Sunday, July 31, 2011

Krugman on the Debt Ceiling "Deal" Disaster

Here are key bits from Paul Krugman's NY Times op-ed article:
A deal to raise the federal debt ceiling is in the works. If it goes through, many commentators will declare that disaster was avoided. But they will be wrong.

For the deal itself, given the available information, is a disaster, and not just for President Obama and his party. It will damage an already depressed economy; it will probably make America’s long-run deficit problem worse, not better; and most important, by demonstrating that raw extortion works and carries no political cost, it will take America a long way down the road to banana-republic status.

Start with the economics. We currently have a deeply depressed economy. We will almost certainly continue to have a depressed economy all through next year. And we will probably have a depressed economy through 2013 as well, if not beyond.

The worst thing you can do in these circumstances is slash government spending, since that will depress the economy even further. Pay no attention to those who invoke the confidence fairy, claiming that tough action on the budget will reassure businesses and consumers, leading them to spend more. It doesn’t work that way, a fact confirmed by many studies of the historical record.

Indeed, slashing spending while the economy is depressed won’t even help the budget situation much, and might well make it worse. On one side, interest rates on federal borrowing are currently very low, so spending cuts now will do little to reduce future interest costs. On the other side, making the economy weaker now will also hurt its long-run prospects, which will in turn reduce future revenue. So those demanding spending cuts now are like medieval doctors who treated the sick by bleeding them, and thereby made them even sicker.

And then there are the reported terms of the deal, which amount to an abject surrender on the part of the president. First, there will be big spending cuts, with no increase in revenue. Then a panel will make recommendations for further deficit reduction — and if these recommendations aren’t accepted, there will be more spending cuts.
Go read the whole article which has more material in it.

The fatal flaw in Obama's approach:
Make no mistake about it, what we’re witnessing here is a catastrophe on multiple levels.

It is, of course, a political catastrophe for Democrats, who just a few weeks ago seemed to have Republicans on the run over their plan to dismantle Medicare; now Mr. Obama has thrown all that away. And the damage isn’t over: there will be more choke points where Republicans can threaten to create a crisis unless the president surrenders, and they can now act with the confident expectation that he will.
Obama has caved in to Republican extortion. He has completely ignored and buried the Democratic agenda. Instead he has played in the Republican agenda and in the end gave them pretty well everything they wanted which validates their policies, agenda, and political claims. A disaster!

An Accounting of Obama's "Achievement"

From a post by Glenn Greenwald writing for Salon magazine:
Democratic politics in a nutshell

by Glenn Greenwald

Let's begin by taking note of three facts:

(1) Three days ago, Democratic Rep. John Conyers, appearing at a meeting of the Out of Poverty caucus, said: "The Republicans -- Speaker Boehner or Majority Leader Cantor -- did not call for Social Security cuts in the budget deal. The President of the United States called for that" (video here, at 1:30);

(2) The reported deal on the debt ceiling is so completely one-sided -- brutal domestic cuts with no tax increases on the rich and the likelihood of serious entitlement cuts in six months with a "Super Congressional" deficit commission -- that even Howard Kurtz was able to observe: "If there are $3 trillion in cuts and no tax hikes, Obama will have to explain how it is that the Republicans got 98 pct. of what they wanted," while Grover Norquist, the Right of the Right on such matters, happily proclaimed: "Sounds like a budget deal with real savings and no tax hikes is a go."

(3) The same White House behavior shaping the debt deal -- full embrace of GOP policies and (in the case of Social Security cuts) going beyond that -- has been evident in most policy realms from the start. It first manifested in the context of Obama's adoption of the Bush/Cheney approach to the war on civil liberties and Terrorism, which is why civil libertarians were the first to object so vocally and continuously to the Obama presidency, culminating in this amazing event from mid-2010: "Speaking at a conference of liberal activists Wednesday morning, ACLU Executive Director Anthony Romero didn't mince his words about the administration's handling of civil liberties issues. 'I'm going to start provocatively . . . I'm disgusted with this president,' Romero told the America's Future Now breakout session."

In other words, a slew of millionaire politicians who spent the last decade exploding the national debt with Endless War, a sprawling Surveillance State, and tax cuts for the rich are now imposing extreme suffering on the already-suffering ordinary citizenry, all at the direction of their plutocratic overlords, who are prospering more than ever and will sacrifice virtually nothing under this deal (despite their responsibility for the 2008 financial collapse that continues to spawn economic misery). And all of this will be justified by these politicians and their millionaire media mouthpieces with the obscenely deceitful slogans of "shared sacrifice" and "balanced debt reduction" -- two of the most odiously Orwellian phrases since "Look Forward, not Backward" and "2009 Nobel Peace Prize laureate" (and anyone claiming that Obama was involuntarily forced by the "crazy" Tea Party into massive budget cuts at a time of almost 10% unemployment: see the actual facts here).
There is much more. Go read the original post to get the embedded links and the additional material.

It is clear that either the Democrats must push Obama out of the party or the party needs to split to allow the liberals to continue the historic mission of the Democratic party to look after the bottom 90% instead of selling out to the top 1%.

