3rd, 2009 at 10:31 am

I think we may need to bring them home to defend us against the Mexican Cartels who are ravaging Mexico. When they get through there, where will they come next?

GuestFebruary 3rd, 2009 at 10:31 am

Frankly, being that Humpty Dumpty is America’s parasitic Federal Reserve “System” that temporarily has attached itself to the U.S. Treasury, I hope the rotten old egg does fall and smashes to smithereens and that all the President’s horses, and all the President’s men, [can’t] put Humpty together again!It’s fitting that “Humpty Dumpty was in fact an unusually large canon which was mounted on the protective wall of “St. Mary’s Wall Church” in Colchester, England. It was intended to protect the Parliamentarian stronghold of Colchester which was temporarily in the control of the Royalists during the period of English history, described as the English Civil War ( 1642 – 1649). A shot from a Parliamentary canon succeeded in damaging the wall underneath Humpty Dumpty causing the canon to fall to the ground. The Royalists ‘all the King’s men’ attempted to raise Humpty Dumpty on to another part of the wall but even with the help of ‘ all the King’s horses’ failed in their task and Colchester fell to the Parliamentarians after a siege lasting eleven weeks.”http://www.famousquotes.me.uk/nursery_rhymes/humpty_dumpty.htm

GuestFebruary 3rd, 2009 at 10:34 am

jobs in the destruction-of-earth-and-people-and-freedom industry need to be lost. there is productive work we need to be doing urgently, and the US military is the biggest energy user-upper ever by FAR.it’s past time to starve lockheed martin to death.”How long will we hear people speaking of weapons for peace and just let it go by – it’s a lie” – Jackson Browne from World in Motion

I don't get this, either. Why is it this way?February 3rd, 2009 at 10:39 am

And why do working people fund the government by paying tax money they’ll never get back, while the leisure class gets to fund the governmemnt by lending it money they get back with interest??

FEDupFebruary 3rd, 2009 at 10:39 am

I didn’t expect anyone to actually like it, but the question is would this not be more fair and benefit more people than what our illustrious leaders are proposing? Do you think we would have more consumer spending using this method or from the twisted, impotent plan that our govt is working on?

AnonymousFebruary 3rd, 2009 at 10:53 am

Laboring already under the consummated Fascist Tyranny of the moneypowers, we’re worried about socialism?

TfTFebruary 3rd, 2009 at 11:11 am

Why are there so many tax cheats nominated? Though this one is the FIRST (finally) to withdraw the nomination.From NY Times

President Obama’s choice for the position of chief White House performance officer has withdrawn from consideration for the post, an administration official said Tuesday, after coming forward with concerns about her tax returns.Nancy Killefer, appointed by the president last month to a new position to scrutinize government spending, told the administration on Monday that she intended to step down from the position at the Office of Management and Budget. An administration official, speaking on condition of anonymity because the announcement was not finalized, confirmed that Ms. Killefer’s withdrawal came because of questions with her taxes. Update: In her resignation letter to Mr. Obama, she described the problem as a tax-related issue stemming from Washington, D.C. unemployment.

It seems no surprise about the double standards regarding tax cheats from NY Times editorials. Cheats are just cheats.NY Times Editorial for Turbo Timmy (for Treasury)NY Times Editorial for Tom Daschle (for Health and Human Services)

AnonymousFebruary 3rd, 2009 at 11:14 am

Re: this quote from the article”a systemic debt overhang requires an across the board debt reduction (as in Mexico and Argentina) “Does anyone have a link to explain what this was? Tried Googling it, can’t find it. What is it shorthand for? Curious to know what specific steps Mexico & Argentina implemented for their across the board debt reduction.

GuestFebruary 3rd, 2009 at 11:31 am

The parasitic banker financials are sinking. They are insolvent. They went over the cliff and are hanging by their fingernails. Else why would they take such chances fanning taxpayer fury? It is one thing to take the taxpayers’ money; it’s another to destroy the host.America’s banking system is swirling down the drain, attempting to suck the people down with it. Thankfully, taxpayer resistance is building.Gallop shows Obama’s ratings have dropped 16% in two weeks—the trend is downward. We thought we were electing a man of the people. We didn’t know we were electing a pseudo financial “expert.” Obama doesn’t know anything about banking—he doesn’t even read it well.I could read what he’s saying. I could handle leveraging and debt transference and bad bank nomenclature if you wrote it out for me. You’d think I was a Stern School of Business graduate after I was through. I have a good radio voice. But it doesn’t make me an expert on banking.Summer’s economic team of experts would flummox me, every time! Parallellism?

JamesFebruary 3rd, 2009 at 11:46 am

I’m assuming these are Summers’ picks. I hope they aren’t ideological clones of Summers. We need some people in there with different opinions on things. Like some people willing to Nationalize the banks.

economicminorFebruary 3rd, 2009 at 11:50 am

I don’t think it would be any different. Just another way to try and continue what is not supportable/sustainable. Lock a person in at 4% and take away their right to a non recourse loan… It would be stupid for someone to do that in this environment. And many are so we just have more tragedy.

GuestFebruary 3rd, 2009 at 11:51 am

“Cures for Our Economic Disease”by Ron PaulI have recently had several opportunities on various news programs to discuss the economy and what is wrong with the so-called economic stimulus package. I have said over and over what we shouldn’t be doing, and now I’d like to explain what we should be doing.But to improve the situation, you must first have a solid grasp of how we got here. Government policies and central planning created the housing bubble, now going bust. About a decade ago the government made expanded homeownership and affordable housing a public goal. Through Fannie Mae, Freddie Mac and the secondary mortgage market the government incentivized creative, low down-payment, more widely available mortgage products, and discouraged the market-proven lending standards of the past. The Federal Reserve kept interest rates artificially low, which added more fuel to this fire. Many related sectors temporarily flourished because of this, and many people got into homes they otherwise could not have afforded. The increased demand for housing sent prices soaring until in many markets housing became even more unaffordable, necessitating even more creative mortgages, and impossibly leveraging homeowners. Many risky investment vehicles such as mortgage-backed securities, derivatives, credit default swaps grew out of this unsustainable situation. As the foreclosures began, the house of cards started to tumble. Too many people have confused the symptoms and the pain of the bust with the problematic policies that caused the bubble, which is really what needs to be treated.First of all, just as the best cure for a hangover is not to drink so much, the best cure for a recession is a recession. It is time to sober up and return to free market sanity, risk and reward, supply and demand, without political intervention. Politicians are good at catering to the needs of special interests, but very bad at determining what needs to take place in the market. Government should stick to punishing fraud and enforcing contracts. When they use the tax code, bureaucratic departments and their manipulative rules and regulations to dictate social and economic behavior, we end up with distortions and malinvestments. Bailing out banks, continuing failed Fed policies and strapping the taxpayer with toxic debt will worsen the pain, and punish the innocent.If Congress really wanted to do something helpful, it would cut taxes. Ideally, we would repeal the income tax altogether and get the IRS off the economy’s back, which would be a huge boon.We should also cut spending. Cut every unconstitutional department and program, every wasteful governmental encroachment on the people’s liberty and money, starting with our massive overseas empire. The cost of our empire is bringing us to our knees, just as the Soviets’ empire did to them. Congress should also abolish the Federal Reserve and take back its responsibilities to ensure sound money, safe from the manipulations of powerful banking interests.These things would constitute real change, real economic stimulus. The plans being bandied about Washington are just more of the same. As long as no one seriously considers the cure, we are unfortunately destined to prolong the disease.

economicminorFebruary 3rd, 2009 at 11:59 am

What don’t you get? A sytemic debt overhang is waaaaaaay toooooo much debt to be serviced! Usually ending in default, foreclosure and or bankruptcy.And an across the board debt reduction is major write downs… probably after foreclosure or during bankruptcy…Both Mexico and Argentina went through this as governments. The US is going through this as consumers and next businesses.

ptmFebruary 3rd, 2009 at 12:10 pm

JOHN WILLIAMS’ SHADOW GOVERNMENT STATISTICS – FLASH UPDATE – February 3, 2009 – Unusual Features in Upcoming Employment Report Could Exacerbate Reported Monthly Decline – Annualized January M3 Growth Likely to Top 12% – Economic Freefall Eventually Sees Some Bottom-Bouncing

Messrs. Bernanke and Geithner need to maintain a stable or relatively strong U.S. dollar in the still-evolving systemic solvency crisis, and such requires contained inflation numbers and stronger economic data than might be expected in the now recognized recession. With the systemic crisis remaining a threat to national security, almost anything remains possible in the arena of data and market manipulations. Data and market manipulations remain extremely inexpensive and effective policy tools, but their use presumably depends to a certain degree on perceived financial-market vulnerability.

GloomyFebruary 3rd, 2009 at 12:10 pm

Nouriel,Great post!! I’d love to hear more on the ramifications of the coming failures in treasury auctions as well as how dollar devaluation should take place.

GuestFebruary 3rd, 2009 at 12:13 pm

So basically, he wants to do what Hoover did, which was to do nothing but try to balance the budget and “let the market work itself out”. Four years of doing this under Hoover did not help and the depression just malingered. Purchasing power is currently shot. There will not be any kind of recovery until purchasing power of the middle class is restored.

ptmFebruary 3rd, 2009 at 12:14 pm

Regardless of how much hope the country has placed in Obama, he has ushered in the second team and we are still playing the same economic football game as we did with Bush.

Little SaverFebruary 3rd, 2009 at 12:29 pm

It seems to be difficult to find high rankers who are free of tax errors. You can use the argument of “honest mistake” once. If you have to use it three times (for Nancy Killefer also), you can’t escape using it a fourth time, when average Jane is claiming forgiveness on this basis. And a fifth time, 6th, 7th,… until everone is forgiven his honest tax mistakes.

GuestFebruary 3rd, 2009 at 12:35 pm

you don’t think having 20-30% of your income restored to you would restore some of your “purchasing power”?

GuestFebruary 3rd, 2009 at 12:36 pm

Well of course his ratings will fall off at such a pace. After all, any person who can actually speak a sentence in correct English and actually articulate ideas will seem like a genius in comparison to what came before.I’ve heard commentators who predicted the public who begin to lose faith in Obama soon after the election since the length of economic cycles doesn’t compute in a mind simplified by the psychology of instant gratification.

psychonomistFebruary 3rd, 2009 at 12:40 pm

I was wondering if anyone out there has any thoughts on what the “straw that breaks the camel’s back” will be in regards to the public’s psyche.It seems to me that right now, most Americans are still in some sort of denial regarding the situation as it stands. What will cause the masses to panic? What event will open the eyes of the blind? What will be the trigger that starts the stampede to the exits?Interested to hear your thoughts…

GuestFebruary 3rd, 2009 at 12:43 pm

@James: “I’m assuming these are Summers’ picks [Jeremy C. Stein and Jeffrey B. Liebman]. I hope they aren’t ideological clones of Summers. We need some people in there with different opinions on things. Like some people willing to Nationalize the banks.”A name, such as “Nationalize,” is one thing, but like all things, it’s meaningless without the details, as is meaningless the “explanation” that comes with the legislation without the details.The reason for all legislation will be found in the details. And the bankers write the details, not their toadies such as Geithner, who’s merely a baby-faced errand boy. A bill can be called by any name — recovery package, stimulus, hope for the homeowners, whatever. But the ropes that bind the people are written by the banking committees in the House and Senate with 99.9% help from the bankers who write the legislation, who draft the details that bind, the details that confiscate, that provide the money, that eliminate all accountability.As someone just said here, the Devil is in the details.

AnonymousFebruary 3rd, 2009 at 12:50 pm

There’s no mystery here: Bob will probably get paid for his work, but Charles stands to lose everything he invests. Charles could opt instead to make a profit “without lifting another finger” by stashing his money in the bank; the businessman has to give Charles a better deal to make up for the risk.

GuestFebruary 3rd, 2009 at 12:50 pm

Could another sudden drop in the equities markets cause another rush to safety ie. Treasuries? Isn’t this what happened back in the fall? I’m just a novice who’s been trying to pay attention.

FEDupFebruary 3rd, 2009 at 12:52 pm

My guess is: 1. if oil goes to $80/barrel or 2. if gold breaks out to $1200 or 3. if Bank America goes under $5/share (currently $5.33)or 4. if unemployment hits 10% or 5. if GDPdrops to -0.5% end of this quarter. This would be enough to convince all but the blind, deaf and dumb that we are in a prolonged recession/depression for years to come.

SoftwarengineerFebruary 3rd, 2009 at 12:54 pm

JAPAN AT LEAST HAD AMERICA BUYING STUFF FROM THEM TOOWho buys stuff from us? Last I heard, even the small country of Germany exports more than America, that says it all.But the American Chamber of Commerce will tell you that exporting is good for a country’s economy and “Buy American” provisions in stimulus bill will destroy our economy.What is the American Chamber of Commerce smoking?Its clear to me; if Japan went in to a “L” shaped recession with massive export funding pouring in to its country, America’s “L” shaped depression will be FAR worse.

AnonymousFebruary 3rd, 2009 at 1:03 pm

Perhaps if they did a tax check on all members of congress all would have to resign.Oh for such small favors.AM

?February 3rd, 2009 at 1:11 pm

But you can only pay for risk until Charles has got his money back. At that point his risk is gone/there is no risk. So risk cannot be the justification for the profit Charles gets, right? And doesn’t Charles buy insurance against his risk anyway?

GuestFebruary 3rd, 2009 at 1:20 pm

More deja vu. James P. WArburg, FDR’s financail adviser, said the same thing to him in 1933 re triage of solvent and insolvent banks. Of course it is the correct course. But it was not political for the president to take that advice . . . and look where we got. Is Obama any wiser?Let us pray.

GuestFebruary 3rd, 2009 at 1:21 pm

Ron Paul and I draw sometimes very different conclusions about just what the legitimate functions of government are, but I could hardly agree with him more about both abolishing the fed reserve and starting any spending cuts with cutting our massive overseas empire.Without these two steps I don’t think there is any recovery to be had.

OnionFebruary 3rd, 2009 at 1:26 pm

Ha Ha, I reread the article on your advice. Nowhere is there EVIDENCE that QE/ ZIRP worked. Just the assumption that it did. And the presumption that Japan would have been better off if they did it earlier.What we DO know about ZIRP is it coincided/ caused the carry trade that flooded the World with dollars driving asset prices high everywhere. Everyone mentions Greenspan’s 1% interest rates as a proximate cause of the credit bubble. But it wasn’t just that. Hedge fund debt grew exponentially during the years of the carry trade. And the global financial system predicated on 0% Yen rates collapsed when the carry trade stopped in July 2007.My point is just one country going to ZIRP wreaked havoc on a global scale. And now we will see several major economies pursue the same policy – it is impossible to predict what will happen. 0% interest rates are an abomination of Nature! A dollar in my pocket today IS worth more than a dollar tomorrow.Bernanke may have been a student of the Great Depression, but judging by his ‘helicopter’ speech, he shouldn’t have got a passing grade.

GuestFebruary 3rd, 2009 at 1:32 pm

This will be worse than Japan since the problem is greater. Rouinis solution is to inflate the bubble again with low interestrates etc. It will not work.The market will force interesrates up north. Such a demand of money we see right now will end in much higher interestrates and if US starts o monetize it’s debts then I presume interestrates will climb to the sky.

GuestFebruary 3rd, 2009 at 1:35 pm

“Imagine you’re in a car driving along a mountain road with drop offs of a thousand feet at 100 mph on a road that is only safe at 45. You miss a curve and go flying out into the space. 1000 feet below is a rocky ending and now you are wondering what to do?”I know what I’d do.I’d wake up Dave.Who’s Dave?He’s that guy asleep in the back seat.What would Dave do?Oh, He wouldn’t do anything.Why wouldn’t he do something?Because there’s nothing he can do.Then why would you wake him up?Because Dave ain’t never seen a wreck like this before.

SoftwarengineerFebruary 3rd, 2009 at 1:48 pm

DOMESTIC INDUSTRIAL BASE JOBS CREATE 3-4 MORE JOBSAnd they all pay federal income tax.Hades, we could make bombs and planes; then disemble them….it would TOTALLY pay for itself in tax revenue and we’d have JOBS.But that makes no sense to the “globalist clowns” in America; they keep telling us exporting and more and more debt is the path to prosperity….lol…..please explain to me why the rest of the world exports predominantly and we must only import?And if we become like the rest of the world, we’re protectionist? LOL

Octavio RichettaFebruary 3rd, 2009 at 1:54 pm

Watz going on in Japan, US, Europe, rest of Asia, Emerging Markets and those below appears to be the beginning of the fulfillment of the prophesy by the Nostradamus of economics: Karl Marx.http://en.wikipedia.org/wiki/Karl_MarxIt looks like he may have got the first part of his prediction right: The death of capitalism.I am not so sure communism as we know it will be the socioeconomic system that will replace capitalism. But after much pain, a system that is less cutthroat, less Darwin like, should emerge. After all, it would appear that we are a evolved than monkeys.

ranManFebruary 3rd, 2009 at 2:03 pm

Banksters….not bankers…..you know the only thing a banker can say with confidence??????……………No!

GuestFebruary 3rd, 2009 at 2:07 pm

did you fail history, or economics? or both? many of the “cures” FDR incorporated were Hoover’s and they had nothing to do with restoring the purchasing power of the middle class.

painterFebruary 3rd, 2009 at 2:27 pm

from where i sit and one in three is way to high. how can i feed and house my children. it is hard right now. contracts have canceled. 22 yrs in business and i never felt any hic-cup from previous ups and downs. this is the hardest time i have ever expirenced

BKFebruary 3rd, 2009 at 2:40 pm

Blind Faith. Eric Clapton…nice!They had that amazing drummer but his name escapes me. His drum solos, man…just awesome.

