Archive for the ‘Economics’ Category

What Makes You Think We Can Grow Out of This?

Thursday, September 13th, 2012 of Minds — Donald Halcom writes: As I sit here pondering the current status of the USA, I am struck by the conclusion that all of the politicians, business men, and economist have reached. They all believe that the only solution to the current economic mess of the USA is growth. Only growth will solve our problems. In fact only sustained growth will do it. When all these people believe the same thing then I suspect that something is wrong. The mechanism by which the growth is to be obtained differs with respect to political persuasions, but it is always growth that will perform the miracle. The question then occurred to me —– Is sustained growth over decades even possible? Is such an assumption even valid?

The last time the world was in this predicament was after WWII.  All of Europe and the Orient were in shambles. The USA had a national debt of more than its GDP like it does now. The USA had one advantage. It was the only economy left whose manufacturing base was still viable. The USA had essentially financed WWII for the allies by selling bonds.

In 1945 the national debt as a percent of the gross domestic product (GDP) was 109%. Over the next 35 years the debt was paid down by the government represented by all the presidents (Democrat and Republican) from Truman to Carter until the debt as a percent of the GDP was 33%. When Reagan was elected president things changed. The debt began to rise almost continuously till in 2012 it was 102 percent of the GDP. The last four years have given the most precipitous rise. The next graph shows the recent history. In about 31 years we have accrued a debt as a percent of GDP almost equal to the debt of WWII.

Since WWII the USA has become a different country. We now have a world full of economic competitors. Our old monopoly is gone. Europe, parts of South America, the Middle East, the Far East and a few countries in Africa have all become major rivals for resources and trade.

The above data indicates that politics have been a major factor in the increase of the National Debt but that alone was not the problem. The demands of Banks, Wall Street and Hedge Funds have been major factors in increasing our economic woes. The debt from 2007 to the present, indicate these factors. Some claim that had we used the proper governmental legislation, then the debt crisis from 2007 onward could have been avoided. This is true, but that is water over the dam. Mankind has never been omniscient and will not be so in the future.

A balanced economy is like a see-saw, if you put too much weight on one end, it stops working. This is not rocket science. Our economy became unbalanced when too much money flowed to one end. How did this happen? Here goes. (09/13/12)


Titanic Banks Hit Libor Iceberg

Monday, July 23rd, 2012

CommUnity of Minds — Ellen Brown writes: At one time, calling the large multinational banks a “cartel” branded you as a conspiracy theorist.   Today the banking giants are being called that and worse, not just in the major media but in court documents intended to prove the allegations as facts.  Charges include racketeering (organized crime under the U.S. Racketeer Influenced and Corrupt Organizations Act or RICO), antitrust violations, wire fraud, bid-rigging, and price-fixing.  Damning charges have already been proven, and major damages and penalties assessed.  Conspiracy theory has become established fact.

In an article in the July 3rd Guardian titled “Private Banks Have Failed – We Need a Public Solution”, Seumas Milne writes of the LIBOR rate-rigging scandal admitted to by Barclays Bank:

It’s already clear that the rate rigging, which depends on collusion, goes far beyond Barclays, and indeed the City of London. This is one of multiple scams that have become endemic in a disastrously deregulated system with inbuilt incentives for cartels to manipulate the core price of finance.

. . . It could of course have happened only in a private-dominated financial sector, and makes a nonsense of the bankrupt free-market ideology that still holds sway in public life.

. . . A crucial part of the explanation is the unmuzzled political and economic power of the City. . . . Finance has usurped democracy. …

If the last quarter century of U.S. banking history proves anything, it is that our private banking system turns malignant and feeds off the public when it is deregulated.  It also shows that a parasitic private banking system will NOT be tamed by regulation, as the banks’ control over the money power always allows them to circumvent the rules.  We the People must transparently own and run the nation’s central and regional banks for the good of the nation, or the system will be abused and run for private power and profit as it so clearly is today, bringing our nation to crisis again and again while enriching the few. (07/23/12)


Banks May Have a Dim Future?

Sunday, October 2nd, 2011

The Automatic Earth — It’s time to make one thing clear once and for all: the financial institutions at the heart of our economic system are finished, broke, bankrupt. Since 2008, they have been kept alive only by gigantic infusions of our, the public’s, money. We have been, and still are, told this is only temporary, and that the money will help restore them to health and then be repaid, but temporary has been 3 years and change now and there’s no restored health anywhere in sight.