Negative Review of Obama's Performance

Gavyn Davies is not a journalist. He is a trained economist. From Wikipedia:
orked in Harold Wilson's Policy Unit from 1974–76 and then as an economic advisor to James Callaghan from 1976-1979. Afterwards he had stints as Chief Economist at Simon & Coates and Goldman Sachs. He was later promoted to international managing director for the bank. During this time he also served as one of the Chancellor of the Exchequer's "wise men" during the 1992-1997 Parliament

was the chairman of the BBC from 2001 until 2004, a former Goldman Sachs banker and a former economic advisor to the British Government
Here is a bit from a post by Gavyn Davies in his blog on the Financial Times criticizing Obama:
US economic policy is not yet triple A

According to the GDP statistics released on Friday, the US economy has grown at less than 1 per cent annualised in 2011 Q1 and Q2 combined, a rate which is well below its usual stall speed. This is very sharply lower than I expected at the start of the year. Previously, economists were puzzled by the “jobless recovery” in the past few months. Now the mystery has been solved: there was never much of a recovery in the first place. And the solution to the debt ceiling crisis which may emerge in coming days will, in all likelihood, do nothing to help matters.

A budget deal is now rumoured to be within reach in Congress. While this would be much better than the alternative of no deal, it seems clear that the outcome will bear little resemblance to the comprehensive package which Ben Bernanke and many economists have called for. That comprehensive package would introduce credible medium term policy changes to ensure fiscal sustainability in coming decades, while avoiding an excessive tightening in budgetary policy in the short term.

So what does it seem we will get? Precisely the opposite. The most likely deal will see around $1 trillion of government spending reductions starting next year, along with an automatic trigger mechanism to ensure that the scale of tightening is increased in a second round of cuts before very long. Furthermore, these cuts may be legislated in advance to take effect whatever the state of the economy is at the time. This means that if the economy slides back into recession, any emergency fiscal action has been ruled out in advance.
There is much more. Go read the whole article.

The problem with the US is that it is being ruled by economic illiterates. I worked in the high tech industry and with computers there is a famous saying: garbage in, garbage out. That is exactly what the economic "policy" under Obama (with the ridiculous constraints imposed on him by the Republicans) has become. To have "balanced budget amendments" or "automatic triggers" that remove human intelligence from the management of the economy is asking to be driven off a cliff.

An Alternative to Simplistic CO2 Global Warming

Here is an hour documentary on Henrik Svensmark with a presentation of his cosmoclimatology theory. This theory is currently undergoing experimental verification at CERN with the CLOUD experiment.

For me, the most interesting parts are from 30:00 thru 38:00 when Israeli Nir Shaviv talks about the relationship of cosmic rays, the transit of the solar system through arms of the Milky Way galaxy, and Ice Ages. This is a wonderful theoretical and experimental basis for evaluating Svensmark's cloud thesis.

The bits at 48:00 and 49:30 where the difficulty Svensmark has faced in getting his research published is a burning indictment of the politicization of climate science and the repression carried out by the fanatics who model CO2 and have declared "the science is settled". It isn't settled. The models are flawed. CO2 can't account for past hot house and ice house phases of climate and the models can't post-dict recent and well know climate. They are fatally flawed. But rather than accept this and broaden the search to understand climate, the fanatics have hunkered down and refused to do science. They have turned "global warming" into a belief system, a test of them-versus-us of political correctness. Shame!

Update 2011sep07: Here is a Wall Street Journal article by Anne Jolis on Svensmark's work and the CERN experiment.
Scientists have been speculating on the relationship among cosmic rays, solar activity and clouds since at least the 1970s. But the notion didn't get a workout until 1995, when Danish physicist Henrik Svensmark came across a 1991 paper by Eigil Friis-Christensen and Knud Lassen. Those Danes had charted a close relationship between solar variations and changes in the earth's surface temperature since 1860.

"I had this idea that the real link could be between cloud cover and cosmic rays, and I wanted to try to figure out if it was a good idea or a bad idea," Mr. Svensmark told me from Copenhagen, where he leads sun-climate research at the Danish National Space Institute.

He wasn't the first scientist to have the idea, but he was the first to try and demonstrate it. He got in touch with Mr. Friis-Christensen and they used satellite data to show a close correlation among solar activity, cloud cover and cosmic-ray levels since 1979.

They announced their findings and the possible climatic implications in 1996 at a space conference in Birmingham, England. At which point, Mr. Svensmark recalls, "everything went completely crazy. . . . it turned out it was very, very sensitive to say these things already at that time." He returned to Copenhagen to find his local daily leading with a quote from the chair of the U.N. Intergovernmental Panel on Climate Change at the time: "I find the move from this pair scientifically extremely naïve and irresponsible."

Mr. Svensmark had been, at the very least, politically naïve. "Before 1995 I was doing things related to quantum fluctuations. Nobody was interested, it was just me sitting in my office. It was really an eye-opener, that baptism into climate science." He says his work was "very much ignored" by the climate-science establishment—but not by CERN physicist Jasper Kirkby, who is leading today's ongoing cloud-chamber experiment.


And then, he waited. It took six years for CERN to greenlight and fund the experiment. Mr. Kirkby cites financial pressures for the delay and says "it wasn't political."


Mr. Kirkby's CERN experiment was finally approved in 2006 and has been under way since 2009. So far, it has not proved Mr. Svensmark wrong. "The result simply leaves open the possibility that cosmic rays could influence the climate," stresses Mr. Kirkby, quick to tamp down any interpretation that would make for a good headline.

