Wednesday, July 13, 2011

The summer of economic denial

The Predator Classes are making a big push to snatch everything that isn't nailed down under the banner of "fiscal responsibility."  Anyone following the various economic calamities in Europe has to wonder in amazement how these crooks think they are going to get away these schemes but so far, they ARE succeeding.

The lack of a coherent pushback against the crooks is pathetic.  One wonders how folks can be so confused.  Of course, the real reason for the confusion is pretty simple--people with the power and money to confuse the economic issues are spending good money to ensure that confusion reigns.  But the crooks have a lot of help--especially in USA where the press hasn't covered a serious issue in decades, our schools seemed designed to produce historical illiterates, and our governments seemed FAR more interested in cultural issues than economic ones.

And then there is the little problem that some of the economic dilemmas this time around are without precedent.

This Time Really Is Different
10 July 2011 
As the economy goes down the drain, those who want to believe that America's problems are temporary face an unsolvable dilemma: how do you spin this ongoing disaster in such a way as to maintain your delusions about the future greatness of the United States? The latest jobs report was a case in point—"ugly" was the preferred word for describing it. John Mauldin is one of those who will grasp at any straw to remain hopeful about the future. I'll quote from his latest newsletter What Happened To The Jobs?
The US jobs report came out this morning, and it was simply dismal...
First, there were only 18,000 jobs created in June, the lowest since September 2010. While private employment rose by 57,000, government workers dropped by 39,000, continuing a trend as governments at all levels work to cut their budgets. Long-time readers know I think it is important to look at the direction of the revisions, and we got no help. May was revised down by 29,000 jobs and April a further down 15,000.
I saw some headlines and talking heads in the mainstream media saying the poor number was due to “seasonals,” and I just shook my head. If you are that reflexively bullish when presented with what was clearly a bad report, how can you be taken seriously?
Mauldin alludes to a problem which he himself suffers from. It is a problem I have with almost everybody in this society who thinks they know something about our socioeconomic problems: how do I take them seriously? Mauldin is an unabashed dyed-in-the-wool optimist who is loathe to admit that the American story will not have a Happy Ending. To show us just how bad things really are, Mauldin puts up the Employment/Population chart—the working portion of the U.S. population—and then purports to explain why things suck as badly as they do.
This Time Is Different
I have quoted at length in past letters from Ken Rogoff and Carmen Reinhart’s masterful work, This Time is Different. While the market may have been surprised by such a low jobs number, it is PRECISELY what is typical following a credit crisis, as they demonstrate in their book.
You may think Mauldin just pulled a rabbit out of his hat, and you're right, that's exactly what he did. You are meant to understand that this was a financial crisis, and the aftermath of financial crises is always really bad. This is the preferred explanation of "sophisticated" economic commentators who want to explain away what is happening in the United States, people like Barry Ritholtz.
In today’s Barron’s, Alan Abelson discusses a Reinhart & Rogoff paper (The Aftermath of Financial Crises) ... Note that we have discussed the fine work of R&R previously (here and here)...
... you should go read the original — that’s your weekend homework assignment. Meanwhile, here’s [some text from Reinhart & Rogoff]—
“Broadly speaking, financial crises are protracted affairs. More often than not, the aftermath of severe financial crises share three characteristics.
First, asset market collapses are deep and prolonged. Real housing price declines average 35 percent stretched out over six years, while equity price collapses average 55 percent over a downturn of about three and a half years.
Second, the aftermath of banking crises is associated with profound declines in output and employment. The unemployment rate rises an average of 7 percentage points over the down phase of the cycle, which lasts on average over four years. 
Output falls (from peak to trough) an average of over 9 percent, although the duration of the downturn, averaging roughly two years, is considerably shorter than for unemployment.
Third, the real value of government debt tends to explode, rising an average of 86 percent in the major post–World War II episodes. Interestingly, the main cause of debt explosions is not the widely cited costs of bailing out and recapitalizing the banking system. Admittedly, bailout costs are difficult to measure, and there is considerable divergence among estimates from competing studies. But even upper-bound estimates pale next to actual measured rises in public debt. In fact, the big drivers of debt increases are the inevitable collapse in tax revenues that governments suffer in the wake of deep and prolonged output contractions, as well as often ambitious countercyclical fiscal policies aimed at mitigating the downturn.”
I've got some news for people like John Mauldin, Barry Ritholtz, Carmen Reinhart and Ken Rogoff—this time is different, but not in the sense you intend. To understand what is happening in the United States, it is necessary to go far beyond an historical survey of financial crises. You must consider the specific historical circumstances that led to the current crisis. Such a review would include but not be limited to the following observations—
  • The United States has been hemorrhaging manufacturing jobs for 30 years.
  • Almost all of the income gains made during that time went to the top 10% of wage-earners, with most of them going to the top 1%. Wealth inequality grew accordingly.
  • Health care costs have been soaring all that time.
  • College tuition costs skyrocketed at a pace far beyond the rate of inflation.
  • Households took on more and more debt to replace lost income.
  • We had not one, but two, substantial economic bubbles during the last 15 years. Without those bubbles, how much would the U.S. economy have grown?
  • The private debt to GDP ratio grew and grew, clearly indicating that more and more debt was required to add an additional point of GDP.
  • The Federal Government more and more became the tool of monied special interests. more
And some "suggestions" for how to avoid discussing serious matters.
Rules of engagement