GuestFebruary 3rd, 2009 at 2:54 pm

Survival of the fittest will always be the case. It is the definition of fitness that is not always clear.doc

Americans don't know Bill Blum, but shouldFebruary 3rd, 2009 at 3:52 pm

The Anti-Empire ReportFebruary 3rd, 2009by William Blumwww.killinghope.orgChange (in rhetoric) we can believe in.I’ve said all along that whatever good changes might occur in regard to non-foreign policy issues, such as what’s already taken place concerning the environment and abortion, the Obama administration will not produce any significantly worthwhile change in US foreign policy; little done in this area will reduce the level of misery that the American Empire regularly brings down upon humanity. And to the extent that Barack Obama is willing to clearly reveal what he believes about anything controversial, he appears to believe in the empire.The Obamania bubble should already have begun to lose some air with the multiple US bombings of Pakistan within the first few days following the inauguration. The Pentagon briefed the White House of its plans, and the White House had no objection. So bombs away — Barack Obama’s first war crime. The dozens of victims were, of course, all bad people, including all the women and children. As with all these bombings, we’ll never know the names of all the victims — It’s doubtful that even Pakistan knows — or what crimes they had committed to deserve the death penalty. Some poor Pakistani probably earned a nice fee for telling the authorities that so-and-so bad guy lived in that house over there; too bad for all the others who happened to live with the bad guy, assuming of course that the bad guy himself actually lived in that house over there.The new White House press secretary, Robert Gibbs, declined to answer questions about the first airstrikes, saying “I’m not going to get into these matters.”1 Where have we heard that before?After many of these bombings in recent years, a spokesperson for the United States or NATO has solemnly declared: “We regret the loss of life.” These are the same words used by the Irish Republican Army (IRA) on a number of occasions, but their actions were typically called “terrorist”.I wish I could be an Obamaniac. I envy their enthusiasm. Here, in the form of an open letter to President Obama, are some of the “changes we can believe in” in foreign policy that would have to occur to win over the non-believers like me.IranJust leave them alone. There is no “Iranian problem”. They are a threat to no one. Iran hasn’t invaded any other country in centuries. No, President Ahmadinejad did not threaten Israel with any violence. Stop patrolling the waters surrounding Iran with American warships. Stop halting Iranian ships to check for arms shipments to Hamas. (That’s generally regarded as an act of war.) Stop using Iranian dissident groups to carry out terrorist attacks inside Iran. Stop kidnaping Iranian diplomats. Stop the continual spying and recruiting within Iran. And yet, with all that, you can still bring yourself to say: “If countries like Iran are willing to unclench their fist, they will find an extended hand from us.”2Iran has as much right to arm Hamas as the US has to arm Israel. And there is no international law that says that the United States, the UK, Russia, China, Israel, France, Pakistan, and India are entitled to nuclear weapons, but Iran is not. Iran has every reason to feel threatened. Will you continue to provide nuclear technology to India, which has not signed the nuclear Non-Proliferation Treaty, while threatening Iran, an NPT signatory, with sanctions and warfare?RussiaStop surrounding the country with new NATO members. Stop looking to instigate new “color” revolutions in former Soviet republics and satellites. Stop arming and supporting Georgia in its attempts to block the independence of South Ossetia and Abkhasia, the breakaway regions on the border of Russia. And stop the placement of anti-missile systems in Russia’s neighbors, the Czech Republic and Poland, on the absurd grounds that it’s to ward off an Iranian missile attack. It was Czechoslovakia and Poland that the Germans also used to defend their imperialist ambitions — The two countries were being invaded on the grounds that Germans there were being maltreated. The world was told.”The U.S. government made a big mistake from the breakup of the Soviet Union,” said former Soviet leader Mikhail Gorbachev last year. “At that time the Russian people were really euphoric about America and the U.S. was really number one in the minds of many Russians.” But, he added, the United States moved aggressively to expand NATO and appeared gleeful at Russia’s weakness.3CubaMaking it easier to travel there and send remittances is very nice (if, as expected, you do that), but these things are dwarfed by the need to end the US embargo. In 1999, Cuba filed a suit against the United States for $181.1 billion in compensation for economic losses and loss of life during the almost forty years of this aggression. The suit held Washington responsible for the death of 3,478 Cubans and the wounding and disabling of 2,099 others. We can now add ten more years to all three figures. The negative, often crippling, effects of the embargo extend into every aspect of Cuban life.In addition to closing Guantanamo prison, the adjacent US military base established in 1903 by American military force should be closed and the land returned to Cuba.The Cuban Five, held prisoner in the United States for over 10 years, guilty only of trying to prevent American-based terrorism against Cuba, should be released. Actually there were 10 Cubans arrested; five knew that they could expect no justice in an American court and pled guilty to get shorter sentences.4IraqFreeing the Iraqi people to death … Nothing short of a complete withdrawal of all US forces, military and contracted, and the closure of all US military bases and detention and torture centers, can promise a genuine end to US involvement and the beginning of meaningful Iraqi sovereignty. To begin immediately. Anything less is just politics and imperialism as usual. In six years of war, the Iraqi people have lost everything of value in their lives. As the Washington Post reported in 2007: “It is a common refrain among war-weary Iraqis that things were better before the U.S.-led invasion in 2003.”5 The good news is that the Iraqi people have 5,000 years experience in crafting a society to live in. They should be given the opportunity.Saudi ArabiaDemand before the world that this government enter the 21st century (or at least the 20th), or the United States has to stop pretending that it gives a damn about human rights, women, homosexuals, religious liberty, and civil liberties. The Bush family had long-standing financial ties to members of the Saudi ruling class. What will be your explanation if you maintain the status quo?HaitiReinstate the exiled Jean Bertrand Aristide to the presidency, which he lost when the United States overthrew him in 2004. To seek forgiveness for our sins, give the people of Haiti lots and lots of money and assistance.ColombiaStop giving major military support to a government that for years has been intimately tied to death squads, torture, and drug trafficking; in no other country in the world have so many progressive candidates for public office, unionists, and human-rights activists been murdered. Are you concerned that this is the closest ally the United States has in all of Latin America?VenezuelaHugo Chavez may talk too much but he’s no threat except to the capitalist system of Venezuela and, by inspiration, elsewhere in Latin America. He has every good historical reason to bad-mouth American foreign policy, including Washington’s role in the coup that overthrew him in 2002. If you can’t understand why Chavez is not in love with what the United States does all over the world, I can give you a long reading list.Put an end to support for Chavez’s opposition by the Agency for International Development, the National Endowment for Democracy, and other US government agencies. US diplomats should not be meeting with Venezuelans plotting coups against Chavez, nor should they be interfering in elections.Send Luis Posada from Florida to Venezuela, which has asked for his extradition for his masterminding the bombing of a Cuban airline in 1976, taking 73 lives. Extradite the man, or try him in the US, or stop talking about the war on terrorism.And please try not to repeat the nonsense about Venezuela being a dictatorship. It’s a freer society than the United States. It has, for example, a genuine opposition daily media, non-existent in the United States. If you doubt that, try naming a single American daily newspaper or TV network that was unequivocally against the US invasions of Iraq, Afghanistan, Yugoslavia, Panama, Grenada, and Vietnam. Or even against two of them? How about one? Is there a single one that supports Hamas and/or Hezbollah? A few weeks ago, the New York Times published a story concerning a possible Israeli attack upon Iran, and stated: “Several details of the covert effort have been omitted from this account, at the request of senior United States intelligence and administration officials, to avoid harming continuing operations.”6Alas, Mr. President, among other disparaging remarks, you’ve already accused Chavez of being “a force that has interrupted progress in the region.”7 This is a statement so contrary to the facts, even to plain common sense, so hypocritical given Washington’s history in Latin America, that I despair of you ever freeing yourself from the ideological shackles that have bound every American president of the past century. It may as well be inscribed in their oath of office — that a president must be antagonistic toward any country that has expressly rejected Washington as the world’s savior. You made this remark in an interview with Univision, Venezuela’s leading, implacable media critic of the Chavez government. What regional progress could you be referring to, the police state of Colombia?BoliviaStop American diplomats, Peace Corps volunteers, Fulbright scholars, and the U.S. Drug Enforcement Administration, from spying and fomenting subversion inside Bolivia. As the first black president of the United States, you could try to cultivate empathy toward, and from, the first indigenous president of Bolivia. Congratulate Bolivian president Evo Morales on winning a decisive victory on a recent referendum to approve a new constitution which enshrines the rights of the indigenous people and, for the first time, institutes separation of church and state.AfghanistanPerhaps the most miserable people on the planet, with no hope in sight as long as the world’s powers continue to bomb, invade, overthrow, occupy, and slaughter in their land. The US Army is planning on throwing 30,000 more young American bodies into the killing fields and is currently building eight new major bases in southern Afghanistan. Is that not insane? If it makes sense to you I suggest that you start the practice of the president accompanying the military people when they inform American parents that their child has died in a place called Afghanistan.If you pull out from this nightmare, you could also stop bombing Pakistan. Leave even if it results in the awful Taliban returning to power. They at least offer security to the country’s wretched, and indications are that the current Taliban are not all fundamentalists.But first, close Bagram prison and other detention camps, which are worse than Guantanamo.And stop pretending that the United States gives a damn about the Afghan people and not oil and gas pipelines which can bypass Russia and Iran. The US has been endeavoring to fill the power vacuum in Central Asia created by the Soviet Union’s dissolution in order to assert Washington’s domination over a region containing the second largest proven reserves of petroleum and natural gas in the world. Is Afghanistan going to be your Iraq?IsraelThe most difficult task for you, but the one that would earn for you the most points. To declare that Israel is no longer the 51st state of the union would bring down upon your head the wrath of the most powerful lobby in the world and its many wealthy followers, as well as the Christian-fundamentalist Right and much of the media. But if you really want to see peace between Israel and Palestine you must cut off all military aid to Israel, in any form: hardware, software, personnel, money. And stop telling Hamas it has to recognize Israel and renounce violence until you tell Israel that it has to recognize Hamas and renounce violence.North KoreaBush called the country part of “the axis of evil”, and Kim Jong Il a “pygmy” and “a spoiled child at a dinner table.”8 But you might try to understand where Kim Jong Il is coming from. He sees that UN agencies went into Iraq and disarmed it, and then the United States invaded. The logical conclusion is not to disarm, but to go nuclear.Central AmericaStop interfering in the elections of Nicaragua, El Salvador and Guatemala, year after year. The Cold War has ended. And though you can’t undo the horror perpetrated by the United States in the region in the 1980s, you can at least be kind to the immigrants in the US who came here trying to escape the long-term consequences of that terrible decade.VietnamIn your inauguration speech you spoke proudly of those “who have carried us up the long, rugged path towards prosperity and freedom … For us, they fought and died, in places like … Khe Sanh.” So it is your studied and sincere opinion that the 58,000 American sevicemembers who died in Vietnam, while helping to kill over a million Vietnamese, gave their life for our prosperity and freedom? Would you care to defend that proposition without resort to any platitudes?You might also consider this: In all the years since the Vietnam War ended, the three million Vietnamese suffering from diseases and deformities caused by US sprayings of the deadly chemical “Agent Orange” have received from the United States no medical attention, no environmental remediation, no compensation, and no official apology.KosovoStop supporting the most gangster government in the world, which has specialized in kidnaping, removing human body parts for sale, heavy trafficking in drugs, trafficking in women, various acts of terrorism, and ethnic cleansing of Serbs. This government would not be in power if the Bush administration had not seen them as America’s natural allies. Do you share that view? UN Resolution 1244, adopted in 1999, reaffirmed the sovereignty and territorial integrity of the former Federal Republic of Yugoslavia to which Serbia is now the recognized successor state, and established that Kosovo was to remain part of Serbia. Why do we have a huge and permanent military base in that tiny self-declared country?NATOFrom protecting Europe against a [mythical] Soviet invasion to becoming an occupation army in Afghanistan. Put an end to this historical anachronism, what Russian leader Vladimir called “the stinking corpse of the cold war.”9. You can accomplish this simply by leaving the organization. Without the United States and its never-ending military actions and officially-designated enemies, the organization would not even have the pretense of a purpose, which is all it has left. Members have had to be bullied, threatened and bribed to send armed forces to Afghanistan.School of the AmericasLatin American countries almost never engage in war with each other, or any other countries. So for what kind of warfare are its military officers being trained by the United States? To suppress their own people. Close this school (the name has now been changed to protect the guilty) at Ft. Benning, Georgia that the United States has used to prepare two generations of Latin American military officers for careers in overthrowing progressive governments, death squads, torture, holding down dissent, and other charming activities. The British are fond of saying that the Empire was won on the playing fields of Eton. Americans can say that the road to Abu Ghraib, Guantanamo, and Bagram began in the classrooms of the School of the Americas.TortureYour executive orders concerning this matter of utmost importance are great to see, but they still leave something to be desired. They state that the new standards ostensibly putting an end to torture apply to any “armed conflict”. But what if your administration chooses to view future counterterrorism and other operations as not part of an “armed conflict”? And no mention is made of “rendition” — kidnaping a man off the street, throwing him in a car, throwing a hood over his head, stripping off his clothes, placing him in a diaper, shackling him from every angle, and flying him to a foreign torture dungeon. Why can’t you just say that this and all other American use of proxy torturers is banned? Forever.It’s not enough to say that you’re against torture or that the United States “does not torture” or “will not torture”. George W. Bush said the same on a regular basis. To show that you’re not George W. Bush you need to investigate those responsible for the use of torture, even if this means prosecuting a small army of Bush administration war criminals.You aren’t off to a good start by appointing former CIA official John O. Brennan as your top adviser on counterterrorism. Brennan has called “rendition” a “vital tool” and praised the CIA’s interrogation techniques for providing “lifesaving” intelligence.10 Whatever were you thinking, Barack?Abdelbaset Ali Mohmed al MegrahiFree this Libyan man from his prison in Scotland, where he is serving a life sentence after being framed by the United States for the bombing of PanAm flight 103 in December 1988, which took the lives of 270 people over Scotland. Iran was actually behind the bombing — as revenge for the US shooting down an Iranian passenger plane in July, killing 290 — not Libya, which the US accused for political reasons.11 Nations do not behave any more cynical than that. Megrahi lies in prison now dying of cancer, but still the US and the UK will not free him. It would be too embarrassing to admit to 20 years of shameless lying.Mr. President, there’s a lot more to be undone in our foreign policy if you wish to be taken seriously as a moral leader like Martin Luther King, Jr.: banning the use of depleted uranium, cluster bombs, and other dreadful weapons; joining the International Criminal Court instead of trying to sabotage it; making a number of other long-overdue apologies in addition to the one mentioned re Vietnam; and much more. You’ve got your work cut out for you if you really want to bring some happiness to this sad old world, make America credible and beloved again, stop creating armies of anti-American terrorists, and win over people like me.And do you realize that you can eliminate all state and federal budget deficits in the United States, provide free health care and free university education to every American, pay for an unending array of worthwhile social and cultural programs, all just by ending our wars in Iraq and Afghanistan, not starting any new ones, and closing down the Pentagon’s 700+ military bases? Think of it as the peace dividend Americans were promised when the Cold War would end some day, but never received. How about you delivering it, Mr. President? It’s not too late.But you are committed to the empire; and the empire is committed to war. Too bad.NotesWashington Post, January 24, 2009 ↩Interview with al Arabiya TV, January 27, 2009 ↩Gorbachev speaking in Florida, South Florida Sun-Sentinel, April 17, 2008 ↩http://www.killinghope.org/bblum6/polpris.htm ↩Washington Post, May 5, 2007, p.1 ↩New York Times, January 11, 2009 ↩Washington Post, January 19, 2009↩Newsweek, May 27, 2002 ↩Press Trust of India (news agency), December 21, 2007 ↩Washington Post, November 26, 2008 ↩http://www.killinghope.org/bblum6/panam.htm ↩–William Blum is the author of:Killing Hope: US Military and CIA Interventions Since World War 2Rogue State: A Guide to the World’s Only SuperpowerWest-Bloc Dissident: A Cold War MemoirFreeing the World to Death: Essays on the American EmpirePortions of the books can be read, and signed copies purchased, at http://www.killinghope.orgPrevious Anti-Empire Reports can be read at this website.To add yourself to this mailing list simply send an email to bblum6@aol.com with “add” in the subject line. I’d like your name and city in the message, but that’s optional. I ask for your city only in case I’ll be speaking in your area.Any part of this report may be disseminated without permission. I’d appreciate it if the website were mentioned.

GuestFebruary 3rd, 2009 at 4:00 pm

Why are these stocks still listed as part of the DOW Jones Industrials when they are NEAR or BELOW $5/share:Bank of America $5.30Citigroup $3.46General Motors $2.85

paFebruary 3rd, 2009 at 4:16 pm

The Humber College seniors made contact with the International Space Station Monday with a radio system they designed and built themselves…the team sent their signal into space at about 12:29 p.m. Monday.The first message got no response, but after a crackle of static and a second attempt, the voice of astronaut Sandra Magnus filled the room, and the excited students peppered her with questions…One student asked how well the International Space Station is protected from debris, while another wanted to know how it feels to see Earth from space.“Up here I’ve seen the world from a different viewpoint,” Ms. Magnus replied. “I see it as a whole system, I don’t see it as a group of individual people or individual countries.“We are one huge group of people and we’re all in it together.”globe and mail

GuestFebruary 3rd, 2009 at 4:21 pm

the word “protectionism” should be used in relation to the planet … and if all are caretakers then we are all employed

MichaelFebruary 3rd, 2009 at 4:26 pm

Various analysts blame one of the following for the extreme expansion of the credit bubble – with all its attendant problems – during the last decade:1. Japan’s carry trade2. Greenspan’s low Fed rates3. China’s buying of U.S. public & private debtThe most convincing analysts assert that all three played a mutually-reinforcing role in the growth of the bubble. Much greater than any of these factors (each of which was a limited process intended to achieve a specific goal, and two of which were specifically directed at combatting real or percieved deflation) was a global mania (originated as the Anglo-American neo-liberal model) to reduce government restraint on financial speculation, maximize enterprise profits, expand production and consumption, and explode the quantity of credit available to achieve these ends. No one within the neo-liberal school, which came to dominate official decision-making worldwide, would permit discussion of the problems this might lead to – including massive stag-deflation from the bursting of the bubble, because official neo-liberal doctrine claimed that markets self-regulate speculation for the common good, and only government regulation creates limits to aggregate profit, production, consumption and the glories of credit. It’s the mind set – the mania – that produced this bust; blame anyone and everyone you want for this mess (except the rare government, business, or household that took on no debt and financed consumption and growth through earnings and savings) and you will undoubtedly be correct, if it makes you feel any better.

CahillFebruary 3rd, 2009 at 4:26 pm

Bob can always leave with his expertise and bid it out for a better deal or start his own company. It’s in Charles’ best interest to take care of Bob, so there is continual investment in the company. Bob would never have had that job if Charles didn’t risk his assets to create it.

CahillFebruary 3rd, 2009 at 4:29 pm

I try to stay nonpartisan but this just reeks of the liberal double standard. At least the conservatives tell you they believe they are above the rules, the liberals say one thing and say everyone should have to share the burden then try to cheat the system they built. Sickening

MedicFebruary 3rd, 2009 at 4:44 pm

BK -Ginger Baker is the man you are thinking of. He was also with Clapton & Jack Bruce in the amazing power trio Cream.

GuestFebruary 3rd, 2009 at 4:49 pm

America’s main export from the mid-’80s to 2007 was debt, in the most exciting, creative, seductive, and self-destructive forms. Now, I guess, we’ll just have to export…more debt. This time it’ll be plain old vanilla-flavored Treasuries, and as long as the suckers last, we won’t even have to pay any real interest on it!!

CahillFebruary 3rd, 2009 at 4:55 pm

I think you miss the point….most of america qualifies as blind, deaf and dumb when it comes to fiscal responsibility. Panic won’t hit till the credit cards are maxed the cars are repossed on individual levels.

GuestFebruary 3rd, 2009 at 5:01 pm

why post this trash? If you feel america is so evil then get the hell out. If you aren’t already here please don’t ever make a visit. You’re just as worthless as Bill blum.

GuestFebruary 3rd, 2009 at 5:02 pm

The $8 trillion that the Fed and Treasury have pumped/are pumping/have guaranteed to rescue the financial sector represents $27,000 for every person in the U.S. I GUARANTEE you that if the market system had been allowed to deleverage as it would without “rescue”, and instead checks had been sent out to the people (the average household would receive $67,800) there would rejoicing instead of fear in America. No corruption needed, no “too big to fail”, none of the B.S. – and no socialism either for those of you who would rather be dead than red.

GuestFebruary 3rd, 2009 at 5:03 pm

Appointing Goldman Sachs ex Clinton banksters to run the government was a huge mistake, now the people must revolt!! He betrayed us!!

GuestFebruary 3rd, 2009 at 5:06 pm

The Pentagon is the world’s largest single consumer of petroleum. They’re what the Stategic Reserve” is for.