This seems wise: In July, CERN Director General Rolf-Dieter Heuer told Die Welt that he was asking his researchers to make the forthcoming cloud-chamber results "clear, however, not to interpret them. This would go immediately into the highly political arena of the climate-change debate."

But while the cosmic-ray theory has been ridiculed from the start by those who subscribe to the anthropogenic-warming theory, both Mr. Kirkby and Mr. Svensmark hold that human activity is contributing to climate change. All they question is its importance relative to other, natural factors.
The last bit is the most critical. The climate warming "skeptics" don't deny that there has been warming (and cooling) of the climate and they don't deny that there isn't an element of human-caused warming. What they debate is the fundamental science, i.e. how much, by what mechanism. The "global warming" crowd starts and ends with models. The skeptics are trying to widen the science to look at all factors.

On the Naïveté of Obama

Here is Obama 8 months ago showing his inability to understand the political jujitsu that the Republicans would use on him.

From Paul Krugman's NY Times blog:
Tax Cut Memories

Obama, at his press conference last December, announcing his surrender to the GOP on tax cuts; the questioner was Marc Ambinder:
Q Mr. President, thank you. How do these negotiations affect negotiations or talks with Republicans about raising the debt limit? Because it would seem that they have a significant amount of leverage over the White House now, going in. Was there ever any attempt by the White House to include raising the debt limit as a part of this package?

THE PRESIDENT: When you say it would seem they’ll have a significant amount of leverage over the White House, what do you mean?

Q Just in the sense that they’ll say essentially we’re not going to raise the — we’re not going to agree to it unless the White House is able to or willing to agree to significant spending cuts across the board that probably go deeper and further than what you’re willing to do. I mean, what leverage would you have –

THE PRESIDENT: Look, here’s my expectation — and I’ll take John Boehner at his word — that nobody, Democrat or Republican, is willing to see the full faith and credit of the United States government collapse, that that would not be a good thing to happen. And so I think that there will be significant discussions about the debt limit vote. That’s something that nobody ever likes to vote on. But once John Boehner is sworn in as Speaker, then he’s going to have responsibilities to govern. You can’t just stand on the sidelines and be a bomb thrower.

And so my expectation is, is that we will have tough negotiations around the budget, but that ultimately we can arrive at a position that is keeping the government open, keeping Social Security checks going out, keeping veterans services being provided, but at the same time is prudent when it comes to taxpayer dollars.
The claim that Obama was playing 18 dimensional chess with the Republicans is shown to be a lie. Obama couldn't even see 8 months into the future the very simple political maneuver that the Republicans would use. Worse, his political handlers didn't have a clue. The US needs professional leadership during this current crisis. Obama is both a naïve amateur and he is a wolf in sheep's clothing (he sold himself to the Democrats as a liberal but he is in fact a centre-right politician, he actually is more politically right on debts and deficits than the majority of the Republican party!).

Understanding the Mess the US Economy Is In

Here are some key bits from a good article by Barry Ritholtz in the Washington Post that examines the last 10 years and explain how the US got into the mess it is currently in:
The debt ceiling is hanging heavy over our heads. But that’s not the only reason it looks dark down here. We’ve got some major and prolonged challenges: ongoing debt issues, structural unemployment, a housing overhang and continued economic frailty.

How did we get here? Well, by way of a financial crisis, stock market collapse, bank bailouts and, of course, the Great Recession — and a good many moments of poor judgment.

Given the drama of the debt-ceiling debate, this is a good moment for investors and policymakers alike to look back over the past decade at the mistakes made by our institutions, private sector and government.


1 Rates...

2 The rating agencies...

3 The radical deregulation of derivatives...

4 Subprime loans...

5 Leverage rules...

6 Mortgage underwriting standards...

7 Automated underwriting...

8 Collateralized debt obligation (CDO)...

9a. Glass Steagall...

9b State banking regulations...

10 Fannie and Freddie...

Where does this leave us? We have created an intensely concentrated financial industry, where a handful of banks control the majority of assets. Competition is less than it was before the crisis, and bank fees are creeping upwards.

While risk-taking remains rather subdued, history informs us it is likely to return as the crisis fades in the collective memory. The bailouts left us with a legacy of poor balance sheets and moral hazard. None of 10 factors discussed above have been, in any meaningful way, resolved.

The debt ceiling is the least of our worries.
Go read the whole article.

Sadly, those who need to fully understand the above story, the Republicans, are paying no attention. They belong to the "flat earth society". They want simple logic and they have their "one reason" for the current malaise: too much debt.

The Republicans are not only simple-minded they are hypocrites. If they really believed that the biggest problem facing the US was the debt, then 8 months ago they would not have extended the Bush tax cuts and they wouldn't be so adamant that any "fix" can't include any "new taxes".

Mark Thoma is Mad

And I fully agree with him. Obama has failed the American people with his sellout to the Republicans.

Here's Mark Thoma's post on his blog Economist's View:
Sanctioning Blackmail

by Mark Thoma

We are about to sanction blackmail as a legitimate Congressional negotiating strategy. Anyone think this is the last time we will see this happen?

