real economics

I first noticed Ian Walsh around 2005 when he and Stirling Newberry were running "Blog of the Presidency." That seems almost a lifetime ago. Ian used to make a living doing something or other for some big Wall Street investment bank, but managed to get out with his soul still intact. And he has been consistently accurate -- and pessimistic -- about conditions and prospects in the United States. In late January, when the Supreme Court handed corporations the same speech rights as human beings, Ian noted that "Yesterday’s decision makes the US a soft fascist state. Roosevelt’s definition of fascism was control of government by corporate interests," and advised

If you can leave the US, do. Most of the world is going to suffer over the next decades, but there are places which will suffer less than the US: places that have not settled for soft fascism and a refusal to fix their economic problems.

Ian has already moved to Canada, a few years ago.

In his blog today, Not a Double Dip, A Second DownLeg, Ian gives a brief, concise, sharp and painful summary of the U.S. economy and its prospects:

We’re seeing a global wave of Hooverism. Virtually everyone outside of Asia is refusing to continue stimulus at necessary levels, after having done their original stimuli at inadequate levels or in ways which were outright incompetent. The leading edge of this isn’t the US, it’s Europe, which has decided not to either borrow from China or print money.

Meanwhile, in the US, we had a “jobs” bill which was only 15 billion dollars (probably two magnitudes too small) and which was profoundly stupid in any case—there won’t even be 15 billion dollars worth of value from it. Meanwhile state and municipal tax revenues continue to decline. There is no place in the US economy which is going to generate sufficient demand, and the only sure useful demand is military, but military spending isn’t all that cost effective. Of course, it’s better than tax cuts, and it’s the only type of stimulus both parties believe in....

The economy has not recovered. The banks have not recovered, if forced to actually recognize their losses both Citigroup and Bank of America would be bankrupt. Quite possibly so would some of the other large ones.

China seems to have decided that it doesn’t want a full US recovery. The calculus is this: a recovery in the US drives up commodity prices even as it allows the US to buy more goods. Since the US buys those goods with China’s money anyway, better to have cheap commodities and make less sales which aren’t actually sales.

And the oil and commodity trap remains. With the world economy still sucking wind, oil is hovering around 75 to 80 dollars a barrel. If there was a real recovery, oil would quickly go back to 150 and bring the entire thing crashing down anyway.

Bernanke and Geithner, with all their spending, appear to have not saved the world. Indeed, they may have put off the reckoning for less than 2 years. For a bill of at least 4 trillion, and arguably more, that’s pretty amazing incompetence. Which, of course, is why Bernanke was reappointed. Nothing succeeds amongst the US’s elites like failure.

And if you have the time, read Ian’s blog from a few days ago, Tunnels of the Underclass, a re-posting of a homage to the working poor.