GuestFebruary 3rd, 2009 at 5:11 pm

No Problem. Bob can save his earnings – rather than spend them on a bigger house, orthodontia for his kids, a big-screen TV, the second SUV, the trip to Orlando (again), etc etc – and become a lender, if that’s how he perceives one makes money without having to work for it.

GuestFebruary 3rd, 2009 at 5:15 pm

economicminor,When will the US “go through this” as a government, and what shape and form will it take in your opinion?

GuestFebruary 3rd, 2009 at 5:22 pm

Exactly.Besides USA does not have a moral obligation to allow foreign companies compete with American companies. So as far as the American budget is concerned, US ought to make sure that it is first spent on American made products (as much as possible). There is nothing “wrong” in this because it is not a religion-related issue.IMO it is globalism that fuels the ‘beggar thy neighbor’ situation, by forcing people in country X (having living costs A) to compete with people in country Y (having living costs B). This lowers wages (or causes job losses) in country X…after a couple of years of this country X will see that they will have to forget their lending standards in order to keep the economy “growing” (as people will not have as much money from income and will have to borrow if they want to spend). US of A especially forgot their lending standards sometime after 2001.

MASHIACH BEN CHANAFebruary 3rd, 2009 at 5:35 pm

NEW UPDATEUSA AND IRAN WAR AROUND MARCH APRIL 2009RUSSIAN INVASION OF ENTIRE WESTERN EUROPE WITHIN 20 TO 30 MONTH FROM TODAY.INDIA AND PAKISTAN NUCLEAR WAR WITHIN 36 MONTH FROM TODAY.USA AND CHINA WAR WITHIN 36 MONTH TO 48 MONTH FROM TODAYNORTH KOREA AND SOUTH KOREA WITHIN 36 MONTH FROM TODAY.MASHIACH BEN CHANA

paFebruary 3rd, 2009 at 5:44 pm

During question period in the House of Commons, Layton said that there’s a “golden opportunity” to boost slumping domestic sales with a “perfectly legal and appropriately designed ‘Buy Canadian’ strategy.”"The United States has had a ‘Buy American’ act for 76 years,” Layton said. “It’s perfectly legal under the World Trade Organization, and, in fact, under NAFTA, governments are allowed to buy at home in order to use taxpayers’ money to create jobs for workers and to support communities and their industries.”Mexico, China, Japan, South Korea, they all have national procurement policies, and it would be a good idea for Canada. Can the prime minister tell us what’s wrong with a ‘Buy Canadian’ policy as permitted under continental and global trade rules?”

GuestFebruary 3rd, 2009 at 6:09 pm

em,Your scenario of what people did isn’t an exaggeration. It was, unfortunately, all too common. Luxury became the standard. Being ruined by health care costs seems more the exception.

GuestFebruary 3rd, 2009 at 6:15 pm

If the auditors truly understood what they were auditing, then how could they have given a “going concern” opinion on the financials? Even before the “ship hit the span,” it would have been possible for a knowledgeable party to see that the risk presented a problem. Maybe get a lawyer, Citi Investor, to see if you have a case.

P1AQLFebruary 3rd, 2009 at 6:35 pm

Prof. Roubini,Actually the question should be: Is Japan a Japan v2.0 and is the US a US v1.0 or Japan v1.0? We need to be clear about which version of depression we’re talking about:)P1AQL.

GuestFebruary 3rd, 2009 at 6:55 pm

I say shine the light on the injustices the U.S has begun to stand for we desperately need to root out evil in our government and corporations, the blogger has every right to express criticism in a nation that has not been leading with strong ideals and values and instead leading with corruption and war mongering imperialism.

Wolf in the WIldsFebruary 3rd, 2009 at 7:10 pm

I am reposting from the last thread because I really want to hear other people’s view on this.OK. I have been reading a lot of blogs and commentary and I think its time I speak up on the so-called sins of the most basic of credit derivatives: The Credit Default Swap. There has been a lot of negativity surrounding this instrument, from being “financial weapons of mass destruction’ (Buffett) to ” believe they are toxic and should be used only by prescription” (Soros). I think its time I clear up this misconception.CDSes are tools and like any other tools, it can be used for good or for evil. CDSes allows investors to get risk where they want risk and take off risk where they want to take off. They can also be used to take a view on the credibility of any corporation, bank or sovereign. CDSes help the credit markets in general because they allow banks or financial intemediaries to distribute their risk to parties that want them. It makes the credit market more liquid and generally promotes risk distribution. Of course, the CDS market can also be used to express a view on the price of credit. No one was complaining when CDSes was tight (and by tight I mean credit spreads of less than 100bps for BB risky names) but everyone is thinking that it is a nuclear weapon when spreads are wide.The pricing of CDSes reflect a more fundamental issue: it reflect the monetary and economic condition of the markets. It is in the failure of regulators and policy makers that created the problem. Central banks made liquidity too cheap and drove a chase for yield. Regulators failed to properly quantify the risks from these derivatives and allowed excessive leverage. Banks let greed get in the way of risk management and took too much counterparty risk without collateral. All these does not have anything to do with the CDS. It just became a avenue through which all these policy failures and errors manifested.This is no different from the FX option, or rate options, or for that matter equity options. As long as there a a buyer and a seller, there is a market. Soros called CDSes asymetric risk. Obviously, he wasn’t long cds in 2004-2006, where everyone who was long protection got fired. The only reason why the CDS is targeted is because it has become a more efficient way of reflecting the price of credit. And the other reason why was in the chase for yield, investors forgot risk and focussed on return. And the regulators let them.Blaming the instrument is like blaming FX options for the collapse of the GBP when Soros attacked it. It is rubbish and generally, a refusal to look in the mirror to see where the blame lies.

blindmanFebruary 3rd, 2009 at 7:48 pm

p,perhaps there may be a prior tipping point but..when the generation arises that self identifies as “zombie”, comes of age, and realizes that their elders have branded their societal identity and put them in this position after having virtually trained them through edutainment and enter-detainment to disregard community, instead, creating an alternate zombie social structure, then, they will go about revolting and destroying the system that oppresses them, that labeled them as zombies. they will eat the “living”..but… this already happened. we all saw “night of the living dead”.the question becomes, who is calling the kettle black? the young are not yet zombies, so let’s not make them become what we have become. the media are zombies. washington is full of zombies. american households are, corporations and firms are, the banks are. but we are adults. we have experienced being “human”, living. if we bring up a generation that starts out in life, with their first conscious moments thinking “i am a zombie” , well, that is the end. period..they will eat us and we will taste like chicken.just a thought…

methinksFebruary 3rd, 2009 at 7:56 pm

Those who created this crisis always find a way to blame us.People constantly parrot those in power. People bought things they couldn’t afford…..blah, blah, blah.How many people do you know that make bills they know they can’t pay back?Working people, unlike wealthy people, pay their bills and don’t cheat people.Where is all the evidence for this b.s. you’re running?The problem is that real wages have stagnated or declined since 1973; wealth and productivity gains have not been shared.That is at the core of this crisis, here and everywhere. Read a book now and then.

GuestFebruary 3rd, 2009 at 7:59 pm

What is there to think about? This is how is has been done!http://www.huffingtonpost.com/robert-l-borosage/bank-on-it-no-more_b_163735.htmlThere is a sensible way to go forward: do what the government does routinely with badly run banks that face insolvency. As Rob Johnson, the former chief economist of the Senate Banking Committee at the time of the Savings and Loan crisis, and a member of my board at the Institute for America’s Future, describes it:Put them in receivership. Replace the managers. The shareholders take their losses. Make an independent assessment of the assets. Net out the credit default swaps that are the scariest threat to all. If necessary, the creditors take a hit, and have some of their loans turned to equity shares. If necessary, strip out the toxic assets, with federal contractors selling them over time. Reorganize a stronger and smaller bank and sell it back to private investors or merge it with other banks.The FDIC knows how to do this, and has done so with banks large and small. (William Black a former FDIC litigator describes the process here). Admittedly, taking on the commanding heights banks at once would be a formidable challenge. But it would be a lot less costly and a lot more certain that continuing the voodoo.You can hear the howls: this is nationalization, socialism, un-American. No, it is how the FDIC has operated since the Great Depression to deal with the incompetent, the unlucky, the scoundrels and wastrels that run banks into the ground. It enforces responsibility. Managers get fired, rather than pocket bonuses. Shareholders lose their investments, rather than getting a taxpayer funded boondoggle. Creditors are protected, but only to extent possible. The zombies are put to rest; the strong carry on.

GuestFebruary 3rd, 2009 at 8:13 pm

…and US should spend their tax payers money on something else than:1. “defending” other countries2. supporting corporations in other countriesAnd what other things can they spend their tax payers money on? For example:A. national health care and/or insurance (a la western europe)B. free college and/or university education (a la western europe)C. etc

GuestFebruary 3rd, 2009 at 8:47 pm

Clusterstock.alleyinsider.comGeithner’s Secret Plan To Screw You, ExplainedHenry Blodget | Feb 2, 09 9:34 AMtimgeithnerobamatreasury.jpgHow will Treasury Secretary Tim Geithner secretly hose you as he bails out Wall Street executives, shareholders, and debtholders in his new banking-system fix?He’ll use your money to buy crap assets from banks for more than they are worth, thus secretly recapitalizing the banks at your expense.The New York Times explains:[T]he wild variations on the value of many bad bank assets can be seen by looking at one mortgage-backed bond recently analyzed by a division of Standard & Poor’s, the credit rating agency.The financial institution that owns the bond calculates the value at 97 cents on the dollar, or a mere 3 percent loss. But S.& P. estimates it is worth 87 cents, based on the current loan-default rate, and could be worth 53 cents under a bleaker situation that contemplates a doubling of defaults. But even that might be optimistic, because the bond traded recently for just 38 cents on the dollar, reflecting the even gloomier outlook of investors.Allow us to clarify:The same crap asset that the government will buy on your behalf has four different values:* The carrying value: $0.97. The dreamy hallucination that the bank that is stuck with the assets is telling its shareholders it is worth. The fact that there is almost no scenario that would lead to the crap asset actually being worth this much is why no one trusts banks anymore.* A third-party assessment of value: $0.87. S&P’s sharp analysts, the ones who almost certainly rated this security AAA when it was first dumped on unsuspecting buyers, say it is worth more than 10% less than the bank says it is worth.* A conservative third-party assessment of value: $0.53. What S&P estimates the crap asset is worth if the economy doesn’t immediately rebound, which is about half of what the bank says it is worth.* The market’s objective assessment of value: $0.38. Unlike the bank and S&P, markets have no incentive to misrepresent the true value of an asset (or to look at it through rose-colored glasses). And the market says the asset is worth about a third of what the bank says it is worth.So what price will the goverment’s “Bad Bank” pay for that crap asset on your behalf? The details have yet to be announced, but the signs aren’t encouraging.Sheila Bair has already suggested that the government knows better than the market does what these assets are worth. Translation? We’re going to overpay for the crap assets and secretly recapitalize the banks at taxpayer expense.See Also: Administration “Tying Itself In Knots” To Avoid Doing Right Thing

ptmFebruary 3rd, 2009 at 9:01 pm

Wolf,Here is post by Charles Brown <cbrown@flyingcircuit.com> on January 24, 2009 where he describes in detail how the Wall Street Casino worked…=====================Wally (Wall Street) goes to Smallville (Reagan/Bush/Clinton/Bush Administrations) and talks to the mayor about opening a casino in town. The mayor thinks it is a fantastic idea. Wally says there are a couple of preconditions though, he wants the casino to have special tax breaks for the players and no regulation or interference whatsoever in what goes on inside the casino. Fair enough, the mayor and the city council are glad to oblige. In fact, he and a lot of local people want to play too through player-representatives (hedge funds). The mayor and his friends are going to make a killing on the casino coming to town. They want him to run for Governor next term.The casino Wally is setting up is very different from the traditional casino in that there is no “House” to cover the bets. The role of the traditional casino “House” is taken up by the other party to each bet made at any table (transaction) in the casino. The “House” (Wall Street) is providing the facility and the playing field for the players, who are mostly known to each other and the House anyway. A critical feature of the casino is that bad or good bets at the crap table are covered by another player at the crap table, not the House. Those are the rules. The volume of action in the casino is only limited by the number of IOUs other players are willing to accept. The IOUs are payable in US dollars.The players adore this game. They walk in with $100 and can buy $5,000 worth of IOUs (chips), “nominally” issued by the House, but only as a custodian for the players; like a private clearing house. The chips are the IOUs (derivatives, CDS contracts, MBSs, etc.) while a player is involved in the game. Winners and losers are made every minute by the action at the various tables, which differ only in the type of game (cards, dice, roulette, slot machine, etc.), not in the substance of an IOU exchanging hands for the right to play.One day, one of the “high-rollers” at the casino has a few of his IOU’s called-in by other players and whoa! He doesn’t have the money to cover his IOUs! In fact, it turns out he has big losses already in the game. He starts trying to collect on some IOUs he holds and finds that some of them aren’t any good. He was having so much fun playing the game and making so much money for himself and his staff on a current basis, in terms of fees and reporting profits to his friends and shareholders, that that there was no need to think about these details. The casino had everything going for it, political cover, it’s own bank creating money, albeit phantom money, private exchange, and a host of “brilliant”, credible players with deep pockets.Now Wally has a problem. Other players are lined-up outside his office wanting to collect on some of their IOUs. Wally doesn’t have the money, he’s just the casino facilities operator he tells them. “I”m just the clearing house taking a cut. You knew what you were doing when you gave and took those IOUs”, he tells them. But they shout, “You have the power and wherewithal to cover us!” Some of us have more IOUs going the wrong way and didn’t balance our IOU portfolios, and unpaid IOUs will only make the problem worse! Your reputation is on the line and you are in this too Wally”, they plead. So, Wally goes to the mayor of Smallville and suggests that Smallville’s citizens need to cover the bets made by the players at the casino. After all, they benefited too, Wally argues. Wally brought in lots of money to Smallville’s town council and other politicians. Funds flowed to Smallville and its environs and they also put a lot of money into the mayor’s upcoming run for Governor.The mayor doesn’t like it because he knows it is going to be hard to spin to the citizens of Smallville, but the alternatives as explained to him, are bleak indeed. “What else can I do?” he mumbles to himself constantly. The town’s economy has become dependent on Wally’s business. The local economy will collapse since some of the local commercial banks are carrying some of the high-rollers IOUs. The political pressure is enormous from Wally and his influential friends. The mayor goes along again. “What else can I do? File a law suit? Against whom? For what?”, he tells his staff and neighbors.Finally, an aide in the mayor’s office exclaims, “Wait a minute! Why can’t the casino patrons get together and cross-eliminate all these bets? Net them out, gains against losses? It’s all IOUs anyway. It doesn’t matter how many times removed any particular IOU is from one another. They are all holding IOUs transacted at the casino! They put them all together in a big pot and compress them down to the nub, eliminating all of the debits and credits. The last players holding the IOU in excess of someone’s else ability to pay take the netted-out loss. That way, the largest players in the game that are still around take their losses. How do we know they don’t also have astronomical profits from the casino? And even if they don’t, what can they do, sue us to cover their losses? We didn’t know anything about their gains and losses. If anyone is going to be sued they will sue each other over not paying their respective IOUs after compressing them to the nub. Why should we and our citizens vouch for the action at the casino?”Another said, “Even Wally had friends who weren’t patrons of the casino, but most of his friends were regulars.”Then, another of the mayors aides said, “I get it. They created a type of currency with these casino chips that were convertible into Smallville dollars.” Another said, “Now if only the City Council could understand, but they are only listening to Wally and his friends.”The citizens of this Republic need to understand this. In fact, it is the duty of those of us who do understand it to explain it to them. The substance of the above metaphor accurately reflects the details, regardless of Wall Street lawyers holding up 500-page CDS contracts. That is Wall Street spin. You see, Wall Street lawyers made a fortune in this market as well. And in case you weren’t informed, we are too stupid to understand what these “brilliant people” have “created” for our benefit. The “brilliant” people on Wall Street, the likes of Secty. Paulson, the progeny of numerous university business school professors, the main-stream press, et al, is just drivel. Wall-street spin, or as David Reed would say, “failed physicists.”The remaining investment banks and other players want you and I to cover their IOUs and keep the casino in business. If that isn’t brazen enough, we don’t even get a tax subsidy like they did on their profits, and still are getting!The correct response of the mayor of Smallville is simple, if someone could inform him and he had any integrity. Let the casino players unsort (“net out”, or “compress”) the pool of IOUs and sue each other over non-payment of their 500-page CDS contracts. Their shareholders, hedge fund participants and other investors would take the compressed losses, however much it might turn out to be. $1 trillion? $2 trillion? $5 trillion? The shareholders and investors of the regulated and non-regulated financial institutions around the world can absorb those numbers without burdening the already harassed citizens of Smallville. Just Alan Greenspan. If the citizens of Smallville understood that, maybe the mayor would change his mind since he is running for Governnor next year. Maybe he would find the strength to do the right thing, to do his duty by his fellows. The Smallville banks that participated at the casino have to be compressed as well, and some will fail. That’s unpopular in some circles of Smallville. Perhaps many will fail, so what? Won’t they likely fail anyway? Wasn’t the value proposition that Wally came to Smallville with in the first place exactly that, i.e., the IOUs were an elegant, fool-proof way of “spreading the risk” on losses and of collecting on the IOUs? Yes, that’s exactly what the physicists, mathematicians and high-rollers that came with Wally to pitch the mayor had said. They said it over and over again as the casino was operating 24×7.On the contrary, Wally, the mayor and all of their friends in the media frightened the citizens of Smallville into believing that they had to incur further indebtedness and pledge what remains of their vanishing wealth to cover the outstanding IOUs at the casino. No compression is necessary as long as a few of the high-rollers avoid scrutiny and prop-up the IOU market (Goldman Sachs, Morgan Stanley, certain purchased entities of other bankrupt high-rollers), because Wally and the mayor now have everyone convinced that the high-rollers bets need to be made whole, or they will suffer too, even worse. They have been heard to say, “We are all in this together.” Yes, but only those who played at the casino, not those who did not.=======================So the question for me is not are SIVs and OTC CDSs good or bad, but rather are we as an society willing to let children play with these financial devices to create unregulated credit out of thin air? I believe it was in the spring of 2008 that the BIS recorded a total $1,000 trillion notation in CDSs! My position is that these financial “experts” require adult supervision!

David in SeattleFebruary 3rd, 2009 at 9:03 pm

Nouriel, the U.S. is not Japan 2 for the following reasons:1. The Japanese had savings. They saved up to 40 percent of their income before the deflation. That helped many of them get through hard times. Most of your countrymen are broke with no savings.2. Japan is still a big exporter. The U.S. is a net importer.3. Japan is a creditor nation. The U.S. the largest debtor by far.Therefore, the U.S. is in much worse shape, help up only by the kindness of foreign governments who buy our treasuries. Sooner or later that will come to an end with our ridiculously low rates.Now, Ben has threatened to monetize the debt. Let him try, and watch the dollar tank. We will soon be a Banana Republic with nuclear weapons.

methinksFebruary 3rd, 2009 at 9:12 pm

Capitalism is not much different from a Monopoly game.Laws, under capitalism, are supposed to keep the players from amassing too much wealth and power.However, as wealth becomes more concentrated the rules are changed.Each player fights to control the board and win. Capital needs to expand or die, eat or be eaten. “As long as the music plays they have to dance.” As wealth becomes more concentrated, more of the masses are impoverished.The masses must borrow to stay in the game. When their credit runs out, the game is over.