One side put a gun to the economy and said do it our way or else. The other side had many ways to disarm the strategy, the 14th amendment for example, that it didn't even bother to keep alive as an alternative. Why? Even if you don't plan to use the option, why not leave the other side wondering so that their leverage is reduced?

The best hope at this point is that Democrats in the Senate will not stand for this, and that they will somehow manage to get a better deal. But I'm not expecting much.

We are not going to default on our debt payments on Tuesday, or even run out of money. According to reports, Treasury can make it another week, and bond payments could be continued even longer (though there would have to be cuts in other areas). We don't have to take a terrible deal today, and if it were up to me I'd threaten to veto the current arrangement, and make good on that threat if needed. I'd also do my best to make it abundantly clear to the public what is really holding the deal up, the unwillingness of the GOP to give up anything in the negotiations.

I thought Obama promised to do just that -- to veto the deal unless it was fair -- where fair meant three dollars in expenditure cuts for each dollar in tax increases. To me, that was already an unacceptably right-tilted outcome, and now we aren't even guaranteed that will happen.

There is the scheduled expiration of the Bush tax cuts at the end of 2012, and we are supposed to be content with a promise that Democrats will even the score at that point. But there's nothing at all in recent negotiations to give confidence that Democrats will manage to get tax increases when the time comes. A vague promise from Democrats about the future is all but worthless right now, we've had too many promises broken already. Obama's promises in particular mean nothing.

I'm mad right now. I just got an email from a high school friend who lost his job after 17 years working at the same place, and he's only four and a half months from being eligible for retirement. Now he's left out in the cold with nothing. That's what we ought to be focused on right now, helping people get and keep jobs, making sure that workers are treated fairly. Promising employees future benefits so that they are dedicated, hard-working, and then pulling the rug out just as they are about to realize that promise is unacceptable. But why should business worry when nobody is there to stand up for the rights of the workers?

Instead of spending valuable Congressional time trying to help working class households deal with the effects of the recession, and deal with longer-run problems that are causing wages for those lucky enough to be employed to stagnate, etc., we are making things worse for them in a budget deal with no sense of shared sacrifice. What are the wealthy giving up in this deal? What did the GOP give up?

This is a terrible deal for Democrats, and a terrible precedent for future budget negotiations.
The only long term solution is an election that clears the air. But I'm pessimistic about that since the media in the US is right-wing dominated and a big chunk of the population think the Tea Party crazies are "patriots" with their blackmail stunt.

Obama was a fool not to stick to his original position: give him a clean debt ceiling bill, no debt reduction stuff added. The issue of the debt ceiling is whether the US will honour its commitments to pay its debts. If the US wants to fight over budgets and spending, then that is a separate battle. But the Tea Party fanatics knew that if they mixed debt reduction in with debt ceiling being raised, they could manipulate Obama. And they have. They have successfully mugged and robbed America.

Obama Has Single-Handedly Destoryed the American System of Government

Matthew Yglesias has spotted the real tragedy in this path of doom which Obama has led the US. Obama has created a mechanism that destroys the American system of divided government and balance of powers. He has turned the US into a poorly functional parliamentary system where a debt ceiling vote become a "vote of confidence":
I actually think that whatever the contours of the deal, at this point the biggest damage is to the overall system of government. Obama has successfully transformed massive debt ceiling hostage taking from an act of breathtakingly irresponsible brinksmanship into a proven effective negotiating tactic. Suppose he gets re-elected in 2012. What’s he going to do when this issue recurs in 2013? Every time the president’s party has fewer than 60 votes in the Senate, we may face a recurrence of this crisis.
The Tea Party is a disaster for the US. But it ends up that Obama is an even greater disaster because of his incompetence in "negotiating". He should resign and let Joe Biden finish his term.

The Truth about Obama's Deal

Those who claimed that Obama was playing 18 dimensional chess and winning against the Republicans can now see his handiwork. Obama has caved. He gave up all his demands. He has accepted all of the original Republican demands plus a handful more they added at the last minute. And he gained what? The Republicans agreed to quit torturing him by refusing to raise the debt ceiling and therefore destroying the US economy.

Funny, all along, everybody on all sides said that in the end the debt ceiling would be raised. So all these concessions by Obama bought what? Nothing. Just what was going to be there all along: the debt ceiling would be raised.

But as this article in the Huffington Post points out. Obama has paid an unconscionable price for his "victory":
Krugman: 'There Is No Light At The End Of This Tunnel'

New York Times columnist Paul Krugman said Sunday that the debt deal will worsen the current unemployment situation and the nation's long-run fiscal situation.

"From the perspective of a rational person -- in other words a progressive -- we shouldn't be talking about spending cuts at all now," Krugman said during a roundtable discussion on ABCNews' This Week With Christiane Amanpour. "We have 9 percent unemployment. These spending cuts are going to worsen unemployment. It's even going to hold the long-run fiscal picture because we have a situation where more and more people are becoming permanent long-term unemployed."

Krugman's not alone in his opinion: Last week, economic forecasting firm Macroeconomic Advisors analyzed Republican and Democratic debt proposals and said either plan would significantly slow economic growth if enacted.