The opposite is true: Obama launches another -even more desperate- half-trillion dollar jobs plan, and Europe is devising another multi-trillion dollar plan aimed solely at keeping banks from going belly-up, because these banks have lost anywhere between 50% and 90% of their market capitalization in the past few years, despite the multi-trillion capital infusions(!), and are still loaded to the hilt with investments, in sovereign bonds, in each other, in derivatives, that are so toxic they could blow them up at any moment.

If this were not true, if there were any possibility left that the banks at the heart of the system could indeed be saved and restored back to health with public funds, their assets would all long have been marked to market, and market confidence would thus be fully restored. The fact that mark-to-market is still religiously shunned 3 years after Lehman should tell you all you need to know about what’s real and what’s not.

There is no hope, no indication, and no possibility, that pouring even more taxpayer and future taxpayer capital into the leaks would stop the floodwater from entering. The leaks are both too big, and too numerous. If a possibility existed to seal the leaks with public funds, it would have been implemented by now, everyone -from banks to governments- would have taken their share of losses and we would now be talking about preventing the next crisis, not about how to deal with the present one, which has only gotten deeper as we’ve gone along.

The meme that comes from our “leaders” is that by saving the banks -and that way only-, we will be able to save ourselves. The reality is, however, that the banks are being saved at our expense, and we get poorer fast because of it.

And it’s worse that that: the banks are beyond salvation, which means there can and will be no end to the constant flood of money from us, from the public coffers, towards the financial system, as long as present leadership, and their meme of saving banks to save ourselves, remain in control.

It’s only when we drop that meme that we can start moving towards a world that, though admittedly much poorer and simpler than the one we inhabit today, will be less depressing, and less prone to saddle us with our present widespread mental burden of paralyzing powerlessness. (10/2/11)


Poverty in America: Four Lost Decades

Thursday, September 15th, 2011

The New Yorker — John Cassidy writes: The latest poverty and income figures came out this week, and boy are they disturbing. (Amy Davidson responded on Tuesday.) It’s not so much the headline figures, which have been well covered in the Times and elsewhere: 46 million Americans living under the poverty line in 2010, the highest number since the Commerce Department started collecting the figures back in 1959. That’s a horrible statistic. But it’s not too surprising since we’ve been through the deepest recession since the nineteen-thirties, and getting thrown out of work is a primary cause of poverty. (Plus, the population grows every year. If the proportion of people in poverty stays the same, you’d expect the absolute numbers to grow over time.)

It’s not even the fact that median household income—the income of the American household in the middle of the income distribution—is now back to the level it was at in 1996: about $49,500 in inflation-adjusted dollars. To be sure, that is a very alarming fact. But I think most people have already cottoned on to the idea that we have been through a “lost decade.” To get the picture, you just have to look at the stock market or your last paycheck.

Also, the figures for household income need to be treated with a bit of caution, since they aren’t adjusted for changing family sizes. As time goes on, more people are getting married later or not getting married at all. This means there are more single-income households, which obviously earn less than two-income households. This biases the figures somewhat. (The story of where the poverty line came from and how it’s derived is actually pretty interesting. If you want to read more about it, I wrote an entire magazine piece about the subject back in 2006.) Still, even making the necessary adjustments, it’s pretty clear that the typical American family has made little or no progress since the late nineteen-nineties.

But let’s look at the figures for individuals, which aren’t subject to any such distortions, and to eliminate the effects of the economic cycle let’s go back further than the late nineties. (When economic historians come to look at the period from 2000 to 2011, I suspect they will view it as one elongated period of recessions and subpar growth—the end of the great asset price boom.)

To me, what is really, really alarming is this: a typical American male who works full time and still has a job is earning almost exactly the same now as his counterpart was back in 1972, when Richard Nixon was in the White House, O. J. Simpson rushed a thousand yards for the Buffalo Bills, and Don McLean topped the charts with “American Pie.”