MNmomFebruary 3rd, 2009 at 9:18 pm

guestProbably because the old rule of Stocks needing to be $5 or more was discontinued. If you look carefully at the stock tables, there are many, many stocks on the NYSE and Nasdaq that are below $5 a share. Hope this helps. Not sure when the rule was discontinued.

methinksFebruary 3rd, 2009 at 9:22 pm

Capitalism is not much different from a Monopoly game.Laws, under capitalism, are supposed to keep the players from amassing too much wealth and power.However, as wealth becomes more concentrated the rules are changed.Each player fights to control the board and win. Capital needs to expand or die, eat or be eaten. “As long as the music plays they have to dance.” As wealth becomes more concentrated, more of the masses are impoverished.The masses must borrow to stay in the game. When their credit runs out, the game is over.

Wolf in the WildsFebruary 3rd, 2009 at 9:22 pm

PTM,I think that applies to all markets (the casino bit). In this case, the failure to regulated this created the biggest credit bubble in the history of bubbles, and credit bubbles create monetary bubbles, and housing bubbles and.. etc. Using the above analogy, Smallville should have capped the amounts the players can play for: put in 40c for every dollar you play. But they didn’t think. Nor cared, because Smallville benefitted from higher property values and paper wealth.In short the regulators f-ed up, whether from incompetence or duplicity. I would wager on the later.So who watches the Watchmen?

blindmanFebruary 3rd, 2009 at 9:46 pm

what is a city? and where could one be suitably/sustainably located?.EROEIFrom Wikipedia, the free encyclopedia.http://en.wikipedia.org/wiki/EROEI.In physics, energy economics and ecological energetics, EROEI (Energy Returned on Energy Invested), ERoEI, EROI (Energy Return On Investment) or less frequently, eMergy, is the ratio of the amount of usable energy acquired from a particular energy resource to the amount of energy expended to obtain that energy resource. When the EROEI of a resource is equal to or lower than 1, that energy source becomes an “energy sink”, and can no longer be used as a primary source of energy..http://globalpublicmedia.com/transcripts/220..So right now the OPEC countries of the Middle East are sitting on something like 3/4s of the proven oil reserves of the planet. That means that the Middle East is the strategic pivot for the entire globe and US geopolitical strategists’s seeing the inevitability of the contest for control of the Middle Eastern oil between all of these powers,. Europe, Russia, China and the United States itself and this will be the determining geopolitical struggle of the 21st century, and I think the Wolfowitz’s and the Richard Perle’s and the Donald Rumsfeld’s are just determined to get there first with the biggest army, stick the flag in the ground and say, “ok this is our’s.” That’s what it’s really all about…hit play..Tuesday, February 3, 2009 5:00 pmPublic Affairs.http://archive.wbai.org/.hit play .just a thought.

DevilsAdvocateGuestFebruary 3rd, 2009 at 9:57 pm

LOL! I like that. May I e-mail your post? I have a whole group of gen Y’ers that may just pick that up as our moniker. :-D Most of us see where things are going, but know we don’t have the power to do much about it. You see complaints all over this blog about the “new boss, same as the old boss.” Well from our perspective, the same generations that caused the mess are trying to fix it, using the same old solutions. We know we’re stuck with the check, and the cleanup and the care for those hung over from the party. It’s not going to get any better until more of us come of age. Then we’ll see what happens.

DevilsAdvocateGuestFebruary 3rd, 2009 at 10:02 pm

Humpty Dumpty sat on a wall,Humpty Dumpty had a great fall,All the kings horses and all the kings men,Had scrambled eggs for breakfast again…

economicminorFebruary 3rd, 2009 at 10:12 pm

I think these are all good points.I would also like to read the answers to each of them.Thanks David

slfFebruary 3rd, 2009 at 10:33 pm

Oh, kind of like how when they bail out one bank or corporation, they kind of have to do it for everyone. Except the average Jane & John Q Public, of course.

slfFebruary 3rd, 2009 at 10:37 pm

Agreed. It has to really hurt bad, in a big personal way. Like when it’s affecting them or those they care about or their kids, when it starts cutting into actual real necessities.. like food and shelter.

blindmanFebruary 3rd, 2009 at 10:50 pm

d,you can use it anyway u see fit. not only that, i don’t object for one second if you decide to take over your world. after all, it is yours.i would advise, be wise. you are not corrupted. be fair and just and compassionate. listen to the voice of wisdom. nature, science (observation of nature) has informed your forefathers, some have insights, born of years and experience for you to profit from. you can read their words right here in this blog, or there are many other sources. but..you must understand the world. don’t let anyone tell you you are not free. ever,never. unacceptable.eat them first, you crazy zombie!.all i ask, if you disseminate these words, is that you give a listen to melodic claw hammer banjo tunes. you might enjoy it?.i am serious, not joking..the other thing is you have to look at the demographics, the population facts. you gen ys. you cannot possibly care for the boomers. the numbers aren’t there. you must eat us. no guilt bro. that is why god created ketchup.

Wolf in the WIldsFebruary 3rd, 2009 at 11:34 pm

What is the best way to screw with the taxpayer?Ans: Guarantee the toxic assets on the banks’ balance sheets instead of buying them at distressed prices.Why?Ans: Cos the tax payer gets all the downside and none of the upside.And this is proposed to replace TARP.Unbelievable.

Pecos BankerFebruary 3rd, 2009 at 11:38 pm

It seems strange to be talking about recapitalizing banks, etc when perhaps the ultimate cause of the current debacle is that the US produces little of intrinsic value, and hasn’t for years. (It would be interesting to see the value of tangible items that we actually do produce, such as coal, machinery, etc. in relation to the overall economy.) So if there is next to no underlying production, all attempts to shore up the banks and the financial system will be useless.The point has been made that hedgefunds and others were acting as banks with their fractional reserve system, creating money out of thin air via leverage. Now the leverage is going the other way and the government is attempting to undo this unwinding of leverage by creating a bad bank, forcing the taxpayer to pay for ballooned assets created out of thin air.The whole economy needs a giant cramdown. However, that would probably put us in the stone age.

DevilsAdvocateGuestFebruary 3rd, 2009 at 11:54 pm

And that’s why I’m lurking on this blog. Lots of good ideas here. We may have to wait to act, but learning what has and hasn’t worked is an important first step.I was thinking less zombie from “Night of the living dead” and more like “Sean of the Dead.” Watching that movie with your comment as backdrop gives it a whole new level of irony.I listened to some clawhammer banjo, and I do like it, but Disturbed’s Land of Confusion Video seems to suit my mood a little better these days.

GuestFebruary 4th, 2009 at 12:21 am

In just 2 weeks as President, Obama already appears adrift. His appointments beliehis populist, progressive instincts. Whether due to his inexperience, or need for acceptance, he appears to have capitulated to the power brokers and the status quo. He has precious little time for on the job training and to see the error of his ways lest his Presidency go down with the country as a total disaster.

AnonymousFebruary 4th, 2009 at 1:13 am

One way to solve to address two huge problems — Afghanistan and the Economy — legalize drugs.The Taliban is prospering from the poppy fields.The economy is not taxing the drug sales in the U.S. Also, we have created a huge goverment buracercy just to improsin drug users.How would that be? to really change things?

GuestFebruary 4th, 2009 at 2:54 am

IMO beyond the domestic cronyism these banks are also being bailed out to protect Arab investments. Specifically Saudi investments. The oil men still rule this world even more than the banksters.AM

David in SeattleFebruary 4th, 2009 at 3:00 am

I encourage everyone to read the following article by The Economist written in 2006. It is truly remarkable. I have kept it like a treasure in my box of economic articles, and now I share it with you. There is a lot to be learned; both from what was foretold, and what is yet to come.The Economist: Danger time for AmericaDespite his rather appealing personal humility, the tributes lavished upon Alan Greenspan, the chairman of the Federal Reserve, become more exuberant by the day. Ahead of his retirement on January 31st, he has been widely and extravagantly acclaimed by economic commentators, politicians and investors. After all, during much of his 18½ years in office America enjoyed rapid growth with low inflation, and he successfully steered the economy around a series of financial hazards. In his final days of glory, it may therefore seem churlish to question his record. However, Mr Greenspan’s departure could well mark a high point for America’s economy, with a period of sluggish growth ahead. This is not so much because he is leaving, but because of what he is leaving behind: the biggest economic imbalances in American history.One should not exaggerate Mr Greenspan’s influence—both good and bad—over the economy. Like all central bankers he is constrained by huge uncertainties about how the economy works, and by the limits of what monetary policy can do (it can affect inflation, but it cannot increase the long-term rate of growth). He controls only short-term interest rates, not bond yields, taxes or regulation. Yet for all these constraints, Mr Greenspan has long been the world’s most important economic policy maker—and during an exceptional period when globalisation and information technology have been transforming the world economy. His reign has coincided with the opening up to trade and global capital flows of China, India, the former Soviet Union and many other previously closed economies. And Mr Greenspan’s policies have helped to support globalisation: the robust American demand and huge appetite for imports that he facilitated made it easier for these economies to emerge and embrace open markets. The benefits to poorer nations have been huge.So far as the American economy is concerned, however, the Fed’s policies of the past decade look like having painful long-term costs. It is true that the economy has shown amazing resilience in the face of the bursting in 2000-01 of the biggest stockmarket bubble in history, of terrorist attacks and of a tripling of oil prices. Mr Greenspan’s admirers attribute this to the Fed’s enhanced credibility under his charge. Others point to flexible wages and prices, rapid immigration, a sounder banking system and globalisation as factors that have made the economy more resilient to shocks.The economy’s greater flexibility may indeed provide a shock-absorber. A spurt in productivity has also boosted growth. But the main reason why America’s growth has remained strong in recent years has been a massive monetary stimulus. The Fed held real interest rates negative for several years, and even today real rates remain low. Thanks to globalisation, new technology and that vaunted flexibility, which have all helped to reduce the prices of many goods, cheap money has not spilled into traditional inflation, but into rising asset prices instead—first equities and now housing. The Economist has long criticised Mr Greenspan for not trying to restrain the stockmarket bubble in the late 1990s, and then, after it burst, for inflating a housing bubble by holding interest rates low for so long (see article). The problem is not the rising asset prices themselves but rather their effect on the economy. By borrowing against capital gains on their homes, households have been able to consume more than they earn. Robust consumer spending has boosted GDP growth, but at the cost of a negative personal saving rate, a growing burden of household debt and a huge current-account deficit.Burning the furnitureBen Bernanke, Mr Greenspan’s successor, likes to explain America’s current-account deficit as the inevitable consequence of a saving glut in the rest of the world. Yet a large part of the blame lies with the Fed’s own policies, which have allowed growth in domestic demand to outstrip supply for no less than ten years on the trot.Part of America’s current prosperity is based not on genuine gains in income, nor on high productivity growth, but on borrowing from the future. The words of Ludwig von Mises, an Austrian economist of the early 20th century, nicely sum up the illusion: “It may sometimes be expedient for a man to heat the stove with his furniture. But he should not delude himself by believing that he has discovered a wonderful new method of heating his premises.”As a result of weaker job creation than usual and sluggish real wage growth, American incomes have increased much more slowly than in previous recoveries. According to Morgan Stanley, over the past four years total private-sector labour compensation has risen by only 12% in real terms, compared with an average gain of 20% over the comparable period of the previous five expansions. Without strong gains in incomes, the growth in consumer spending has to a large extent been based on increases in house prices and credit. In recent months Mr Greenspan himself has given warnings that house prices may fall, and that this in turn could cause consumer spending to slow. In addition, he suggests that foreigners will eventually become less eager to finance the current-account deficit. Central banks in Asia and oil-producing countries have so far been happy to buy dollar assets in order to hold down their own currencies. However, there is a limit to their willingness to keep accumulating dollar reserves. Chinese officials last week offered hints that they are looking eventually to diversify China’s foreign-exchange reserves. Over the next couple of years the dollar is likely to fall and bond yields rise as investors demand higher compensation for risk.When house-price rises flatten off, and therefore the room for further equity withdrawal dries up, consumer spending will stumble. Given that consumer spending and residential construction have accounted for 90% of GDP growth in recent years, it is hard to see how this can occur without a sharp slowdown in the economy.Handovers to a new Fed chairman are always tricky moments. They have often been followed by some sort of financial turmoil, such as the 1987 stockmarket crash, only two months after Mr Greenspan took over. This handover takes place with the economy in an unusually vulnerable state, thanks to its imbalances. The interest rates that Mr Bernanke will inherit will be close to neutral, neither restraining nor stimulating the economy. But America’s domestic demand needs to grow more slowly in order to bring the saving rate and the current-account deficit back to sustainable levels. If demand fails to slow, he will need to push rates higher. This will be risky, given households’ heavy debts. After 13 increases in interest rates, the tide of easy money is now flowing out, and many American households are going to be shockingly exposed. In the words of Warren Buffett, “It’s only when the tide goes out that you can see who’s swimming naked.”How should Mr Bernanke respond to falling house prices and a sharp economic slowdown when they come? While he is even more opposed than Mr Greenspan to the idea of restraining asset-price bubbles, he seems just as keen to slash interest rates when bubbles burst to prevent a downturn. He is likely to continue the current asymmetric policy of never raising interest rates to curb rising asset prices, but always cutting rates after prices fall. This is dangerous as it encourages excessive risk taking and allows the imbalances to grow ever larger, making the eventual correction even worse. If the imbalances are to unwind, America needs to accept a period in which domestic demand grows more slowly than output.The big question is whether the rest of the world will slow too. The good news is that growth is becoming more broadly based, as demand in the euro area and Japan has been picking up, and fears about an imminent hard landing in China have faded. America kept the world going during troubled times. But now it is time for others to take the lead.

AnonymousFebruary 4th, 2009 at 3:14 am

21st Century-style economic Darwinism: ‘Survival of the un-fittest’.So people how does it feel to be a part of making history? And we were here, there, and everywhere. Ahhhhhhhhhhhhhhhhhhh the poignant stories I’ll be able to tell my destitute great-grandkids.AM

Octavio RichettaFebruary 4th, 2009 at 3:26 am

Wolf, agree W U 100%All they need to do is demand CDS writers hold appropriate levels of collateral. This will, of course, also make the CDS writer think better about what he is doing and increase the cost of coverage and the amount of CDS underwriting with it (it is all supply/demand driven).

Octavio RichettaFebruary 4th, 2009 at 3:58 am

One of diz days…I know, I know, I am the first one to say we may be witnessing the end of capitalism as we have known it. However, Santoli’s piece in this week’s Barron’s proposes an EXTREMELY clever contrarian view:The crowd’s view is that whatever Washington does next to stem the credit crunch won’t work. But watch out, one of diz days Benny and Co. will get it right and we will witness a Queen Latifah-size rally.I am not saying this is the high probability event, but it is a highly likely event to which I assign roughly a 1/3 probability of happening before the year is over, or even before the first half of the year is over.IMHO, at this point, upside risk is a lot more significant than downside risk (i.e., the risk of missing a large up move has a larger probability than a very large loss at this point). I am cautiously positioned towards this view via LEAP call options on equities and commodities that are not too far to being “in the money” which give me large exposure to the upside but limit my exposure to a downward move. However, one must also be aware that options are perishable high cost hedges: Yes Virginia, there are no free lunches out there.http://online.barrons.com/article/SB123372677592547257.htmlMONDAY, FEBRUARY 2, 2009STREETWISEStill No Clues of a Bottom for StocksBy MICHAEL SANTOLINo sign yet that the market is ready to rally.LEAN IN CLOSE, ANYONE WHO WANTS TO HEAR when the stock market will prove itself to have formed a durable bottom, declawing the bear and returning the benefit of the doubt to the buyers of shares.This will happen at precisely the moment when the market can get a half-step ahead of the poor economic news, rather than declining at the print of each scary headline, and when investors are persuaded that the Law of Intended Consequences has not been permanently repealed.The market has displayed these virtues only equivocally and intermittently this year. Sure, the popular indexes are 8% and more above their November lows. And the Dow has been stubborn about relinquishing the 8000 level (Friday’s close was a too-cute 8000.86) more than halfway through a rocky earnings season, even as bank shares have plumbed new depths.But several measures ranging from statistics to gut feel — plus January’s weak tape in the face of bad data that we all knew would be bad — speak of a market fibrillating within a range, rather than resolutely building a sturdy base.For starters, stocks and sectors are trading as one, more often than the bulls would like to see. Repeatedly, a day in which 90% of stocks and share volume are up is followed by an equally lopsided down day. Bianco Research tracks the correlation to the broad S&P 500 of the least correlated industry sector, on a trailing six-month basis. Currently, the least-linked sector has been moving in tandem with the index to the tune of a whopping 90% correlation. SunTrust Robinson-Humphrey, furthermore, reports that the average daily percentage change in the S&P 500 financials index over the past 50 days has exceeded 5%….Whether the creation of an aggregate “bad bank” or whatever free-money experiment Fed Chairman Bernanke comes up with next, the contrarian position right now is that the next Washington effort will actually work.Perhaps no other public official in memory has so well telegraphed his stances and intentions, and then adhered to them, as has Bernanke. Going back to 1999, he has made clear that a government facing deflation and a liquidity trap (Japan then, maybe us now) can essentially never go too far in dumping money into the system, penalizing risk aversion and, ultimately, raising prices and asset values (see http://www.princeton.edu/svensson/und/522/Readings/Bernanke.pdf).When one of the levers he eventually pulls actually has the intended effect, the market will be caught off-guard. And, with money-fund assets at a historically high proportion of stock- market value and having risen at a 52% annual clip in the past 13 weeks (says Ned Davis Research), the fuel is there to move the market fast and far.The market right now, however, isn’t offering encouraging clues about if, when or from what level this might happen…

REPAIR AMERICA if you love herFebruary 4th, 2009 at 4:47 am

Mommy! Mommy! Somebody told me the truth about America and presented the verified facts! And I can’t bear the true known facts, Mommy, so make the bad truthteller go away, Mommy! Mommy, please! Mommy, I need my fantasy, Mommy! WHAAAAAA!!!Grow up, Binky. You’re an embarrassment to Sam Adams and all real American patriots.

Pecos BankerFebruary 4th, 2009 at 4:59 am

Hey, don’t you know were going green? Under obamonics we are going to replace oil with wind power and solar power. Middle east oil no problem. In the next few months you will start noticing the wind farms surrounding every city.

generalKurtzFebruary 4th, 2009 at 5:00 am

To me it looks like that the fundamental issue is world’s backbone, American Consumer, is getting poorer. I think this is the reason why this crisis started.The fact is China is stealing jobs from Americans and impoverishing USA slowly. The last 20 years this slow trend has gone unnoticed but now it is changing the world’s delicate balance.American consumer can’t be the engine of world’s economy anymore. This is the lesson we should learn from this crisis. The emerging markets have caught up. They don’t watch the game anymore. They are in the game and they want a piece of the cake too which mostly was eaten buy Americans and a few other developed countries so far.If you are poor and you don’t know that then you continue to spend until your credit lines are dried up and your ability to pay the bills diminished significantly. Then the bankruptcies follow… This is what is happening and I think it is because, part of the world’s wealth is being transfered to east now. Too bad American’s had to find this out like this…So I am not sure if this is a technical, trivial crisis or a sign of change in the world’s economic map. Don’t think that Geithner is stupid. His concerns about the strong Chinese currency is not misplaced. He knows how much China is damaging American households.I am wondering if we should expect a trade war between Americans and Chinese. I am wondering what kind of political outcomes this crisis will reveal. What happens if Americans stop the outflow of jobs and if Chinese reply with stopping buying the American Treasuries…I think we’ll see quite interesting days in coming years.