"We used to talk about the Japanese and lost decade," Krugman continued. "We'll look at them as a role model. They did better than we're doing. this is going to go on. I have nobody I know who thinks the unemployment rate will be below 8 percent at the end of next year. With the spending cuts it might be above 9 percent at the end of next year. There is no light at the end of this tunnel. We're having a debate in Washington, all about, 'Gee, we'll make the economy worse, but will we make it worse on 90 percent of the Republicans' terms or 100 percent of Republicans' terms?' The answer is 100 percent."
Obama is a disaster for the Democrats. He has moved them to the right of where the Republicans were a decade ago. That has simply allowed the Republicans to move from right wing nuts to being hair-on-fire fanatically crazy right wing nuts.

In the meantime, it means that the US goes down the path of "austerity" and has a lost decade or two in this Little Depression. This should have been a Great Recession from which the US should now be emerging. But Obama has botched everything about the economy, so instead of recovery, the US is sliding back into a never-ending Little Depression.

Obama's War on Whistle-Blowers

Here is a bit from an article by Glenn Greenwald in Salon magazine:
The Obama administration's unprecedented war on whistleblowers suffered two serious and well-deserved defeats. The first occurred in the prosecution of NSA whistleblower Thomas Drake, who was accused of multiple acts of espionage, only for the DOJ to drop virtually all of the charges right before the trial was to begin and enter into a plea agreement for one minor misdemeanor. Today, The Washington Post -- under the headline "Judge blasts prosecution of alleged NSA leaker" -- reports that the federal judge presiding over the case "harshly criticized U.S. prosecutors’ treatment of a former spy agency official accused of leaking classified material."

As the transcript of Drake's sentencing hearing published by Secrecy News reflects, Judge Richard Bennett of the U.S. District Court for Maryland was infuriated by two aspects of the DOJ's conduct: (1) after the Bush DOJ executed a search warrant of Drake's home in 2007, the Obama DOJ -- 2 1/2 years later -- finally indicted him, meaning he had to live with that cloud of criminal uncertainty over his head for that outrageously lengthy period of time; and (2) despite dropping all of the serious charges right before the trial was about to begin, the DOJ demanded that Drake be forced to pay a $50,000 fine as "a deterrent" (on top of the tens of thousands of dollars he spent in legal fees until he had no money left and had to use public defenders, as well as the fact that he was five years away from earning a federal pension when he was fired and ended up working at an Apple Computer store to support his family); to justify the requested fine, the prosecutor cited a $10,000 whistleblowing prize Drake was awarded earlier this year.
Go read the original to get the full article and to access the embedded links.

Greenwald adds:
Drake's leak involved no conceivable harm to national security, but did expose serious waste, corruption and possible illegality. When Drake was indicted back in April, 2010, I wrote at the time: "the more I think about this, the more I think this might actually be one of the worst steps the Obama administration has taken yet, if not the single worst step -- and that's obviously saying a lot." The effect of prosecuting Drake with multiple "espionage" counts, threatening him with decades in prison, and financially ruining him is clear: to frighten future whistleblowers into silence, and thus enable the government and the National Security State to do whatever it wants free of one of the only true checks it has. That's what makes Obama's War on Whistleblowing so pernicious.
Apparently Bush's Department of Justice was going to drop this case, but Obama pursued it, and pursued it with a vengance "to send a message" to whistle-blowers. This is really outrageous because Obama is a Constitutional law professor and has to understand that in a free society, democracy will only work if people know about crime, corruption, and waste. But this is exactly what Obama's Justice Department was trying to hard to stop. In short, Obama wanted a court case punish an innocent man in order to stop transparency in government. This from President "I'm running in order to ensure more transparency in government" Obama! Shame!

How to Deal with the Debt "Ceiling"

Here is a suggestion from former Colorado senator Gary Hart in a post on his blog Matters of Principle:
My fellow Americans. Tonight I have signed an order raising the debt ceiling for the next two years. I have taken this extraordinary step because I had no other choice. My duties under our Constitution include being commander-in-chief of our armed forces. Our forces are presently engaged in two long wars as well as hostilities in North Africa. I have taken a solemn oath to ‘preserve, protect, and defend’ our Constitution. To jeopardize in any way the well being of our troops, especially while in conflict, to endanger their pay and the housing and care of their families, to place in doubt our ability to pay for the care of the wounded, to place in doubt all the logistical support armies in the field depend on, would not only be unconscionable, it would be unconstitutional.

“My counsel and some of the finest Constitutional scholars in the land have expressed ambivelence about this step. There will be time for them, and our judicial branch, to debate, and quite possibly overrule, my decision. But that will take time and we do not have time. Lives are at stake. I know with certainty that at least one segment of American society, the parents and loved ones of our brave soldiers, sailors, airmen, and Marines serving abroad, will understand and hopefully support this extraordinary action.
Let me translate:
President Obama, get a spine! Act like a leader and face down these clowns who are using political tricks to endanger the country in order to win a political game.
Will Obama listen? I'm pretty sure he won't. Obama has shown himself to be more right wing in his views about:
  • Debt - it is more important to shrink government and handcuff social programs than to provide a responsible government

  • Jobs - they will "look after themselves" after this austerity program shrinks government and "inspires" businesses to have confidence to spend money to build plants and produce goods that nobody has any money to buy

  • Security - he ran against the Bush wars, but he has greatly expanded the 10 year war in Afghanistan and after 2 years of more lives lost and more money wasted, there is no more "security" now than before

  • Government - he promised "transparency" but has done nothing to allow ordinary voters to understand who is doing what and why. In fact, he has created new laws to punish whistle-blowers with revealing failures in government. He has put real fear into anybody who would try to expose corruption in government

  • Constitutional rights - very simply: you have none! He has continued and extended the warrentless wiretaps, ignored Habeus Corpus while illegally detaining more people than Bush, and added other measures that simply make a mockery of the Constitution. This from a "Constitutional law professor"!
He has proved himself to be even more to the right on these another policies than the average Republican. But he ran and won as a Democrat and his former supporters are simply shocked at how they have been lied to and abused by his misrepresentations.