The figures, which appear in Table A-5 at the back of the Census Bureau’s report (pdf), are these. Median earnings for full-time, year-round male workers: 2010—$47,715; 1972—$47,550. That not a typo. In thirty-eight years, the annual earnings of the typical male worker, adjusted to 2010 dollars, have risen by $165, or $3.17 a week. (09/15/11)


WAR: The Fiscal Stimulus of Last Resort

Tuesday, September 13th, 2011

CommUnity of Minds — Ellen Brown writes:

“War!  Good God, ya’ll.  What is it good for?  Absolutely nothin’!”

So went the anti-Vietnam War protest song popularized by Edwin Starr in 1970 and revived by Bruce Springsteen in the 1980s.

The song echoed popular sentiment.  The Vietnam War ended.  Then the Cold War ended.  Yet military spending remains the government’s number one expenditure.  When veterans’ benefits and other past military costs are factored in, half the government’s budget now goes to the military/industrial complex.

After 9/11, the pop hit “War” was placed on the list of post-9/11 inappropriate titles distributed by Clear Channel. Protesters have been trying to stop the military juggernaut ever since the end of World War II, yet the war machine is more powerful and influential than ever.  Why?  The veiled powers pulling the strings no doubt have their own dark agenda, but why has our much-trumpeted system of political democracy not been able to stop them?

The answer may involve our individualistic, laissez-faire brand of capitalism, which forbids the government to compete with private business except in cases of “national emergency.” The problem is that private business needs the government to get money into people’s pockets and stimulate demand. The process has to start somewhere, and government has the tools to do it. But in our culture, any hint of “socialism” is anathema. The result has been a state of “national emergency” has had to be declared virtually all of the time, just to get the government’s money into the economy.

Other avenues being blocked, the productive civilian economy has been systematically sucked into the non-productive military sector, until war is now our number one export. War is where the money is and where the jobs are. The United States has been turned into a permanent war economy and military state.

The notion that war is good for the economy goes back at least to World War II. Critics of Keynesian-style deficit spending insisted that it was war, not deficit spending, that got the U.S. out of the Great Depression.

But while war may have triggered the surge in productivity that followed, the reason war worked was that it opened the deficit floodgates.  The war was a huge stimulus to economic growth, not because it was a cost-effective use of resources, but because nobody worries about deficits in wartime. (09/13/11)


The 545 People Responsible for all of America’s Woes?

Monday, September 5th, 2011

Charley Reese in 1985CommUnity of Minds — Charley Reese writing in 1985: Politicians are the only people in the world who create problems and then campaign against them.

Have you ever wondered why, if both the Democrats and the Republicans are against deficits, we have deficits? Have you ever wondered why, if all the politicians are against inflation and high taxes, we have inflation and high taxes?

You and I don’t propose a federal budget. The president does. You and I don’t have the Constitutional authority to vote on appropriations. The House of Representatives does. You and I don’t write the tax code. Congress does. You and I don’t set fiscal policy. Congress does. You and I don’t control monetary policy. The Federal Reserve Bank does.

One hundred senators, 435 congressmen, one president and nine Supreme Court justices – 545 human beings out of the 235 million – are directly, legally, morally and individually responsible for the domestic problems that plague this country.

I excluded the members of the Federal Reserve Board because that problem was created by the Congress. In 1913, Congress delegated its Constitutional duty to provide a sound currency to a federally chartered but private central bank.

I excluded all but the special interests and lobbyists for a sound reason. They have no legal authority. They have no ability to coerce a senator, a congressman or a president to do one cotton-picking thing. I don’t care if they offer a politician $1 million dollars in cash. The politician has the power to accept or reject it.

No matter what the lobbyist promises, it is the legislation’s responsibility to determine how he votes.

A Confidence Conspiracy

Don’t you see how the con game that is played on the people by the politicians? Those 545 human beings spend much of their energy convincing you that what they did is not their fault. They cooperate in this common con regardless of party.

What separates a politician from a normal human being is an excessive amount of gall. No normal human being would have the gall of Tip O’Neill, who stood up and criticized Ronald Reagan for creating deficits.