GuestFebruary 4th, 2009 at 5:29 am

THAT’S NO UPDATE AT ALL. WHERE IS YOUR REASONING? WHERE ARE YOUR SOURCES, FACTS, EVIDENCE? ON WHAT ARE YOU BASING THIS? ON NOTHING??

GuestFebruary 4th, 2009 at 5:29 am

It sounds like a kind of syzygy effect (great word, no?). People used to think that if the planets all lined up by accident, the solar system would go flying off in all directions. So, more or less by accident, if Bernanke just keeps tweaking things we get syzygy, chaos in a positive way or what have you. Maybe so, but I would think that fundamentals a la Roubini are bound to reassert themselves at some point.

GuestFebruary 4th, 2009 at 5:54 am

The war on drugs is STOOPID. It causes millions of times the damage to lives and society it pretends it’s supposed to stop and it costs billions of wasted dollars. I’ve no personal desire to imbibe hard drugs, but so what? If somebody else wants to – why do I have the right to tell them what they can and can’t put in their own bodies? Who died and made me God? If they commit a crime to get money for drugs, then the crime is the stealing and we have laws against that. You can’t force people not to seek altered states of consciousness – mankind has been doing this forever. Can you say Beer? You can and should educate against hard drugs, and you can arrest criminals for theft, but spending gazillions of dollars to make owners of private, for profit prisons rich is just absurd, and hurts society far more than it ever could help. Besides, the biggest drug-running outfit on the planet is the CIA and everybody knows it. There is a tremendous amount of drug money laundering tied up in this banksters deal, too. Read “Desperado”: if all the drug laundering money were taken out of the big New York banks, they’d have collapsed decades ago.Stop this waste and hypocrisy. End the STOOPID war on drugs.

Jason BFebruary 4th, 2009 at 5:56 am

Wishful thinking. The market is not a bubble, and the real economy has an influence on it. Bad bank or not, the economy and economic fundamentals are in the most terrible shape imaginable.

GuestFebruary 4th, 2009 at 6:08 am

Why is it possession of an ounce of marijuana is a felony conviction while spilling jillions of gallons of oil in the ocean and wiping out whole communities or bringing down the whole global economy is just business as usual?????Because PEOPLE DON’T THINK.Rich and powerful criminals get restorative “punishment” while the people get punitive incarceration. Stoopid, yes, and no justice at all in a nation run by disgusting hypocrites.

PeterJBFebruary 4th, 2009 at 6:11 am

“Don’t think that Geithner is stupid.”@ generalKurtz on 2009-02-04 05:00:05He’s stupid!American has damaged American households and China is protecting itself and Chinese households; get over it! China is not a servant of the USA.For clarity sake: Geithner is stupid! And, the bad news is that he is not alone; not by far!Ho hum

GuestFebruary 4th, 2009 at 6:17 am

competition destroys. cooperation creates and builds. but the lightbulb does not go on in people’s heads, so the bombs will go off instead. probably before your great-grandkids have the chance to arrive. oops.

Jason BFebruary 4th, 2009 at 6:19 am

The American consumer drove world economic development based on the explosion ofdebt. Now we are maxed out on debt. Our monetary system is based on fractionalreserve banking, in which money is loaned into existence. More money must be loanedso the previous borrower has the additional debt-based money to pay off the loan PLUSINTEREST. Once debt stops expanding, the borrowers don’t have the money to pay offtheir loans plus interest. The demand for dollars increases, and the value ofdollars increases. This isn’t good, but a symptom of a deadly illness in theeconomy, like a high fever. Some debtors are caught without a chair once the lendingmusic stops, can’t find the dollars they need to pay off their debt plus interest,and default. When they default, all the money they borrowed into existence ceases toexist, and is no longer available for others to pay their debts. These defaults arewidespread, and since we have a debt-based monetary system the economy is thrown intodeflation as debt-money is destroyed. The administration wants to get credit flowingagain to stop this dynamic.There are several confounding and compounding factors that make the solution morecomplicated than just getting credit flowing again.One is the high existing indebtedness. Consumers have no more capacity to borrow.Another is the negative savings rate. Easy credit inflated the value of assets.Everyone could get their hands on money, so prices inflated. That created a wealtheffect, making people think that they no longer had to save because the value oftheir assets was increasing. Now that easy credit is gone, assets are values aredecreasing. Even if the consumer had the capacity to borrow, they wouldn’t until theybuilt up savings again.Another is that easy credit moved future purchases into the present. Anyone who wasgoing to buy anything – a car, washing machine, refrigerator, furniture, did sowith 1 year no interest loans. Everyone has everything they will need for years, andconsumption will suffer. Since consumption is now over 70% of our economy (!), thiswill have a terrible effect on the US.Securitization is another. The debt was bundled together based on actuarialcalculations of whatever, divided into tranches and insured, then rated AAA and sold,then insured again with Cd O’s and so on. Now that the underlying loans aredefaulting the securities are declining sharply in value. Those who insured thesecurities or are the counterparty to a CDO on a trigger event like the securitydeclines in value below a certain point are being forced to pay up and are beingdragged down too (AIG).Another is the off-shoring of manufacturing, and the decline of manufacturing in theUS. Now that the financial services based economy has imploded, there is nothing totake its place. We make much fewer products here that we can sell to the rest of theworld. We have no manufacturing jobs for people to be employed at in order to make adecent wage and pay off their debts and buy stuff. We have a ‘service based’economy, but who to sell services to? Unemployed people don’t make a good market, orgood tourists.Housing is another. A house is the most expensive thing most people will ever ‘own’.Ownership of housing is way more widespread than ownership of stocks. More peopleare affected by a housing crash than a stock crash, and on a much larger scale.There is also a massive overhang of housing supply, since it was overbuilt during theboom.The upcoming retirement of baby-boomers is another. Born after WWII, they are thelargest demographic in society, moving through time and influencing everything. Theyhave amassed massive assets (equity, homes, bonds, you name it) in their peak earningyears, and are now depending on selling those assets to finance their retirement.What happens when this huge cohort tries to sell their assets in the marketplace tothe much smaller cohort behind them? seehttp://www.census.gov/population/www/projections/np_p2.gif .They flood the market with supply, which reduces price. There will be massive downwardpressure on asset prices for the foreseeable future.Even if the Administration solution can get credit flowing again, there is no waythat it will be taken up by consumers. Even if it was, credit is not a solution tothe confounding problems. That Pandora box has already been opened.

GuestFebruary 4th, 2009 at 6:35 am

Thanks Jason B, this is one very clear, brief and to the point summary of the current situation.I am going to keep this at close hand as a future reminder where we are and where we are going.Thanks again

Mother of God!February 4th, 2009 at 6:45 am

how to have a crisis: give all the productivity gains it took everyone’s sacrifice to create to a fraction few, while keeping wages down far as you can get by with. then some have way too much and all others have way too little. consumption is strangled.it’s not “about the economy, stupid”it’s ALL about the INEQUALITY.BUT NOTICE HOW THAT WORD ‘INEQUALITY’ NEVER COMES OUT OF ANY ECONOMIST’S MOUTH?????The insane mal-distribution of wealth is what has CAUSED ALL THIS STUPID, UNNECESSARY, COLOSSAL DESTRUCTION OF HAPPINESS AND SAFETY AND PROSPERITY!When will we see it and say it plainly, constantly, forcefully?????????Greenspan knew what he was doing and he did it anyway. I propose that after he’s dead we dig him up once a year and shoot his carcass as a national holiday! Sheesh! How can we be so blind as we are being??????

GuestFebruary 4th, 2009 at 6:45 am

I am very concerned. President Obama looks shaken by the monumental tasks he faces, and he needs to get his feet firmly on the ground and take the lead. I wish his administration nothing but success, but they are off to a wobbily start. If they don’t find their sealegs soon, an L recession will begin to look like a best case scenario and the battle among nations and quasi-nations to take the lead, grab what they can, etc., is much more likely to break out.

Mother of God!February 4th, 2009 at 6:57 am

Wealthpowerful multinational giants with loyalty only to their own money and power to control and influence did all the damage. They’re wrecking every country in the world. What’s coming will be not ‘interesting’ but HORRID beyond comprehension! E=mc2 is not a fact subject to emotive persuasion!

EarthlingFebruary 4th, 2009 at 7:02 am

“Everyone has everything they will need for years”what planet are you living on? i would like to go there, please. on my planet, half the population is in dire, dire need of material goods and services, and millions starve each and every year.

Mother of GodFebruary 4th, 2009 at 7:18 am

marry me, methinks! i’m in love with your brawny brain and priceless truth!your post gets lots of stars: **********************************************

Jason BFebruary 4th, 2009 at 7:23 am

Earthling,That is, consumers of durable goods in the US have all durable goods they need. I should have been more specific.If what you are getting at is the extreme income disparity in the US and the world, I completely agree. It is obscene that so few have so much. But that is outside the scope of what I was discussing. People that are impoverished wont be consuming electronic gadgets and granite countertops, and it is this debt-fueled consumption that got us into our predicament.

SILENCE IS COMPLICITYFebruary 4th, 2009 at 7:39 am

Deprivation shortens people’s lives. Murder is by definition the shortening of a person’s life. painter is being murdered RIGHT BEFORE OUR VERY EYES. THE RICH ARE LITERALLY EATING US ALIVE. Stop SUPPORTING THIS PRACTICE and start giving it the condemnation it so richly deserves! Where are your voices, people?! When is the discussion of all this giga-inequality that is devouring our happiness and safety and prosperity going to begin??????

Yes, it's Mother of hereFebruary 4th, 2009 at 7:48 am

excuse me, Jason, but did you see painter’s post far above? he lives in the usa! i do, too, and i still have need – not just want – for material goods and services. i’m very happy you agree that our income disparity is tragic, but the debt-fueled consumption is caused by the inequality. some with too much, so they look to lend, and others with nothing who have to borrow – this is the deeper cause that must be eliminated – or nothing changes and history repeats til the planet explodes from the violence.

JamesFebruary 4th, 2009 at 7:57 am

There has been a massive transfer of wealth from America to China and there has been a massive transfer of wealth from the middle and lower classes of America to the wealthy. The middle class has been a punching bag for too long. There have been many, many times lately that the middle class has been saddled with more and more expenses and each time they say it is good for the economy. The lastest is the conversion of TV from analog to digital as a way to increase the number of cable subscribers, sales of converter boxes, TVs, DVRs, etc.

TfTFebruary 4th, 2009 at 8:09 am

From USAToday,

In a series of mea culpas Tuesday, Obama said he was concerned about how Americans would view what went on with Daschle’s nomination.”I campaigned on changing Washington and bottom-up politics,” he told CNN. “I don’t want to send a message to the American people that there are two sets of standards, one for powerful people and one for ordinary folks who are working every day and paying their taxes.“On ABC, he called the tax errors “honest mistakes” but said he “can’t afford glitches” such as those if he is to get his economic stimulus package through Congress.They weren’t the president’s first problems with nominees. New Mexico Gov. Bill Richardson withdrew his nomination to be Commerce secretary last month because of an investigation into possible connections between contributions to his political committees and state contract awards. Treasury Secretary Timothy Geithner‘s confirmation was delayed last month amid questions about why he initially failed to pay more than $34,000 in self-employment taxes.

Mr. Obama, congrats, you have accomplished the mission with Turbo Timmy. Nothing can change that FACT regardless that Turbo Timmy’s “initial” failure or otherwise. Turbo Timmy is just a plain tax CHEAT.

MorbidFebruary 4th, 2009 at 8:12 am

We Are Manic-DepressivesIt’s that bi-polar condition of going through a mania phase and then its collapse into depression.Now we have the temporary Obamania bubble and its certain collapse.When will we ever learn that sustainable life is found in the middle of these opposites – not in the extremes!BTW – MOM =’s 666; check your phone pad. Perhaps help is on the way from another quarter not seen.

JamesFebruary 4th, 2009 at 8:17 am

Recently, a SWAT team barged into the home of the well-liked Mayor of a small town, Berwyn Heights, tied him up, tied up his mother-in-law, shot his two dogs (as they were running away), shouting all the time for him to confess. A box containing marijuana had been delivered to his doorstep and addressed to his wife. Just a few days later, it came out that there was a group of deliverymen running marijuana and the wife and mayor had nothing to do with it. Oops! No apologies. No admission of a mistake. Chalk it up to collateral damage.

Mom of an infinitely loving rascal!February 4th, 2009 at 8:24 am

The Devil wears 2nd-hand Goodwill and still fits in her highschool cheerleading outfit! ROFLMAO, Morbid!

FEDupFebruary 4th, 2009 at 8:31 am

Yes, this is the answer I think is correct. Most people falsely believe that in order to improve the economy we need to FIRST create new jobs; however, if we FIRST put more money directly into the hands of the people, they would immediately have more money to spend. This, in turn, would require businesses to hire more people, buy/sell more product, etc. To me, this is a much fairer and effective proposal than what the govt has in mind.

Mother of GodFebruary 4th, 2009 at 8:50 am

People love money because it is power, but they are blind to the fact that wealth above a certain amount takes on unique qualities that smaller piles of dough do not have. People love money because it is power, but they are blind to the fact that overmoney is overpower to put yourself above the law and create tyranny-slavery violence misery.Humans aren’t evil; we’re just being dumb.

Alex GreyFebruary 4th, 2009 at 8:53 am

I am glad to see that for Nouriel the risks of a Japanese-style L are increasing. However I am not clear that there are really policy options that can avert this. By keeping zombie companies/banks alive Japan gave them more time to write off bad debts and write down assets. The probelm was that as fast as assets were written down new losses appeared so the process continued seemingly forever. In fact Andrew Smithers has pointed out that Japanese life insurance companies hstill have huge problems related to the collapse in asset values 15 years+ after the events began. The same pattern of seemingly endless asset write-downs is emerging in the US e.g., Nouriel himself has continued to increase his estimate of losses to the US banking system. This makes it exteremly difficult to restructure the financial system as you are dealing with a moving target – think of AIG where government support has ballooned to $160 billion. Allowing restructring to occur through bankruptcy (unless it is a controlled bankruptcy involving a lot of support as in the case of AIG) is not an option as became clear with Lehman Brothers. I think the US has been experimenting (I would argue floundering around) trying all sorts of options without much success. Maybe the Japanese strategy was not so bad after all?

TfTFebruary 4th, 2009 at 8:54 am

I totally agree with the opinion by Ann Woolner at Bloomberg (emphasis mine):

Geithner had all sorts of paperwork advising him to pay self-employment taxes, which he didn’t…. …A president shouldn’t staff the Cabinet and the White House with people who don’t pay their taxes until forced to. Nor should he trust those willing to risk embarrassing him at the very moment he most needs momentum to carry him into confronting the very real crises the country faces.

Mother of GodFebruary 4th, 2009 at 9:12 am

I just can’t believe anyone still entertains the notion that this government is going to look out for the interests of America’s working people or of any people on earth who aren’t wealthpower giants. Isn’t what Ann said just gobsmackingly self-evident? Isn’t it? Obama didn’t pay even his damn PARKING TICKETS until he had to! Obviously, HE wasn’t embarrassed enough by the media and public to have learned anything besides “try harder not to get caught”.

GuestFebruary 4th, 2009 at 9:13 am

Yves Smith at Naked Capitalism analyzes two articles that need to be corrolated and reconciled. Martin Wolf has emergency recommendations for Obama and item number one in to reinvigorate global demand. The Washington Post has an article with highly placed sources describing the bad bank plan. The bad bank plan seems to be a brazen theft of the taxpayer money to protect the banks. Treasury will overpay for the written down toxics, and guarantee the rest of the troubled assets, while the banks keep the good assets.Granted Treasury is held hostage to the spectre of banking chaos, because the bank losses are stratospheric. But you cannot LITERALLY HAND TREASURYMONEY TO THE BANKS AS A GIFT. This will not stimulatedemand, and that is where I return to Martin Wolf.Martin Wolf is right that global aggregate demand isthe key to resolving the crisis. The Golden Age of Capital from 1947 to 1968, was based on great insightfrom the prior Depression. Laborers are not intellectual enough to defend their own interests andgovernment must intervene to maintain their exploitation to reasonable levels. Capital is adequately bright and pays the best intellectualsto formulate “free market utopian models” whose solepupose is to maximize profits and exploit laborers tounreasonable levels. The post-war balance allowed a middle class to exist because it maintained GLOBAL AGGREGATE DEMAND in the form of wages that rewarded productivity. I am not utopian. Laborers have and will always be exploited, but government has to moderate the process. It did not help that governmentallowed billions of low cost workers to come into the world labor market without a mechanism to prevent excessive exploitation. This takes me back to the post war great insight. There must be a Global conferenceto set standards to ameliorate the exploitation ofWorld Labor. All the world leaders can implement all the monetary and fiscal policies that they like, but ifthey don’t do this, there is no incremental global demand. How ironic that our only way out of this Nuclear Debt Explosion is to be kinder to those whohave yet to benefit from universal education. If thelaborer has more money to spend, there will be a greater global aggregate demand. There is no other way.

GuestFebruary 4th, 2009 at 9:18 am

Money does NOT trickle down, it percolates UP. Put the money at the bottom of the economy and it will percolate up and refresh all levels of the economy.It’s the ONLY workable solution because of HOW MONEY WORKS.

See ya all later, MomFebruary 4th, 2009 at 9:48 am

Is it starting to sink in yet that being too rich is as bad for the rich as it is for the poor, in terms of real quality of Life on Earth? That being flung from the peaks of the perfect storm-y sea is as hazardous as sinking in the troughs?Are we getting closer and closer to murdering the diabolically stupid idea of allowing unlimited over-fortunes to ever be amassed? Are we coming to grips with the natural fact that the pool of wealth is finite and overpay has nowhere to come from but from underpay? We are seeing the danger and un-sustainability of overpayunderpay at last? We will begin the trek towards fairpay safe ground, gaining in reduction of threat and increase of prosperity all along the way to our happy?

GuestFebruary 4th, 2009 at 9:50 am

Obama and his Democrats gangs will bankrupt this country when their agenda plan top $1 Trillion and going higher. But wait, there will be agenda plan (all above $1 Trillion) 2, 3, 4, and more in next 4 years. Obama and Democrats will borrow, spend, tax, and print Trillions of Dollar. Welcome to Zimbabwe.Obama economic plan now tops $900Bhttp://news.yahoo.com/s/ap/20090204/ap_on_go_co/congress_stimulus

GuestFebruary 4th, 2009 at 9:57 am

You make some excellent points, General. However, I don’t think China is stealing anything from the U.S., jobs or otherwise. They are being deliberately given to them, primarily by U.S. based businesses whose loyalties lie with the idea of a global economy and their own desire for cheap foreign labor costs.In return, China buys our treasury bonds with relatively modest yields (or at least they have been, but who knows how long that is going to continue). What China is not doing, however, is consuming very much. They don’t make much in wages or salaries in the first place and they are a nation of savers, required because they have no retirement safety net. They do not have the financial ability to come anywhere near close to offsetting the steep drop in demand for goods and services created by the demise of the American middle class.Whether from a policy standpoint you agree or disagree with the rapid economic globalization that has been underway for the last 25-30 years, I think it is reasonable to believe that it simply hasn’t been well thought out or well executed. There are a handful of key reasons why the world is facing this severe economic crisis, and this is undoubtedly one of them.