Dowd on Debt and Doom

The "debt ceiling" crisis is a self-inflicted wound for the US. Here's a bit from a Maureen Dowd NY Times op-ed showing how crazy it is:
The world is watching in fearful — and sometimes gleeful — fascination as the Tea Party drives a Thunderbird off the cliff with the president and speaker of the House strapped in the back. The Dow is hiding under the bed with a glass of single malt. Can it get more excruciating? Apple has more cash than the U.S. government.

Amid the chilling anarchy, there’s not a single strong leader to be seen — not even a misguided one. All the leaders are followers. You have to wonder if President Obama at some level doesn’t want to lead. Maybe he just wants to be loved.

The citizens of this country tremble at the thought that these are the people governing them. Should we stick our money under our mattresses? It’s not only the economy that gets nourished by confidence; it’s also politics.

The maniacal Tea Party freshmen are trying to burn down the House they were elected to serve in. It turns out they wanted to come inside to get a blueprint of the historic building to sabotage it.

Like gargoyles on the Capitol, the adamantine nihilists are determined to blow up the country’s prestige, their party and even their own re-election chances if that’s what it takes. (Many are worried about primary races with even more dogmatic challengers, which is a truly scary thought.) If they can drag President Obama off his pedestal, even better. They think he looks down on them and sneers at their values.

Democratic lawmakers worry that the Tea Party freshmen have already “neutered” the president, as one told me. They fret that Obama is an inept negotiator. They worry that he should have been out in the country selling a concrete plan, rather than once more kowtowing to Republicans and, as with the stimulus plan, health care and Libya, leading from behind.
If you want to measure how crazy US politics have become, this pretty well summarizes it:
The Gingrich revolution pulled Republicans to the right of the Reagan revolution and the Tea Party revolution pulled Republicans to the right of the Gingrich revolution. The difference, though, is existentially striking: The Reagan and Gingrich forces wanted a leaner government, but they still believed in government.


The laconic president emerges from the sidelines periodically to warn about economic default, but we’re already in political default.

Consider what the towel-snapping Tea Party crazies have already accomplished. They’ve changed the entire discussion. They’ve neutralized the White House. They’ve whipped their leadership into submission. They’ve taken taxes and revenues off the table. They’ve withered the stock and bond markets. They’ve made journalists speak to them as though they’re John Calhoun and Alexander Hamilton.

Obama and John Boehner have been completely outplayed by the “hobbits,” as The Wall Street Journal and John McCain called them.

What if this is all a cruel joke on us? What if the people who hate government are good at it and the people who love government are bad at it?
I blame Obama. He was elected to lead but he has failed and this isn't his first failure. His biggest failure was the big lie he told the electorate in 2008: "change you can believe in". He's delivered 4 more years of Bush "Republicanism". Meanwhile, the crazy Republican party has gotten even more insane. This is a race to the bottom and Obama is only slightly being outdone by the crazy Tea Party as they plunge downward.

Saturday, July 30, 2011

Understanding the Source of US Debt

The following chart from the White House is an excellent summary of where the current $14 trillion date originated:

Click to Enlarge

Obama is responsible for adding $1.4 trillion in 2.5 years. Bush 43 added $7 trillion in just 8 years through unfunded wars and entitlements.

It is pure hypocrisy for Republicans to suddenly "get religion" on deficits and debts. Just 8 months ago they voted to extend the Bush tax cuts. These add $4 trillion to the debt over 10 years. Why no big storm back in December 2010? Because the Republicans really don't care about deficits. They have latched onto the debt ceiling as a technique to try and destroy Obama's presidency.

I blame Obama for being an idiot and falling into the trap the Republicans set for him. The Democrats deserve a better leader, one who isn't a Republican "in disguise". Real Democrats care about social programs first and deficits only secondarily. Obama ignores the unemployment and the home foreclosures so he and the Republicans can focus on deficits and debts. Nuts!

The Mechanics of Hostage Taking

Here is a bit from James Fallows on his The Atlantic blog explaining the mechanics of the Republican party's approach to "governing":
The debt-ceiling showdown represents hostage-taking, plain and simple. This is a "crisis" that need never have happened, regardless of which party controlled the White House.

You wouldn't know it from most news coverage, but there is no logical or legislative connection between the House Republicans' stated object of concern, the future budgetary path toward national solvency, and the bonds and notes the Treasury must keep issuing for programs this and previous Congresses have already voted into law. (Ie, additional debt.) It is a quirk of legislative history, not a principle of sound budgeting, that we calculate a "debt ceiling" at all, those debts being a predictable consequence of the programs Congress enacts. That's why increases in the ceiling in the past have been routine measures, or occasions for minor grandstanding. These minor episodes include then-Senator Obama's vote against an increase in 2006. That one passed, as of course did six other increases under George W. Bush (along with 17 18 under Ronald Reagan, nine under George H.W. Bush, and six under Bill Clinton). You can read historical details from the Congressional Research Service in PDF form.