The president can only propose a budget. He cannot force the Congress to accept it. The Constitution, which is the supreme law of the land, gives sole responsibility to the House of Representatives for originating appropriations and taxes. (09/05/11)


Alms for the Educated

Monday, September 5th, 2011

The Economist — MILLIONS of school-leavers in the rich world are about to bid a tearful goodbye to their parents and start a new life at university. Some are inspired by a pure love of learning. But most also believe that spending three or four years at university—and accumulating huge debts in the process—will boost their chances of landing a well-paid and secure job. Their elders have always told them that education is the best way to equip themselves to thrive in a globalised world. Blue-collar workers will see their jobs offshored and automated, the familiar argument goes. School dropouts will have to cope with a life of cash-strapped insecurity. But the graduate elite will have the world at its feet. …

But is the past a reliable guide to the future? Or are we at the beginning of a new phase in the relationship between jobs and education? There are good reasons for thinking that old patterns are about to change—and that the current recession-driven downturn in the demand for Western graduates will morph into something structural. The gale of creative destruction that has shaken so many blue-collar workers over the past few decades is beginning to shake the cognitive elite as well. …

Several economists, including Paul Krugman, have begun to argue that post-industrial societies will be characterised not by a relentless rise in demand for the educated but by a great “hollowing out”, as mid-level jobs are destroyed by smart machines and high-level job growth slows. David Autor, of the Massachusetts Institute of Technology (MIT), points out that the main effect of automation in the computer era is not that it destroys blue-collar jobs but that it destroys any job that can be reduced to a routine. Alan Blinder, of Princeton University, argues that the jobs graduates have traditionally performed are if anything more “offshorable” than low-wage ones. A plumber or lorry-driver’s job cannot be outsourced to India. A computer programmer’s can. (09/05/11)



Sunday, September 4th, 2011

Paul KrugmanWhat we need! New York Times — Opinion: Nobel Prize Winning Economist Paul Krugman writes: Friday brought two numbers that should have everyone in Washington saying, “My God, what have we done?”

One of these numbers was zero — the number of jobs created in August. The other was two — the interest rate on 10-year U.S. bonds, almost as low as this rate has ever gone. Taken together, these numbers almost scream that the inside-the-Beltway crowd has been worrying about the wrong things, and inflicting grievous harm as a result.

Ever since the acute phase of the financial crisis ended, policy discussion in Washington has been dominated not by unemployment, but by the alleged dangers posed by budget deficits. Pundits and media organizations insisted that the biggest risk facing America was the threat that investors would pull the plug on U.S. debt. For example, in May 2009 The Wall Street Journal declared that the “bond vigilantes” were “returning with a vengeance,” telling readers that the Obama administration’s “epic spending spree” would send interest rates soaring.

The interest rate when that editorial was published was 3.7 percent. As of Friday, as I’ve already mentioned, it was only 2 percent.

I don’t mean to dismiss concerns about the long-run U.S. budget picture. If you look at fiscal prospects over, say, the next 20 years, they are indeed deeply worrying, largely because of rising health-care costs. But the experience of the past two years has overwhelmingly confirmed what some of us tried to argue from the beginning: The deficits we’re running right now — deficits we should be running, because deficit spending helps support a depressed economy — are no threat at all.

And by obsessing over a nonexistent threat, Washington has been making the real problem — mass unemployment, which is eating away at the foundations of our nation — much worse.  …

I find it useful to think in terms of three questions: What should we be doing to create jobs? What will Republicans in Congress agree to? And given that political reality, what should the president propose?

The answer to the first question is that we should have a lot of job-creating spending on the part of the federal government, largely in the form of much-needed spending to repair and upgrade the nation’s infrastructure. Oh, and we need more aid to state and local governments, so that they can stop laying off schoolteachers. (o9/04/11)


The State of the US Economy

Tuesday, August 30th, 2011

CommUnity of Minds — Daan Joubert writes: It is no longer news that the US economy is in trouble. This essay reviews certain key features of the US economy and how these might influence the outlook for the US over the near to medium term. The conclusions, unfortunately, are gloomy.

The theme for the analysis is set by a quotation from the book, “This time is different: Eight centuries of Financial Folly”, by Ken Rogoff and Carmen Reinhart. Near the end of the book, the following appears:

“The lesson of history, then, is that even as institutions and policy makers improve, there will always be a temptation to stretch the limits. Just as an individual can go bankrupt no matter how rich she starts out, a financial system can collapse under the pressure of greed, politics, and profits no matter how well regulated it seems to be. [Much has changed . . .]