SarcasmFebruary 4th, 2009 at 9:58 am

but we are big manufacture and exporter of Dollars. and I know we dont physically print dollar now. we digitally create dollar. This is highest profit margin business. the real cost of creating $900B economic plan money is just pressing 9 + couple 0. And digital dollar is still in high demand. I dont know about you, USA is doing pretty well.

GuestFebruary 4th, 2009 at 10:04 am

watch mad cow sacred cowhttp://madcowsacredcow.wordpress.com/another example of how the greedy cry lower taxes to get investment has failed the environment and it’s people. Shareholders that invest in this should have to swim in the river and drink from it.The ability of industrial-scale agriculture to deliver ridiculously cheap meat is predicated on it being permitted to inflict what the UN’s Food and Agriculture Organisation describes as “unparalleled environmental damage”, with the tab for these “externalities” not being reflected in the price tag in the supermarket.cheap for whom???????????

HayesFebruary 4th, 2009 at 10:16 am

Turbo Timmy giving a news conference with Obama – he’s talking about a loss of confidence, credibility and accountability.

GuestFebruary 4th, 2009 at 10:21 am

Democrats gangs will bankrupt this country when their agenda plan top $1 TrillionToo late, the Republicans beat them to it. But, remember, there are just two groups of people that work for the same corporations.

GlennFebruary 4th, 2009 at 10:33 am

It is going to crash and for many reasons mentioned by NR and many others.Personally, I would add it is all part of the “Fourth Turning” by Strauss and Howe written in 1997.

economicminorFebruary 4th, 2009 at 10:40 am

I don’t see the how the US can go bankrupt like Argentina because the US$ is the world’s reserve currency. We can just print or electronically create dollars and Argentina couldn’t. It’s debt was in dollars as is ours. That makes us unique for now.What can happen is that the world devalues the dollar against everything and we could see oil and other resources sky rocket to unbelievable heights. This would crush the overly indebted American consumer and demand for everything would fall… Oh, that is what we went through in 2005>08.Well, it can happen again and again until the US is just a large version of what Cuba is today. It may take a decade to happen but I see us on that path.We have more resources than Cuba so we wouldn’t stay that way or maybe get that bad but the constant devaluing of our currency is not good. The devaluation of our dollar and the unregulated hedging and trading by the big banks, hedge funds and private equity firms caused a run against the US once in $150 oil and what ever copper got to.. That is what pushed the overly indebted consumer off the cliff. It was all done with to many dollars chasing to few resources and drove us into deflation.Now the answer is to try and do it again?

economicminorFebruary 4th, 2009 at 10:43 am

Herbert Stein said that when something makes no sense, it will stop. You never know when but it does. You can not make insane policies sane. They are insane and they will stop or cause some form of upheaval and chaos. It is just timing.

GuestFebruary 4th, 2009 at 10:50 am

Nouriel gives us the paper and numbers but what about the people and what is her/his story -the numbers are not separate from beings.Japan: A Story of Love and HateUnprecedented look at Japan’s ‘working poor’ through the experiences of a couple struggling to survive the economic crash.Sunday February 8 at 10 pm ET/PT on CBC Newsworld

MedicFebruary 4th, 2009 at 11:03 am

New Post is up on my blog -Come on over and read about the Stewart Stimulus Planhttp://medic-thelightofday.blogspot.com/

subgeniusFebruary 4th, 2009 at 11:10 am

The economy cannot stage a sustained recovery as it is predicated on provably false precepts. MAYBE when economists learn about physical constraints and the way that technological progress REALLY occurs (HINT: NOT BECAUSE YOU EXPECT IT TO DUE TO MARKET CONDITIONS).Anything resembling a recovery preceding the above points will prove to be a deadcat bounce

Forensic economistFebruary 4th, 2009 at 11:23 am

Koo’s prognosisJust finished Richard Koo’s “Holy Grail of Macroeconomics: Lessons from Japan’s Great Recession”NR seems pretty much in agreement with Koo. Japan had horribly leveraged corporations, with much of the debt secured by real estate or stocks, both of which fell sharply. Banks counted as capital shares of publicly traded stocks. In effect the entire corporate sector was insolvent. In standard economics, ZIRP would encourage investment – if your capital is free, it is very easy to justify new investment. Instead, Japanese corporations used their cash flow to pay down debt, since they were insolvent. Thus monetary policy was useless. The corporate sector stopped borrowing and cut investment sharply, thus lowering demand in the economy. The huge increase in government borrowing and spending was necessary to keep the economy from shrinking – the government was employer of last resort. Many bridges to nowhere were built. Fiscal policy was necessary but not sufficient to get the economy out of the recession. The recession ended after more than ten years when the debt overhang was paid down; major corporations were able to pay down debt since Japan was running a trade surplus.Koo also pointed out that the carry trade was a result of ZIRP, which was internationally destabilizing. While he is a strong promoter of free trade in goods, he seems skeptical of the benefits of free capital movements.Our situation is similar, but the indebted sector is primarly consumers, not corporations. Again,s monetary policy is useless. Fiscal policy is necessary but not sufficient. The recession will be over when the debt overhang is gone either by 1) paying debt down over time (Japanese solution – takes years) 2) default and foreclosures (which is happening) or 3) Government buying of bad debts and forgiving or rewriting them, which happened in the ’30s has been proposed for today. Unlike Japan, there is no stable income to pay down the debt, so I don’t think solution (1)can happen.A while back NR wrote a post called “the end of Suburbia” or something of that nature. Where I am – northern California – there were too many new houses built in places that made no sense, such as two hours drive from the nearest jobs. I’m afraid the people “owning” those houses would be better off leaving them. They should default.Solution 3) – government takeover and write off or down of loans – implies either government takeover of bad lenders or gifts to undeserving banks.Whichever solution is done, the biggest lesson from Japan was to do it quickly.

Forensic economistFebruary 4th, 2009 at 11:34 am

On the American DreamI would hope for a time when you aren’t considered a failure if you don’t own your own home.Diamonds are less rare than emeralds but sell at a higher price due to monopoly power by DeBeers and the CSO, and a hundred year marketing campaign to convince you that it is necessary to have a diamond to get married.Housing has benefited in this country from huge tax benefits and a marketing campaign that your are not a success unless you have a big detached house. Government leaders who were often beneficiaries of mortgage financiers were cheerleaders for the “ownership society”.Canada has no tax deductibility of mortgage interest and has no housing shortage. In France, the upper classes live in downtown Paris in apartments.We have had an overinvestment in housing driven by subsidies and marketing. It is probably a vain hope that we will be encouraged to be frugal, but we may be forced to be by circumstance.

GuestFebruary 4th, 2009 at 11:41 am

http://www.peri.umass.edu/fileadmin/pdf/other_publication_types/PERI_SCEPA_statementJan27.pdf1)Pecora type hearings2)coordinated global stimulus3)RFC and HOLC as the professor in his ten points4)stress on global aggregate demand5)neoliberal utopian experiment is over!6)emphasis on helping people survive with shelterhealth, and jobs.7)trickle down voodo economics is over. We are tired of being tinkled on with taxes that the billionairesdon’t pay. If the billionaires don’t pay, you pay!

PeteCAFebruary 4th, 2009 at 11:41 am

News: “WASHINGTON – President Barack Obama said Wednesday the recession will turn into “a catastrophe” if the economic stimulus is not passed quickly, lobbying anew for the plan as its price tag climbed above $900 billion and drew more criticism.”Truth is … the catastrophe is probably coming anyway.No matter what they do.But i am getting a bit tired of Bernanke and the Treasury screaming into the ears of Congress and the Administration that the “sky is falling” any time they want a stimulus package. It started under TARP, and they’ve never quit since then. It’s getting really old now.PeteCA

MomFebruary 4th, 2009 at 11:47 am

since 100% of my family’s income is dependent upon it, why don’t you tell me which you think it is. shall we next discuss whether a new refrigerator is a need? right now a new fridge is not even a want for me – i like this old one fine, but new fridge will soon become a need. what else you want to know, sweets?

datadudeFebruary 4th, 2009 at 12:02 pm

I still contact my representatives about this subject. They all voted against him but I am sure non have the balls to call for his resignation but I still express to them that is the proper course of action on this. Here is my latest:If all the other Tax CHEATs have retracted from their nominations I believe it is your duty for the people of the US and those specifically that you represent to call for tim geitner’s resignation.He is a tax cheat and now he is going to continue cheating the American people, current and future, by taking their hard earned monies and give it to undeserving bankers and corporations!

HayesFebruary 4th, 2009 at 12:10 pm

Bush/Cheney used fear tactics to great effect e.g. W got re-elected.just wait for Turbo Timmy’s announcement next week of the new financial framework (TARP III) to rescue the banks – the question is how much $500 bn over and above the $750 TARP I and IIhttp://uk.reuters.com/article/marketsNewsUS/idUKN0243743020090203NC has a good article on Good Bank Bad Bankhttp://www.nakedcapitalism.com/2009/02/bad-bank-assets-proposal-worse-than-you.html

slfFebruary 4th, 2009 at 12:20 pm

I’m just (im)patiently waiting for the time when insanity and reality stop pussy-footing around and finally have a high speed head-on collision. It is, indeed, becoming tiresome watching the same old show. Bernanke et al have jumped the shark.

GuestFebruary 4th, 2009 at 12:20 pm

Have you ever tried Freecycling? Craigslist also has a free stuff listing. There are lots of local ways to get what you need and get things done. Buying from the evil rich corporations isn’t the only option.

GuestFebruary 4th, 2009 at 12:44 pm

Where is my evidence? In the neighborhoods of McMansions around me, in the people I know who drive BMW’s they can’t afford, in the mentality of basing large economic decisions on small monthly payments rather than the price, in the prim little lady behind me in line talking on her cell phone about the credit card debt she can’t pay. People have been living way beyond their means for a long time. Oh, and I read a lot of books.

RanManFebruary 4th, 2009 at 12:55 pm

CDSes need to be regulated like any other security so that transparency will make the markets work properly. This off-balance sheet, shadow banking stuff has to go. This is a big part of the reason there is no trust in the banking system. The banks don’t believe each other when it comes to their respective financial positions. The situation isn’t helped when every month is another write down. JMHO

PeteCAFebruary 4th, 2009 at 1:48 pm

It’s worth taking a look at the first chart at the following link – an article by Frank Barbera. His first chart shows the long-term trend in US manufacturing employment.http://www.financialsense.com/Market/wrapup.htmThe point being? Well, to borrow an old phrase from Brian Pretti, “if this was a stock chart, would you be buying or selling it?”The fact is that the economic recovery after the 2001 recession was in NO WAY a recovery when it comes to the fundamental ability of the USA to get productive again. Hemorrhaging of important manufacturing jobs has continued non-stop, and is in fact accelerating.It’s far from clear how Obama’s stimulus plan is really going to stop this process. Yes, we can pay people to install energy-efficient light bulbs all around America. But how does this address the concern that US wages are out-of-synch with the global competition? Simple fact is that it doesn’t, and we’ve got a real problem.A growing number of people are now crying out for various forms of job protectionism and trade protectionism in the USA. Very likely we will see some of these measures taken. The fact is that it is possible to pass laws that stop some jobs from being transferred overseas. But it’s not possible to stop foreign competitors from offering independent services that provide the same results at lower costs. I doubt that we can save our standard of living just by legalizing job protections. We’re probably past that point by now. The USA is facing a much tougher challenge of how we can get competitive in the 21′st century.PeteCA

PeteCAFebruary 4th, 2009 at 1:51 pm

By the way – to get that article I posted above, you need to click on the “Tuesday” link for the market wrapup section at Financial Sense.PeteCA

GLOOMYFebruary 4th, 2009 at 2:11 pm

STICK ‘EM UP!”WASHINGTON – Republicans tried to push back against the ballooning size of President Barack Obama’s economic recovery plan Wednesday, even as he warned that the financial crisis will turn into “a catastrophe” if the bill isn’t passed quickly.”

slfFebruary 4th, 2009 at 2:19 pm

Good point. Perhaps expecting the majority to be rational is irrational. Alice In Wonderland is beginning to sound like a primer for getting through life. Or maybe some Douglas Adams. Speaking of which, I’ve just realized what this blog has become for me. It’s like the Babel Fish. I come here, and you all translate the BS-speak of the MSM & the politicians.

GuestFebruary 4th, 2009 at 2:26 pm

By and large, the “remedies” that are being proposed by the political and business leaders in the U.S. amount to relatively short-term “band-aids.” If they work, they will likely at best merely stabilize the patient. Nothing new there.However, I hear very little talk about what is going to be done over the long term once the patient is stabilized, to rebuild a solid new economic foundation in the U.S. Why is that?Because our leadership hasn’t thought about it very much? Because they don’t think the patient is going to stabilize? Because the leadership doesn’t have any good ideas? Because there won’t be any money left? Because they don’t want things to change? All of these? Some of these? Something else?

ex VRWCFebruary 4th, 2009 at 2:38 pm

Its because the ‘leadership’ will have to come from you and I, my friend. It will have to come from the grass roots, and it will start by realizing that the entire economic system has fundamentally changed, and we better change our approach to it quickly to:1) Avoid being wiped out by its demise2) Figure out how we work together4) Build the business and economic infrastructure from the bottom up for a sustainable tomorrow4) Use the tools we have at our disposal, such as the internet, to do all of the above.Simply put, the time for trusting our leaders in Congress and in the Executive branch is at its end. New leadership will emerge from among the people. Its time we recognize the demise of the old system, mourn what is worth mourning, and move on to take our future into our own hands.

GloomyFebruary 4th, 2009 at 2:48 pm

IT’S JUST A MATTER OF TIME”US sovereign 5 year CDS surged 15 bps yesterday to 86 bps. To put that in perspective…..it’s where Citigroup CDS was trading exactly one year ago. “http://macro-man.blogspot.com/

ptmFebruary 4th, 2009 at 2:53 pm

I do not have an exact quote, but the above discussion repeats what Alessandro has said in the past…Wall Street represents the financial industry while the economy is a separate and independent concept. The economy is the generation of wealth through the provision of goods and services, while Wall Street manipulates the wealth of the economy for profit. Given the position we find ourselves today, it may be possible to save one or the other, but there are not enough resources to save both. The clear an obvious choice is to save the economy since it “hosts” the financial industry, Therefore, to attempt a rescue of the economy, the commensal financial industry must be allowed wither and die. This means:* Debt and credit will no longer matter. Home mortgage, credit card balance, business loans, etc. will no longer matter. That debt just went “poof” to money heaven.* But your bank account balance, CDs, and money market account also just went to money heaven as well. All of the credit saved in retirement accounts will disappear.* The economy, on the other hand, is the future. It is where services and goods are exchanged for currency and it will lead to a rebuilding a better financial industry.* Thus, if there is a rescue plan, it must protect and nurture the economy (future production of good and services) and not the financial industry.The recession of 1929-1939 was initiated by financial collapse. However, a Great Depression was created by those who fought to save the financial industry and, in the process, destroyed the economy. The same is happening today. Hank Paulson/Tim Gerthner and Ben Bernanke are engineering a second Great Depression.

Free TibetFebruary 4th, 2009 at 2:56 pm

Yes PeteCA, protectionism won’t help and we do face a tough challenge. We will not be able to un-restructure our multi-nationals and we wouldn’t want to if we could. Manufacturing jobs no longer pay enough to support a Chinese family. Why would we want that back?We may not be able to relocate labor as easily as manufacturing but we can reposition it. We need to restructure the part of our economy that didn’t get restructured in the first go round. And disintermediate that global procurement business. Local, not global. And we can compete on small scales with those giants. Think about the complexity of a Wal-mart. Think about the cost of managing that. What happened to those little book stores? What was wrong with that?I’m suggesting that we’re way beyond mass production. Better now to think how we can make and sell small lots targeted to niches. Something that doesn’t have to be in every chain store in every mall of every neighborhood in every …..

GuestFebruary 4th, 2009 at 2:57 pm

why does Obama think it is right for him to harass American people to support wasteful stimulus plan that doesn’t produce job and wasteful TARP that doesn’t fix underlying banking problem (reckless lending to borrowers with no plan to repay debt and resort to default)Obama: Catastrophe coming if Congress doesn’t acthttp://finance.yahoo.com/news/Obama-Catastrophe-coming-if-apf-14250882.html

GuestFebruary 4th, 2009 at 2:59 pm

did American people voted a winer or whiner? seems to be a whiner. he has been whining since he becomes the president. what is the deal with that?

Andrew G. BernhardtFebruary 4th, 2009 at 3:07 pm

I would like to know why the Congress has done the following?A) Limited executive pay… great, now even more talent will leave the country— is this limit adjusted for inflation??B) Why doesn’t the Congress limit its own pay? They incited the entire economic mayhem by crowding out investment and borrowing— why not limit their Congressional pay?? The entire congress, and the president should have to be “dime men” again, like they were after WWII (since they borrowed so much). They (the Congress) should have to limit their own pay to a single dime per year.C) Why did they validate the constitution, the right to bear arms is lame as hell! Coincidentally, so is the entire constitution. It should be torn up!D) Why did the congress validate, ratify, and approve of the previous administration’s federal budget deficits for wars against a terrorist in a cave in the mountains of afghanistan (osama bin laden) and the pathetic sovereign state of iraq?E) Why didn’t even 1 congressman or woman, why didn’t they start a debate about George Bush’s crowding out of investment and borrowing, in his massive deficit spending spree?? Why didn’t anyone get angry with the previous administration’s BS regarding “deficits don’t matter!” Why did the Congress so readily approve of the previous administration’s deficit spending?F) Why is the solution of the current administration and congress, why is borrowing more money, for bailouts (and other terms for it, like TARP, etc), why is borrowing more money (from foreigners) the solution to too much borrowing to begin with?? Why more deficit spending?? Why are they rewarding idiocy, and failure companies?? Why are banks being reimbursed for losses?? Why can’t the people the reimbursed for their losses??G) Why doesn’t the government try laissez-faire, and stay out of our lives?? They incited the entire economic and capital markets failure— why look to them for help??H) Why do foreigners so readily lend money to the USA?? Lets face it, it’s NOT the taxpayers problem for all these bailouts! It’s the foreigners, who will now have to lend, even more money to the USA. Pathetic. Why do they lend so much all the time to the USA??I) Why did the Congress terminate the downtick rule? Why did the congress (the legislative branch) allow 0% down on real estate? Why did the congress approve of rule changes regarding FAS and FASB rules relating to the quantification of level III assets of large time entities? Why does everyone look to the congress for some type of solution for our problems, when they have destroyed everything themselves.~ Andrew Bernhardthttp://www.google.com/search?hl=&q=+site:www.rgemonitor.com+Bernhardt,+RGE

Andrew G. BernhardtFebruary 4th, 2009 at 3:13 pm

I think the next shoe(s) to drop includes A) Munis Defaults, B) State Defaults, C) Fed Gov. Default?, D) Dividend cuts, E) Sovereign Nation Defaults F) Corporate Defaults G) PE ratios are 11 to 15 in the USA and should be lower due to the recession, also PEs are very low abroad, they’re higher domestically, so we’re in for a doozy of a sell off!… the fallout of the bush administration will be long lasting, and very dire, pathetic, and bad. Gee, deficits matter folks (congress included should particularly realize this). Why in the effing hell did the congress not have a debate about the previous administration’s federal budget deficits? They created the entire problem, from their own idiocy! The republican party should cease to exist, and the democrats for never bitching about george bush’s federal budget deficits, which is entirely ridiculous, their party should also cease to exist.