Here's a comparison: Suppose, by similar quirk, there was an arbitrary ceiling on the amount of ammunition the U.S. military could buy each year. Or the amount of fuel for drones, bombers, and Humvees. Like overall national debt, these purchases are foreseeable consequences of previous political decisions -- in this case, about the wars the country decides to fight. But suppose that when the "ammo ceiling" came due for its routine extension, a group of legislators said they would refuse. No more bullets or jet fuel after August 2, and for good measure no more food for the troops, unless demands for radical change in future foreign policy were met in full. That would rightly be seen as blackmail, and as a reckless willingness to damage the nation for partisan ends. A similar reckless exercise in blackmail is underway now, with the difference that the consequences can be longer-lasting and worse.
Go read his post. He has 4 other reasons why the Republican party is to blame for the mess the US is in, i.e. why the credit rating is dropping, interest rates are rising, and countries are either refusing to accept US dollars and/or selling what US dollars they have for a currency whose government stands behind the notes.

Fallows also offers up this example of just how crazy & fanatical the Republicans are:
A Republican demand for $16 million in cuts from the FAA budget (plus some anti-union provisions) has led to an FAA shutdown that has in turn, as the NY Times reports, led to a $25 million per day loss in fees the airlines paid to the FAA. That is, zealotry on this point has already cost the government more than ten times as much as the cuts would have saved.
When you piss away more than the $16 million you claim to "want to save" by shutting down the FAA, you show a complete disregard for logic, proportion, and compromise. This is clear evidence that these Republicans would kill their own mothers if they thought that might further their ideology of "family values".

I simply didn't believe the Republican party was this fanatical and stupid. I now recognize I was wrong. One-third of the American people want to live in a banana republic and their wish is coming true. Sadly, the two-thirds who want to live in a first world country are unable to show the necessary muscle to shout down the crazies, so the US is now effectively being run by the Tea Party along with a centre-right so-called Democrat President but one who appears to be deeply in love with Republican "values" so he has simply abandoned his party in favour of allowing the Tea Party to set the agenda and decide what bills can be passed and when. Ridiculous!

Alan Blinder on the Debt Ceiling

Alan Blinder gives some straight talk on the idiocy of the debt ceiling fight.

As he point out, this fight is unnecessary and disruptive. The focus should be on unemployment and getting the economy growing which implies short term spending, not austerity!

I like his bit where he say "Washington is shooting itself in the foot with this 'debate'. The debt is a non-issue. It is a legacy of the past. Unless somebody can figure out how to go back into the past and fix it, it is irrelevant. What is needed is policy for the future that gets spending decreased to control deficits". But all the hysteria in Washington right now ignores this basic fact.

Lament for a Failed US

This bit from an article by Brad DeLong and published by Project Syndicate should be meditated upon:
During the run-up to World War II, Winston Churchill, speaking in Parliament, lamented “the years that the locusts hath eaten” – the period during which preparatory action to face the great crisis of his day (the rise of Continental fascism) could have been taken, but was not. Over the past century – with the notable exception of the Great Depression – the US political system has been remarkably good at foreseeing crises long before they have happened, and at least setting the foundation for dealing with them when they have occurred.

But so far in the third millennium, this skill – or simply run of luck – has deserted the US. My view is that the problem would fix itself easily if only the Republican Party of Dwight D. Eisenhower could stage a comeback (though without Richard Nixon and Joseph McCarthy).

It is becoming increasingly clear, however, that the problem is one not only for the US, but for the rest of the world as well. Since December 7, 1941, the world has in large part been able to rely on global governance by a somewhat-competent hyper-power. That America may be gone for good. If it is, the world needs to develop other institutions for global management – and quickly.
I see more failures in US policy than Brad DeLong:
Yes, having more Eisenhower-like Republicans would be nice, but the ills of the US go much, much deeper. The achingly slow rejection of Jim Crow and segregation, the ineffective "War on Poverty" that was turned about by the Reagan policies to enrich the already fabulously wealthy, and the radical culture wars unleashed by the Republican fanatics at the end of the 20th century are only part of a long legacy of bad politics.

Friday, July 29, 2011

Failure of Leadership

From The Economist magazine:
Leaders in America and Europe are dallying with failure on an epic scale. They are constrained by dysfunctional institutions, it's true. In Europe, the architecture of the currency union is far too underdeveloped to weather a crisis of the current magnitude. In America, the creaking machinery of the legislature is ill suited to settlement of big questions on a short time frame amid divided government. But it's no longer sufficient to blame inadequate policy responses on institutions alone. America and Europe are flailing because their leaders are failing. They seem to be too small for the tasks at hand, too petty, and too myopic.

The challenges facing Europe and America are big, but they're not mysterious. In Europe, the issues are sovereign debt, vulnerable banks, and a poorly designed currency area. It's not tricky to see what must be done. Peripheral debts should be addressed through austerity, sure. But unsustainable debt loads need to be written down. Banks should be recapitalised to prevent trouble in financial markets. Emergency funds should be bolstered to fight sovereign and banking contagion. And substantial fiscal integration must take place, including fiscal transfers to support peripheral economies while they get their budgets in order. The central bank should also stop fighting the phantom of accelerating inflation.