‘Yet the ability of governments and investors to delude themselves, giving rise to periodic bouts of euphoria that usually end in tears, seems to have remained constant. No careful reader of Friedman and Schwartz will be surprised by this lesson about the ability of governments to mismanage financial markets, a key theme of their analysis.

‘As for financial markets, we have come full circle to the concept of financial fragility in economies with massive indebtedness. All too often, periods of heavy borrowing can take place in a bubble and last for a surprisingly long time. But highly leveraged economies, particularly those in which continual rollover of short-term debt is sustained only by confidence in relatively illiquid underlying assets, seldom survive forever, particularly if leverage continues to grow unchecked.

‘This time may seem different, but all too often a deeper look shows it is not. Encouragingly, history does point to warning signs that policy makers can look at to assess risk—if only they do not become too drunk with their credit bubble-fueled success and say, as their predecessors have for centuries, “This time is different.”

One can argue long and hard about the causes of the ongoing financial crisis of the past 3-4 years, but it will be generally admitted a few factors played a key role in fomenting the crisis. Underlying it all is a change in social climate that took root in the US after WWII and subsequently found fertile soil in many other places, predominantly in the western world. There was a change from the old standard where society was rated more important than the individual; it would seem that with the increased rights of the individual came a “me first” attitude that meant one was entitled to break society’s rules and even laws when in pursuit of personal benefit.

Leaving this more philosophical factor aside, it is self evident that reduced or even lack of oversight in financial markets, a too free and easy monetary policy, new and free-flowing sources of credit, a free-spending Federal government, manipulation of official statistics and the free trade climate have all at various times and to different degrees contributed to the complex mess that erupted in 2007 when Bear Stearns announced that their mortgage funds were in deep trouble. Of course, it took the Lehman collapse to bring home the magnitude of the developing crisis.

Despite initial assurances that ‘the mortgage problem is contained’ and later that the ‘green shoots are sprouting all over’, then that ‘economic growth is slow but steady and the end is in sight’, it should be evident that the American economy is not well. The real question now is not so much whether we will see a double dip, but whether the ongoing recession will drag on until the economy can show new growth or if it will deepen into a more severe recession, even depression. If the latter, which is the anticipated future here, the question of how long and how deep becomes relevant. (08/30/11)


Is There A Solution?

Monday, August 22nd, 2011

RWWNL — Terry Wilken writes: We are started toward a solution we are told. We might believe it had we not been told that before. The problem that we had that they were going to solve was the debt crisis. The debt clock is still going up pretty fast, so I question their solution. Are they going to get us out of this situation, or just make it worse?

We were on our way to higher oil prices. H fixed that by opening the strategic oil preserve. This sent the price of oil down, but at what cost. I guess that H does not understand the definition of the word strategic either. It should be used only in times of “real” crisis. It was effective for a while, but it did not last long.

The price of oil went back up again.  Was this result a surprise? Sometimes decisions made have unintended consequences. I think that has been said here before. This was the wrong solution for a problem that did not exist. I think that the answer to that is YES! The price of oil and gasoline goes up and down based on demand. At least in a free economy.

Now the price of gasoline is going back down. Did we open the tap again? I have not heard any such news. Maybe it is caused by another reason. Maybe it is caused by the increase in unemployment. I have a question to ask you. How many gallons of gasoline would you buy if you did not have a job and did not have to go to work? If less gasoline were bought, do you think that gas prices would go up or down? It is not a trick question. Maybe if H let the economy do its natural thing, problems would cure themselves. I am not saying that unemployment is the answer to high oil and gasoline prices. I am saying that the government needs to get out of the way. They are not the solution. They have created the problem, and now it is time for them to let someone else try to fix it. They have not been able to fix the economic problem for a long time.

Here is someone who had a similar problem and how they have resolved the situation.

This is not a reason to mirror Canada’s policies, but it may be something to look at to see if we can do some of the things that are right. It appears they are heading in the right direction. Did you notice that they were concerned about the deficit first? If we concentrate on that issue and leave the debt to be resolved as another issue. Would we be making headway?  We could resolve the “debt” at some point in the future. Maybe if we resolved the deficit properly, the debt might resolve itself. The Federal government is currently spending more money than we are giving them. It is time that they quit spending or that we quit giving them money to spend. I do not care which we choose at this point. (08/22/08)