GuestFebruary 4th, 2009 at 3:32 pm

Earlier today at a EA meeting in St. Louis.Speaker: Hi Everybody – My name is Andrew G. Bernhardt.Audience: Hi Andrew -Speaker: I am a macro-econo-alcoholic!Speaker: I admit that I am powerless over macroeconomics and that my live had become unmanageable. So please God grant me the serenity to accept the things I cannot change; courage to change the things I can; and wisdom to know the difference.

irving fphelmphFebruary 4th, 2009 at 3:52 pm

Martin Feldstein of the American Enterprise Institute describes defense spending as a “great stimulus”a stimulus for death. it is a sickness all this defense spending and kristol and feldstein lead the pack of the sorry half wits who promote their building of more and more arcane death machinery. For thirty years they’ve promoted this weaponry and if they had their way they’d of used it. They are a sorry bunch. why not build bullet trains and solar fields for life, health care for all of us, schools. when will people realize that these guys are chicken hawks and retards and would run faster than anyone when the bullets fly.you hide behind wallsyou hide behind desksin a country whereThe executioners face is always well hidden(behind the tinted windows of limousines)

GuestFebruary 4th, 2009 at 4:57 pm

I would like to see those “FACTS” the dribble CNN spouts out is not a fact. The documents that North Korea generates are not fact. Show me something tangible and I will believe. All I’ve read are your conspiracy theories and shitty ideas on the matters above. I know I shouldn’t but I really HATE stupid people…God help me to have pity on your lack of intelligence.

GuestFebruary 4th, 2009 at 5:06 pm

Do you realize that most of the violent crime committed is when a person is actually on drugs or drunk? If you legalize drugs I for one will walk the streets openly displaying my firearms to ensure that cracked out psychopath thinks twice or dies when he makes his move.

CahillFebruary 4th, 2009 at 5:08 pm

MOG,You and I don’t see eye to eye on a lot, but that Greenspan idea was one of the finest I have ever heard! I love it!

GuestFebruary 4th, 2009 at 5:21 pm

I don’t know anyone who drives a BMW that cannot afford one. Nor do I know anyone who lives in a house too large for them. Your opinion is just that, an opinion based on what you perceive, not evidence in the form of charts and numbers. The fact is that stagflation is occuring in terms of real wages. The devide between rich and poor is growing. These are facts, not opinions.

CahillFebruary 4th, 2009 at 5:26 pm

Not to rain on anyones parade but NO ONE in the United States or Canada is technically poor, not even the homeless, they have shelters. I spent a lot of time in India there are poor people there, millions and millions of them, sleeping on the sidewalk or living in a tent their whole lives. Even the ones that have steady jobs such as drivers don’t have a home to sleep in they make enough to eat buy simple clothes and that’s after being on call 24 hours a day 7 days a week.

GuestFebruary 4th, 2009 at 5:31 pm

In recent years, the number of people working on contracts or on a part-time basis, which includes a much broader group of employees, has grown to 17.8 million people, or about a third of Japan’s workforce.The disparity in treatment between contract and regular employees threatens to divide Japanese society, widening the gap between the haves and have-nots in a country that for much of the post-Second World War era has prided itself as a land of equality.February 04, 2009Yuri KageyamaThe Associated PressTOKYO

GuestFebruary 4th, 2009 at 5:50 pm

In France, the upper classes live in downtown Paris in apartments.

That is one thing I found interesting in the difference between Europe and USA: in the ‘States, the downtown areas were often considered not-so-good, while in the European cities (capitals or not) they were typically considered the best ones to live in.

GuestFebruary 4th, 2009 at 5:51 pm

I never said stagflation wasn’t occurring and that it isn’t a problem, did I? And while you may not know people who drive high-end cars they can’t afford, send their kids to private schools they can’t afford, or live in McMansions they can’t afford, I do. How is saying that people living an overreaching lifestyle blames the working class? I don’t get it. The last time I checked, most working class people don’t do these things.

GLOOMYFebruary 4th, 2009 at 6:07 pm

THE RUBBER IS ABOUT TO MEET THE ROADFeb. 4 (Bloomberg) — Treasury notes fell for a second day as the government said it will auction a record $67 billion in notes and bonds next week, fueling concern it will issue an unprecedented amount of debt this year to spur the economy.“Everyone is trying to figure out what we’re going to do with all this paper,” said Thomas Roth, head of U.S. government bond trading in New York at Dresdner Kleinwort, one of the 17 primary dealers required to bid at Treasury auctions.http://www.bloomberg.com/apps/news?pid=20601009&sid=aDWLJtrAKLZ4&refer=bondLadies and gentlemen, T bonds will end up being bought in large quantities by the government out of necessity. This action will finally demonstrate clearly that the emporer has no clothes. We are not far from a big event (within months IMO). As Nouriel said above:”fiscal policy has its limits in a worlds where you are already the biggest net debtor and net borrower in the world and where you need to borrow this year $2 trillion net ($2.5 trillion gross) to finance your fiscal deficit while every other country (including your traditional lenders/creditors) are now running large fiscal deficits with the risk of a sharp back-up in long-term interest rates once the tsunami of new US Treasuries hits the market (see the back-up in Treas yields in the last 10 days and the scary signal it sends about coming dislocations in the US Treasuries market)”.

slfFebruary 4th, 2009 at 6:27 pm

“This action will finally demonstrate clearly that the emporer has no clothes.”Funny you should use that line. I was just down in CA last weekend, & passed by a building with ‘American Emporer’ emblazoned on the side. I turned to my friend and said, “I’m thinkin’ that pretty soon, everyone’s going to be seeing that he’s completely nude.”

David in SeattleFebruary 4th, 2009 at 7:16 pm

What does it mean for the Fed to print money? May on this board just throw out the idea that we can simply print our money out of this mess. This has never been done and never will–without a complete collapse in the currency. Why do you think Zimbabwe has 1 billion dollar bills?! In fact, there are about 1 trillion in actual U.S. dollars (digital or hard currency) that support our economy.Let me use an analogy to stir your brain. The Boeing 747 has carried over 3 billion people in its 40+ years history. How is that possible? Well, if 1,200 747s take of and land continuously over 40 years, you get the idea.The same is true for money. When money velocity is high, then the whole economy is supported through the currency that changes many hands. When it is low, it does not matter how much money exists or is printed–they economy simply stalls. It would be as if we built 100,000 747s, but no one would want to fly on them.Here are some good quotes from some reliable sources:”The Federal Reserve usually decides a couple of months ahead of the new fiscal year how much cash it needs to print for the next 12 months—much of it simply to retire old bills from circulation. Once it makes that estimate, it sends its annual order over to the Bureau of Engraving and Printing. (Here’s a description of the Fed’s order for 2008.) Those bills enter circulation through a pretty simple process. Banks are required to keep money in a reserve account with the Fed. When people cash checks or take money from the ATM, those banks replenish their cash supply by getting currency from a Federal Reserve branch, with the amount debited electronically from the bank’s reserves. As the New York Fed points out, the amount of currency in circulation can vary from day to day and season to season: More people want cash during the holidays, for example, or on the weekends.Although the stock of currency in circulation has increased by about $43 billion since last year, there is no immediate evidence that the bureau is working its printing presses overtime or has any plans to do so. By the Explainer’s calculations, the BEP printed $14.1 billion worth of bills last month—less than it printed in either October 2006 or October 2007, despite the Fed’s recent efforts to stimulate the economy.So what do economic commentators mean when they say the Fed might choose to “print money”? After all, even Fed Chairman Ben Bernanke has used similar language before, explaining in a 2002 speech—when he was a governor on the Federal Reserve Board—that “the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.” (Bernanke also noted that John Maynard Keynes once “semi-seriously proposed, as an anti-deflationary measure, that the government fill bottles with currency and bury them in mine shafts to be dug up by the public.”)In practice, the term “printing money” is often used as shorthand for what economists call quantitative easing. Typically, major monetary-policy decisions by the Fed are made by setting a target for the federal funds rate—the interest rate at which banks lend to other banks—and then buying or selling government securities to achieve that goal. But as the targeted federal funds rate nears zero—it currently stands at 1 percent—the Fed may be forced to look for other options to fight off possible deflation. (Japan has found itself facing similar problems in recent years.) Quantitative easing is an attempt to increase the money supply by buying more and more assets from banks without regard to an interest-rate target. The Fed doesn’t need to print more currency to do that; it can simply happen electronically, as the banks are credited with more money in the accounts they keep with the Federal Reserve. The Fed can do this as much as it wants, but it could face two potential problems. For one, it’s possible that those reserve accounts will keep growing without stimulating any economic activity. Alternatively, the Fed could increase the money supply by too much, resulting in inflation.”So don’t let Ben Bernanke fool you that he has an ace in the hole. This is high stakes poker and he is simply bluffing. He reminds me of those generals who say they have a secret weapon to win the war, and therefore prevent the public from panicking.The game is over when the public realizes that there is no secret weapon, and we, as well as our creditors, are beginning to realize this with each passing day.

slfFebruary 4th, 2009 at 8:04 pm

“the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.”I think he needs to define “cost”.

MomFebruary 4th, 2009 at 8:13 pm

Oh, come now and be honest: you wouldn’t REALLY like to see the facts or you’d have found them by now. Bill Blum’s Killing Hope – U.S. Military and C.I.A. Interventions Since World War II – has little bitty teeny weeny tiny print from page 393 to 450 – and it’s nothing but scrupulously footnoted sources. Have yourself a field day, Toots: so many facts your head will spin until you lose your barking mass of misconceptions you call a worldview.

HayesFebruary 4th, 2009 at 8:40 pm

Thanks for posting this – I asked a question in an earlier thread — When was the Great Depression first identified by that name? e.g. did such a concept/name exist in the 1930′s

HayesFebruary 4th, 2009 at 9:00 pm

courtesy Drudge Gordon Brown suggests world heading for a ‘depression’Times Online February 4, 2009Gordon Brown appeared to acknowledge for the first time today that the world economy was heading for a 1930s-style “depression”.Mr Brown stumbled slightly over his words at Commons question time, just a week after admitting that Britain was facing a “deep” recession.As the financial gloom deepens, he told the Tory leader David Cameron today: “We should agree, as a world, on a monetary and fiscal stimulus that will take the world out of depression.”…

Wolf in the WildsFebruary 4th, 2009 at 9:08 pm

David,I actually think the Big Ben will pull the trigger and start to print money to support the budget deficit. In his mind, he has no choice. That was the pact the Treasury and the Fed made when they came up with this bailout. Of course, as in all cases bar one in economic history, this will invariably lead to a Weimar style economy. All monetisation of debt does this. The one case that quantitative easing did not work was in Japan. And that was because the country had huge savings and current account surpluses. It will not be the case in the US.In the short term, this will drive rates a lot lower, but you are absolutely right that it will only hasten the day the dollar will stop being the global currency. At the point, I expect global economic destruction and geopolitical chaos and tension to rise significantly.And of course Bernanke will go down in history as the worse central banker (and yes, worse than Gono) because he did not only bring down his country, his actions would have, in all likelihood, lay the groundwork for world war 3.

P&LFebruary 4th, 2009 at 9:13 pm

Why not just put some forensic accountants to work in the Pentagon? Rummy admitted to misplacing $2.3 TRILLION on 9/10/01, a little bit of news that got buried underneath the World Trade Center. What do you think that number might be now?http://www.youtube.com/watch?v=_rRqeJcuK-A

JLCFebruary 4th, 2009 at 10:10 pm

Professor, allow me to be the first to give you props for your “Free Fallin’” Top Petty and the Heartbreakers refernce.

P&LFebruary 4th, 2009 at 10:23 pm

Not stupid…idiot savant. All of us, blinded by our own intelligence, denying our primate natures. Our species will not get smart enough, fast enough, to save ourselves.

K in TXFebruary 4th, 2009 at 10:24 pm

Before the Great Depression all downturns were called depressions. Not sure when the name came into use, but not we have “recessions”.

K in TXFebruary 4th, 2009 at 10:26 pm

So reading the last last few posts, does this mean we may still be on course for U.S. default this spring/summer as forecast?

P&LFebruary 4th, 2009 at 10:42 pm

Hey Gloomy, over the holidays you suggested that you were going all in on gold, to be held at the Perth Mint. Did you really do it?

Wolf in the WildsFebruary 4th, 2009 at 11:48 pm

I think it is debase first: the USD will collapse initially. Default on USD debt will take longer if ever. The initial move will be the collapse of the USD vs other currencies as investors in USD assets run for the hills. The next development will probably be the shift AWAY from the USD as a settlement currency. Lastly, if war doesn’t begin by then, the USA will have to default on debt because the country has no foreign reserves. If you are a holder of gold, move it overseas. I think that the confiscation of gold would be reinstated.

jugglingcdosFebruary 4th, 2009 at 11:49 pm

“The board is set. The pieces are moving.” -Gandalf, The Lord of the Rings.p/s:im done with the mkt/econ part, the ultimate outcome has been recognizedgoing to step 2, monitoring other escalation.. trade war, barrier,regional conflict then global…

GuestFebruary 5th, 2009 at 12:40 am

I was really disappointed to see Meredith Whitney today being quoted that “talent” would vanish from financial firms if the muckety mucks who got us into this huge mess were not “awarded” for their ineptitude with millions of dollars in bonus pay. That $500,000 is considered meagre for these incompetent morons, who completely lacked any boundaries or ethical duty toward their own companies, staff, and stockholders, tells us all we really need to know about the root of the implosion on Wall Street.The “skies the limit” pay bonuses, dependent on dubious paper schemes and ever increasing “sophisticated” layers of debt, drove the pay bonuses. In short, the more you could dupe thousands of people and rip off lenders and creditors, the more you were paid.Now that Obama wants to remedy one of the lynchpins of this grand fiasco, now that he wants to drive an axe through one of the very toughest roots of this diseased tree, we hear normally astute and even sometimes courageous economists like Whitney cry foul.What a sorry disappointment she and so many other greedy bastards on Wall Street are to their fellow citizens today. They would gut the country — indeed *have* gutted the nation — all because $500K isn’t “enough.”Screw you, Ms. Whitney.

MarkFebruary 5th, 2009 at 2:39 am

I second that!And another fundamental question is how the professor thinks that we can achieve sustained economic growth, on a finite planet.

MarkFebruary 5th, 2009 at 2:50 am

Speaking of Steve Winwood, Low Spark of High Heeled Boys comes to mind…The percentage you’re paying is too high pricedWhile you’re living beyond all your meansAnd the man in the suit has just bought a new carFrom the profit hes made on your dreamsBut today you just read that the man was shot deadBy a gun that didn’t make any noiseBut it wasn’t the bullet that laid him to rest wasThe low spark of high-heeled boysMark

MarkFebruary 5th, 2009 at 3:03 am

Sigh… this Limbaugh-type thinking doesn’t get anyone anywhere. It’s not a liberal vs. conservative thing! It’s class warfare, period. The haves vs. the have-nots. It’s the power-mongers scrambling to maintain their dominance.Are there people ideologically inclined who are not hypocrites? Yes.Mark

The AlarmistFebruary 5th, 2009 at 3:38 am

When I think of Ben Bernanke, I can’t help but be reminded of the old saw about a guy and a hammer who sees every problem as a nail. Just because he studied the Great Depression doesn’t necessarily mean that equips him well to prevent the next one.The only thing that seems to have not been tried in the 1930s was to simply let the correction run its course, an approach which had been used successfully in the early 1920s following WW-I. Numerous studies have shown that the interventionism of the 1930s only exacerbated the problems faced.So we are to believe that doing even more will be even better? That borrowing even more is the best way out of a crisis caused by too much borrowing?Give us a break!

GuestFebruary 5th, 2009 at 3:51 am

Just came back from a vacation in China. One afternoon I was sitting in Shanghai’s Eastern Pearl (the 2nd tallest TV tower in the world), having coffee with a friend. I looked out the dome’s glass windows, the tower is surrounded by hundreds if not thousands of skyscrapers. I remember my first visit to China in 1989, there were nothing, not even the tower we are sitting in. I asked my friend “who do you think paid for these skyscrapers?” My friend looked very confused when I answered “Chinese peasants (migrant workers) and American middle class”.

MarkFebruary 5th, 2009 at 4:03 am

You saved me from going on a rant, thank you!THE reason for the economic “crisis” is no more than the realization that we can no longer grow, the world can no longer grow. Since the economic system is predicated on growth what we are now witnessing is the start of its death.Mark

MarkFebruary 5th, 2009 at 4:37 am

to reinvigorate global demandIt’ll be unfulfilled demand. We’ve maximized our ability to extract resources from the planet. Growth is D_E_A_D. Addressing labor, or hanging banksters, won’t change this fact.Mark

MarkFebruary 5th, 2009 at 4:46 am

And IF everyone was equal and our population kept growing to the point of maximum possible population density, then what? I’d think that “pay” would be pretty meaningless at that point.What’s “unsustainable” is growth.Happiness is up to the individual. What SHOULD be is access to the basic needs: Food, Shelter and Water.Mark

MarkFebruary 5th, 2009 at 4:49 am

What’s CNBC? I don’t own a TV (or watch that brainwashing device).The majority of people now get their news from the Internet. The Internet, one of the few things that we got right…Mark

Free TibetFebruary 5th, 2009 at 5:57 am

“…..It will not be the case in the US.”Why not? As long as the surplus countries maintain a peg the US can export inflation.In the long run I see the same outcome as you. But there is an intervening step that I think you overlook.

ranManFebruary 5th, 2009 at 5:57 am

tear up the constitution? Why? If with did what it said we wouldn’t be in this mess and there wouldn’t be a federal reserve!

MarkFebruary 5th, 2009 at 6:13 am

She has a point. The markets, not the government, should determine whether these people are worth it.It was going to happen sooner rather than later. I think that all this talk (and whatever action) is pretty meaningless. The cows got out!Are they worth it? I don’t own any stock, nor do I partake of their services, so I really didn’t support their lavish salaries. Now that the government has stepped in, however, I _AM_ supporting them!Mark

GuestFebruary 5th, 2009 at 6:14 am

Meredith Whitney and all economists work for banks so naturally they don’t want pay limits or even nationalization of banks, except the really honest ones who tell the truth despite what misfortune it may bring them personally. This is the whole problem with society it’s all about win at any costs, we’ll worry about what’s right after we win and are in powerful positions. But by then it’s too late society is already corrupted. Telling the truth is often a short term sacrifice for long term good of the whole.

Free TibetFebruary 5th, 2009 at 6:16 am

The harder Japan tried to stop thier deflation the harder the carry trade got going. Japan exported inflation.Same will happen. But there’s a tipping point somewhere.

GuestFebruary 5th, 2009 at 6:18 am

Not when we the tax payers are bailing them out, besides this is just a ruse to build up political capital and prepare the American people for a sound pillaging and raping bailout for bankster shareholders. Banks should be utility services because they only steal productivity from the people sorry if you happen to work in the finance industry but it’s time you look at what’s good for everyone not your self!

MorbidFebruary 5th, 2009 at 6:21 am

I Am Recalling What The Silver Surfer Said……as the Earth was about to be destroyed.ALL THAT YOU KNOW HAS COME TO AN END

GloomyFebruary 5th, 2009 at 6:26 am

I put 10% of my assets in the Perth Mint. I also hold a substantial position in gold mining stock options to hedge my remaining assets.