Last night, I finished the late Alan Bullock's magnificent book, Hitler and Stalin: Parallel Lives. It's a reminder that no matter how much one has studied a topic, he or she can have vast new landscapes opened by the best historians as tour-guides. The book was completed just as the Soviet empire that Stalin built was falling apart, and the moment was marked by the greatest hope. Yet Bullock also reminded us of the bloody paths that contingency can create, particularly when broad social, economic and cultural forces and destabilization ("history from below") are harnessed by evil genius ("history from above"). The book ends with a deeply moving coda of promise. But that comes after a thousand pages examining the two greatest mass murderers in history; worse, men who could move nations to do their killing.
I think about all this as we sit seemingly becalmed, summer opening. Americans could be forgiven a moment of desire for, as Frank Fukuyama put it, the end of history after the long standoff of the Cold War. But this is not 1989-90. Now we are a nation of simpletons in denial. Thus, President Obama could make a speech about Afghanistan where the media report it as if we're actually leaving this hopeless morass. He can say, "it's time to focus on nation-building here at home" but he lacks the conviction to build even one — just one — segment of true high-speed rail. We treat Randian ravings as serious policy options and allow the cruelest policies to be passed by those who also brandish their "Christian" values at every speech. One of our two major political parties' platforms is essentially based on returning America to the 1880s, without a frontier and with more than 300 million people in a complex society.
As I write this morning, I see headlines for stories saying the United States and its allies will "release 60 million barrels of oil to offset supply disruptions caused by unrest in Libya." And presumably also to help keep gas prices down for the trip to Wal-Mart (recent acquisition: the U.S. Supreme Court). And they note oil prices fell. I want to scream, "America uses 20 million barrels of oilevery day and China is fast catching up, you fools! Prices are falling because of fears of a new recession!" But, in a calmer state, I think, maybe it's me. I don't understand the new rules of engagement:
1. Do not discuss climate change or peak oil, overpopulation, the death of the oceans, etc. etc. in the media or public square. If you must do so — a pesky study from imminent scientists or such drivel — be sure to give equal and respectful play to the "deniers." Be sure to leave the shrinking number of Americans paying attention even more confused.
2. Do worry intensely about "the debt" and "the deficit." But by no means discuss historically low tax rates and revenues, or the resources available to the richest nation in history. By all means inveigh against the "welfare queens" and other "takers" as you go off to pick up your food stamps, unemployment benefits, Social Security check or use Medicare, of which "government hands" must be kept off.
3. Do not mention the Military-Industrial Complex, its astounding cost, distortions of our policies or subversion of democratic government. It would make you sound like an unpatriotic socialist with no respect for "our men and women in uniform" and no service experience yourself — you know, somebody like Dwight David Eisenhower, five-star general and Liberator of Europe. No wonder Ike didn't wear a flag pin in his lapel.
4. Do look the other way as Mr. Obama gets America involved in wars in Libya and Yemen. These are small colonial spats, after all, and why does the Constitution matter — except for the parts of it that make America "a Christian nation" and the Second Amendment the only right that is absolute, trumping all others.
5. Join the cheering chorus about "free enterprise" and "economic freedom." Pay no attention to the men behind the curtain.
6. Don't be troubled when you read the occasional discomforting story in the newspaper. Remember, the "mainstream media" have a liberal bias. No wonder newspapers are dying. You will find the real truth in the comments section, or when you turn on Fox "News," talk radio or visit a conservative blog.
7. If you're a Democrat, remember the most important issues facing the country are the debt/deficit, over-regulation and "entitlements." The size of government must be cut. Investment such as high-speed rail is socialist, even communist — just look at western Europe and China. You must be civil and compromise.
8. Dogma is a wonderful thing. Thus, the loss of millions of jobs and persistent unemployment are a result of high taxes and regulation. What are libraries, parks, "government schools" or the availability of good college education to all but costly fluff? "Social compact"? That sounds like SOCIALISM. Our men and women in uniform need to be in some 160 countries because might does make right, it's a dangerous world, and if we don't fight them over there (say, in Germany), we'll have to fight them here.
9. This is a Christian nation and the rich need to be richer because Jesus wants them that way, they are the elect. When Jesus said, "the poor you will always have with you..." this justifies policies liberals claim are harsh and immoral, but such moves are actually godly. The context of the comment was certainly not Jesus' trying to focus the apostles on the idea that they would not always have Him with them. Jesus never commanded his disciples to especially care for the poor, nor did he focus his ministry on them and eat with "sinners." Nor was the Lord's anger kindled in the Old Testament when Israel mistreated the poor, widows and orphans, and strangers. Liberals made that stuff up.
10. Do not read history. It is a liberal art. more
Michael Hudson tries to help folks understand the seriousness of the economic dilemmas brought us by the banksters but he is up against entrenched ignorance.  Here he tries to explain why what is happening in Greece is so very similar to what is happening in Minnesota (and elsewhere).
The Big Banks Are Waging Warfare Against the People of the World
Michael Hudson is a highly-regarded economist. He is a Distinguished Research Professor at the University of Missouri, Kansas City, who has advised the U.S., Canadian, Mexican and Latvian governments as well as the United Nations Institute for Training and Research. He is a former Wall Street economist at Chase Manhattan Bank who also helped establish the world’s first sovereign debt fund. Hudson says:
  • The European debt crisis is really financial warfare by the banks
  • Indeed, the banks are in warfare against the rest of society
In a separate interview, Hudson says:
What's going on in Greece is exactly what's going to happen in America in a couple of weeks.
  • The big banks are forcing their bad debts on government
  • They are also forcing governments to sell off national assets so the banks can install a "neo-feudalism" more

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