GuestFebruary 5th, 2009 at 6:30 am

Excellent point. The Obama Administration is appeasing the public anger by blasting the bank execs and their salaries for what is in the overall scheme of things a relatively small matter dollar wise. While distracted by the bailout exec salary issue, the public is taking its eye off the ball and is about to get hit right square between the eyes with another multi hundreds of billions of dollars bailout for the banks themselves. In reality, this will benefit most top bank execs a great deal, by preserving at least some value in the stocks they own in the banks they run.

Mother of GodFebruary 5th, 2009 at 6:40 am

Where does population grow rapidly, Mark? And what slows it down? It’s where people are kept poor, unhealthy, and uneducated that they keep reproducing to keep their families going. Where people, especially women and children are educated and material lack is reduced and quality of life improved, that’s where population growth controls itself. So if you – and only if you – eliminate extremes, you have licked the problem of population growth.Beauty how that works, eh?What’s unsustainable is INEQUALITY. Without it, all the things we need to do are possible. It’s having wealthpower giants who do anything – bar nothing – to preserve their overpayoverpower – that is keeping us from having a Golden Age and reaching mankind’s longest-sought goal of sustainable peace and plenty for all.The Earth might well be able to support 50 billion people without a problem, probably even more. It’s not our numbers that threaten – and that overpopulation nonsense is just diabolic misdirection coming from the people who will benefit by everyone buying into this meme the wealthpower giants have so craftily floated into the general consciousness. Yes, Mark, I’m telling you that you have been royally duped.I once believed the meme myself, then I dug deeper – and it’s some really nasty business these wealthpower giants are up to, manipulating the world’s beliefs.Check into the world’s Nature Preserves, who exactly is preserving that land, and who for, and what sits underneath those preserves…Yes, it’s all a lot more diabolic than good people can even imagine the baddies can be.

MarkFebruary 5th, 2009 at 6:53 am

Ah, but you’re confusing growth with ONLY population. I’m referring growth to total consumption.The West, the US in particular, may have a lower (and seemingly healthier, though this is highly debatable) population, but it’s consumption levels are huge.Pump up the population to 50 billion and let me know how that experiment turns out. I’ll wager that all the civility and justice that you’re championing won’t be happening.Yes, Mark, I’m telling you that you have been royally duped.And I’m telling you that I’m not. I have yet to be proven wrong, sorry.Mark

Mother of GodFebruary 5th, 2009 at 6:59 am

Let’s pretend we’ve extracted all the aluminum there is from the Earth. Is it gone? Did it disappear? Or is it all still there to be recycled and reused again? And let’s pretend there’s no more room to psread out because we need the land to grow food. Is there a limit to up? How about build another story on all the one-story housing? And how about instead of treating quarry tailings as waste to pay to be hauled away we sell it to people to put in their gardens and fields to remineralize the earth and soak up carbon at the same time?Just because SOME kinds of growth are unsustainable and not feasible, it’s a leap of illogic to say any/all kinds of growth is dead.Almost all people are born with these handy things called opposable thumbs, and that means every mouth that gets born has the ability to produce more food than that mouth requires. Other species can only operate under their mechanics and can only take advantage of the food they find. Humans create more of their food supply. We are the only species capable of overriding our mechanics. Small, diverse farms are 30 times as productive/efficient as large monocropping that ruins the soil.We do have possibilities, and growth per se is NOT dead.

Jason BFebruary 5th, 2009 at 7:12 am

US Treasury in plans for record debt saleBy Michael Mackenzie in New York and Krishna Guha in WashingtonPublished: February 4 2009 18:01 | Last updated: February 4 2009 21:28The US Treasury on Wednesday opened the floodgates of government bond issuance, revealing plans for a record debt sale in February and more frequent auctions in the months to come.The announcement came amid growing fears about US government deficits and sent the yield on the benchmark 10-year Treasury note rising to 2.95 per cent, up from just over 2 per cent at the end of December.The rise in Treasury yields has been pushing mortgage rates higher, complicating efforts to revive the economy. The US Federal Reserve said last week it was “prepared to” buy Treasuries if that would be a “particularly effective” way of reducing private borrowing costs.“The Fed has to be troubled by the fact that mortgage rates have been rising and the buying of Treasuries by the Fed may come sooner than the market expects,” said William O’Donnell, UBS strategist.The Treasury said it would sell $67bn (£46bn) in new securities next week, the largest ever quarterly refunding, beating the last peak in August 2003. It may also start monthly sales of all its benchmark Treasury securities.At the end of February, the Treasury will start selling seven-year notes every month for the first time since the issue was discontinued in 1993. Sales of 30-year bonds will double to eight times a year and the Treasury will say in May whether the bond will be sold every month.For Barack Obama’s administration, the step-up in borrowing costs comes as it is fighting to secure an $800bn-plus fiscal stimulus, and is likely to need many hundreds of billions more to fund a banking sector clean-up.The Treasury Borrowing Advisory Committee expressed concern on Wednesday over the sharp jump in net borrowing needs – which market analysts estimate could reach $1,500bn to $2,500bn for the 2009 financial year.Traders are particularly concerned about the appetite for Treasuries among foreign investors, who hold more than half the outstanding $5,500bn in Treasury debt.In recent years, demand for US government debt has been stoked by developing countries running huge trade surpluses with the US and recycling dollars by buying Treasuries. However, many are facing growing pressure to stimulate their own economies and are seeing their current account surpluses decline as global demand diminishes.Copyright The Financial Times Limited 2009http://www.ft.com/cms/s/0/bdf4ee70-f2e4-11dd-abe6-0000779fd2ac.html

Mother of God extremes MEETFebruary 5th, 2009 at 7:14 am

Thanks for the photos, Mark. Next up I want to see someone make a documentary called “Work”. I want video of: a CEO on the phone discussing a business plan or chairing a meeting of the board of directors, and a clip of a rice farmer planting rice, and a clip of the housekeeping staff sanitizing the hospital surgery room floor and a clip of an English butler pressing the boss’s pants and a clip of an African female child hauling water and a clip of the garbage hauler jumping on and off the truck and a clip of Madoff at his desk……..you get the idea?Is any of these working people working harder than the others?HOW MUCH HARDER, and WHO is doing the hardest work????you get the idea??? anybody get the idea???

Jason BFebruary 5th, 2009 at 7:16 am

oh gawd. Are you wearing a sandwich board that says that?the birds will still sing, the sun will still come up every morning, and trout will still rise to a fly. A beer will still taste wonderful after mowing the lawn on a hot day, even if it is a push mower.

Mother of GodFebruary 5th, 2009 at 7:18 am

The work it takes to keep societies going is SPREAD. The wealth must be spread, too! ONLY WORK CREATES WEALTH. ONLY WORK DESERVES PAY.But in our stupid, myopic economic dystems what gets almost all the pay?Money.This is tear-your-hair-out global stupidity.

Mother of GodFebruary 5th, 2009 at 7:22 am

I used to be “your average idiot”.Today I am walking talking living breathing proof positive of just how much people can learn.

Mother of GodFebruary 5th, 2009 at 7:34 am

would that everyone were as willing to protect us all from the biggest threats to human life, we’d have our guns trained on the idea to have billionaires who kill millions.by all means, use your weapon for self-defense, sugar – you’ll get no argument against protecting yourself from this quarter, but recognize the actually greater threat to your safety that is already at your throat 24 hours a day: inequality.

Mother of GodFebruary 5th, 2009 at 7:47 am

…and what are you basing THAT on? The whole trouble with MBC is that he just doesn’t give us a hint why he’s on about this, and i actually think that is sorta cruel because IF he’s got sources/info we should be reading and considering, then why not share so we can come to some rationally-based determinations of our own? The threats of war ahead are very real – and all this “guessing” one way or the other are NOT helpful!Come on, Ben – I’m asking nicely for information from you. If we don’t get it, can you blame people for just reacting, and not giving what you say some real consideration?

Mother of GodFebruary 5th, 2009 at 8:02 am

While there is certainly a difference between a leftist perspective and a cheap labor social darwinist perspective, that is not a real divide at the top of the pyramid. Mark is right – at the top, they are all first and foremost members of the rich man’s club and ‘though they fight with each other for supremacy they will close ranks against the have-nots EVERY TIME. YES, it is class warfare on steroids today, and all the Dems versus Repubs crap is there to fool people so they won’t think to turn on the wealthpower giants who foment the false divides.When Frank Luntz’s rightwing propaganda playbook got leaked, I thought at last this would all be exposed and people would see how cynically abusive the manipulators are, but damn if unlearning what isn’t true isn’t the hardest learning there is.

Mother of GodFebruary 5th, 2009 at 8:06 am

I keep reminding people of that “little” fact, too, P&L! I have not figured out why it doesn’t make people drop their jaws and start demanding answers to hard questions.2.3 trillion dollars just gone up in smoke, and nobody cares?HUH?

Mother of GodFebruary 5th, 2009 at 8:19 am

This is why every bit of my own effort is focused on educating people about how money works. We are all moneyfools compared to the most money-savvy, and our educational system does not go where we need to go. We’re busy teaching kids the history of the Presidents and the wars and the successful rich, and our kids do not learn about the workings of the very thing they will rise each day and go to work to get – money.This species needs to make a Promethean mastering of money and quick because money, like, fire, is a good servant and a terrible master.The love of having other-earned money is the root of all evil.

Mother of GodFebruary 5th, 2009 at 8:31 am

Jason, we humans are on a doubletime march to extinction and we cannot keep going this direction without arriving at where we are headed someday. It’s up to us whether we DO destroy earth, or not. It CAN happen, it WILL happen, if we don’t change direction in time. The vital understanding humans have to grasp is that our extremes of maldistribution of material wealth are more extreme than ever, and EXTREMES MEET.

GuestFebruary 5th, 2009 at 8:48 am

http://www.ritholtz.com/blog/Barry Ritholtz is right on Nationalization(“Financial Mulligan”). His alternative plan is too complicated.Any American that receives $2000 dollars is not going to spend that money on paying off debt. He is going to eat with some of it and hold the rest to eat in the future. He can always live in the car. I am sure Barry was just trying to be shocking to get us to think!If Goldman Geithner outright provides a gift of money to the Mothers of Perpetual Interest, Obama has betrayed all of us. It would just tell me that the banks are loading up there lifeboats and they are planning an exit from the Titanic, until they can come back with a tow boat later and buy it all back for next to nothing.Citi, BoA, Wells, Goldman, JPM, Morgan have no allegiance to the US. They could easily do business elsewhere while their latest victim deleverages from10,000 feet without a parachute. They will get theirmaximum parachute of TARP before jumping. They will land and wait until deflation works its magic. Theydid it in the Asian Crisis and they picked up someexcellent Korean companies for a song. Crisis Profiteering is like Piracy. Pillage and Plunder andmove on to the next victim. Skull and Bones forever!

Mother of GodFebruary 5th, 2009 at 8:51 am

Do we tell ourselves that the rich first-world imperialists will lay down willingly and be trodden beneath the feet of the rising “third-world” when they come after all the stolen loot? We are dreaming if we think the imperialists will not let loose the atomic bombs in attempt to protect their wealthpower. The bombs are at 60 times planet death capability and rising. The wealthpowerful ones are just that stupid and myopic, and i don’t know how many times they have to show us the evidence of that before we get it through our heads. We can trust that nature has not got it wrong, but transferring that trust in nature to ‘society can’t have been getting it wrong for a long time’ is a grave error in our thinking.It’s time to get really really real, humanity.

GuestFebruary 5th, 2009 at 8:53 am

FREE FALLING! Bloomberg, Market watch and others are not mentioning that BAC is in FREE FALL currently at $3.87 per share. Get ready for even more bailout to them in addition to the original $25 billion plus $20 billion plus $118 billion. This is unbelievable!

HayesFebruary 5th, 2009 at 8:57 am

What I find inspiring is that the proposed cap on CEO compensation of companies that receive significant help from the TARP is limited to just a few executives at the top and even more inspiring is that it is not retroactive e.g. it does not apply to companies that have already received TARP money.

Mother of GodFebruary 5th, 2009 at 9:00 am

i love this comment, but it’s an observation of a temporary situation. see above for the view from space: there is only one boat and we’re all in it. the situation is not “we should all be brothers”. the situation is: we ARE all brothers.Look down, everyone: your feet are standing on every country in the world.

Mother of GodFebruary 5th, 2009 at 9:08 am

We’ve always been supporting them – read David Cay Johnston on taxes (Perfectly Legal) – they have long escaped taxes that you and i have always been making up for. And people must be made aware that the details in this salary-cap bill mean it’s a ruse from the get-go and that anyways most of their wealth does NOT come from their salaries to begin with.

MAFebruary 5th, 2009 at 9:08 am

the latest from Miss Americahttp://www.rgemonitor.com/globalmacro-monitor/255439/alt_energy_chapter_2__net_meteringEnjoy.

HayesFebruary 5th, 2009 at 9:11 am

Expect some leaks about Turbo Timmy’s revamped financial package to begin to emerge – if the pattern repeats itself there should be a mid day reversal today or tomorrow on that inside information. Having said that it seems that these reversals are showing smaller gains and are getting shorter in duration.

CahillFebruary 5th, 2009 at 9:16 am

I think you misunderstood me. I despise all politician’s there isn’t a clean one on the books. I simply was saying that I prefer the person that tells me upfront that he is above the rules and going to screw me than the one that pats me on the back, calls me buddy and then cold cocks me when I’m not looking. Either way I’m getting screwed.

Mother of GodFebruary 5th, 2009 at 9:23 am

I hear all the gold coin with rabbits on ‘em have sold out. I guess rabbit-proof fence has been replaced? rabbit proof hedge?By the way, Gloomy, thank youse guys for the good movies. “Kenny” was pee-your-pants hysterically funny! And ‘rabbit’ is an eternal favorite must-see.

Mom ofFebruary 5th, 2009 at 9:29 am

Does any of you in America get this channel CBC Newsworld? Can this program be viewed anywhere else? I want to see this very much!

Mother of GodFebruary 5th, 2009 at 9:35 am

You’re always proclaiming that you know the limits…to how we can do things and what we can do. I’m sorry, Mark, but I’m not willing to go on your opinion and the limits of your imagination. No one has a lick of proof that they’ve determined the carrying capacity of earth. It’s just speculation that certainly can be wrong.I don’t say we WILL save ourselves: I say it’s undeniable that we CAN.I don’t say we WILL embrace justice and fairpay in time: I say it’s undeniable that we CAN.

GuestFebruary 5th, 2009 at 9:38 am

Please at our worst we could not deliver the power that the asteroids of old that wiped out billions of species have done and Earth recovered. The only danger humans pose a threat to is ourselves. The earth will survive, we just may not be on it.

MomFebruary 5th, 2009 at 9:41 am

You and I are in agreement that we CANNOT keep doing things the way we have been doing them – producing and consuming willy-nilly without regard to moderation and the environment. But you sound to me like that guy at the patent office in the 1800′s who wanted to close it down because “everything has already been invented”.

MomFebruary 5th, 2009 at 9:44 am

also wondering, have you read any of the increasingly available studies that reveal how inequality is the CAUSE of decreasing levels of health?

Mother of GodFebruary 5th, 2009 at 9:56 am

And I’m only HALF joking about it, Cahill – and we can add the Cheney and the Kissinger and some others to the holiday. It would be a good reminder to us to keep teaching every new generation about the mistakes humans made in the past and the consequences of those actions.On the flip side of this idea is this: People who have “D’oh!” moments should be held up as heroes – their photos oughta be put on the front pages and they should be honored on teevee and given free tacos or something.I’m telling you, Homer Simpson is smarter than most people. Homer is at least capable of having “D’oh!” moments, when he suddenly realizes how very wrong he has been getting it. We modern humans feel embarrassed and ashamed to have anyone know we have been getting it wrong, and that’s backwards to what we need. Having “D’oh!” moments is a wonderful thing for people. Having the big “D’oh!” moment should be cause for celebration and honour. Having the big “D’oh!” moment makes us safer and happier!It’s the dog doo-doo we don’t see that we step in.”D’oh!”

GuestFebruary 5th, 2009 at 10:04 am

GREAT CALL HAYES! Can I buy one of those crystal balls you’re using? Is it made by Elliot, Fibonacci or Geithner?

MomFebruary 5th, 2009 at 10:05 am

I’m just never going to understand people who think “Well, it’s ok. Humans won’t be here but the planet will be.” GOOD GRIEF, do we love ourselves this little???

GuestFebruary 5th, 2009 at 10:32 am

It’s a diversion tactic to bailout shareholders and the owners of the Federal Reserve who are of course the masters of the universe. Class war is coming!

Hugo PenteadoFebruary 5th, 2009 at 6:37 pm

The economy can not be bigger than the planet. Why do not you take this crisis to see that the whole economic model has to be revised very briskly? We are totally lost if the only possible solution is a growing demand to save the economy, without saving our animal species from an extinction. This contradiction (save the economy or save the planet) probably is false or derived from our blindness. How is possible for the economists to continue to recommend policies as if the planet was inexhaustible and as if this recommendations were socially healthier and fair? This way to see how planet works is like to say: I never died, so I will never die. Planet never stopped sustaining all forms of lives, like us, so this will never happen, someone woult believe. Is that true? Think about it. The same view applies to the current crisis: all economic crisis found a solution, this one will not be different. We hope so, but we never can be sure, after any new economic crisis, we just stressed more the pressure against the planet, being bigger consumer populations as if the countries territories were infinite, assuming also that we are not Nature dependent. Best wishes, Hugo (Kenneth Boulding, Herman Daly and Nicholas Georgescu-Roegen were never refuted and all of them predicted a terrible end because we always insist on the same mistake).

AnonymousFebruary 7th, 2009 at 5:54 pm

U shaped recession scenarios looks catched the train after the Governments around the Globe gave assurances to the financial sector which was too big save in 4Q 2008. 350B TARP evaporated in 3months, other 350B will evaporate in the next coming 3months. 800B another stimulus, what is next?? FED started to announce to buy Treasuries because the bond buyers started to make panic that the market will be overflooded with the treasury securities soon. Printing money in whatever forms it may take does not resolve anything. Something wrong in here. Why there has been a housing bubble because the credit flowed more that what it should be. The things what has happened was the natural concequences of what has been done. U shaped recession should have been accepted instead of trying to flow the credit again which already triggered the problem. Greenspan is blamed to keep the rates at %1 level which is said to be triggered the housing bubble. If this is the case what is going to be said for Bernanke for %0 rate strategy. I think the current startegies are driving the USA to 1920-1923 Germany instead of 1990-2000 Japan. The Gold prices are increasing against currencies, the investors just started to scare and about to be loosing their confidence to the government securities, soon nobody will not like to keep fake USD, Euro credits in their banks but prefer to keep gold coins in their pockets (Looks to be more safe). These symptoms are the first triggering mechanism of an hyperinflation era while a deflation and recession is deepening. I think USA is about to be loosing the chance to be 1990-2000 Japan.

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Dr Dan Steinbock is a recognized expert of the multipolar world. He focuses on international business, international relations, investment and risk among the major advanced economies (G7) and large emerging economies (BRICS and beyond). In addition to his advisory activities (www.differencegroup.net), he is affiliated with major US universities as well as international think-tanks, such as India China and America Institute (USA), Shanghai Institutes for International Studies (China) and EU Center (Singapore).

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