European leaders know what they need to do. They have been slow to do it for two reasons. First, the magnitude of the commitment necessary to save the union is uncertain, and they don't want to pay a penny more than is necessary. And second, the distribution of the costs of the commitment is uncertain, and no individual entity wants to pay a penny more than is necessary.


In America, the situation is more ridiculous still. The economy is vulnerable. New data continue to reveal just how weak growth was in the second quarter. The economy may scarcely have expanded at a 1% annual pace. Unsurprisingly, job growth was too slow to keep up with a growing labour force, and the unemployment rate began rising again.


Washington seems practically excited to stamp out optimism. Congress has spent the first month of the third quarter dangling the prospect of a full blown fiscal crisis over the heads of American firms and households. Markets are retreating, and businesses are building up cash reserves as insurance against the worst. After two years of pitifully slow recovery, while tens of millions of workers are un- or underemployed and wages flat, the government is doing its absolute best to kill the latest growth rebound in its crib. It is shocking.

Again, it's not like the correct policy path is incredibly complicated. Here, I'll sum it up in three quick steps:
  1. Don't cause a major crisis.

  2. Do spend more and tax less for the next year or so.

  3. Do spend less and tax more after that.
See? That's really easy! If you wanted to move up to more complicated ideas, you could talk about using the opportunity of record low borrowing costs to make needed, long-overdue investments in critical American infrastructure. Instead, Congress seems determined to convince the world that America shouldn't be allowed to borrow at all, except at highly punitive rates. It might also be a good idea to confirm appointees to the Federal Reserve board who know a thing or two about how labour markets work. Instead, Congress is blocking nominees for sport, citing debasement of the currency while 10-year inflation expectations are under 2%. And while the very same legislators muse publicly about how an American debt default might not be so bad after all.

It's inexcusable. And it is a direct result of a leadership in Washington that is too small-minded to see the danger it's courting by recklessly pursuing a foolish ideological agenda.


One wants to shout at them: stop screwing around! Lives and livelihoods are on the line! Nothing good will come of a return to recession, to saying nothing of a new financial meltdown. And yet, the trifling continues. Sometimes history gives us individuals equal to troubling circumstances. Sometimes it doesn't, and the world suffers. Maybe everything will turn out all right. Shame on the leaders of Europe and America for working so diligently to ensure that it doesn't.
In an interconnected world simultaneous failures are really disasterous. The world is looking very shaky because Japan is still faltering, and China appears to be ready to explode with a credit bubble. We appear to be heading back into a mini-2008 meltdown.

You can thank the idiots in the Republican party and the paralyzed and inadequate "leadership" of Obama for this crash.

The Canadian Perspective on the US Debt Ceiling Crisis

Here are some gems from a publication by the Bank of Montreal's economic research team in a publication entitled Focus:
The market’s message to Washington from the five-day slide in the Dow can be neatly summed up in two words: You Idiots!

Part of the requirement for a country to be rewarded with a AAA credit rating is political stability and a clear willingness to repay debts—the fiscal fiasco calls the U.S. into question on both counts. Perhaps the most distressing aspect of the entire mess is the stance taken by some very senior leaders. The candidate currently in second place for the Republican nomination for President has openly stated that she would never support an increase in the debt limit. While it may be too much to ask for every politician to have an advanced degree in economics, it’s not asking too much that they have an ounce of common sense.
And this:
The stalled vote by the House of Representatives further delays a resolution of the debt ceiling crisis and raises the odds of a government shutdown next week. Tea Partiers’ refusal to support the Boehner Plan might well mean that they get the political onus for a shutdown and possible default. For sure, the Democrats will play it that way. The only thing that is certain about the current impasse is that it is unambiguously bad for the U.S. economy, which grew at a much slower pace than previously thought in the first half of the year.


The last thing the U.S. economy needs now is further disruption from Washington and dramatic tightening in fiscal policy.
And this:
Evidence is mounting that fiscal uncertainty is harming the U.S. economy. Consumer spending nearly stalled in the second quarter, and not simply because of the lesser availability of cars and higher cost of driving them. Consumer confidence tumbled in July, and a weekly measure of sentiment plunged after S&P upped its downgrade warning mid-month. Despite stellar profit growth at large multinational companies, firms unexpectedly cut durable goods orders in June. Although pending home sales rose surprisingly last month, a pullback in mortgage originations suggests sales weakened in July. The Fed’s Beige Book said more regions are slowing, with companies in the Chicago Fed District citing “heightened uncertainty about the economic outlook given recent weaker-than-expected demand as well as the ongoing fiscal issues in the U.S. and Europe”.

Investors and banks are taking extra precautions in the event of a fiscal “accident”. Money market funds are hoarding cash in the event of redemptions. Banks are conserving liquidity, restricting the supply of much-needed credit for businesses and homeowners. This is despite the fact that mutual funds, banks and insurance companies are under no obligation to unload their Treasury holdings in the event of a downgrade. A survey by the Association of Financial Professionals said that, in the event of a failure to raise the debt ceiling, half of treasury and finance executives would take precautionary action (read: cut hiring and outlays) to conserve cash.

Even if the debt ceiling is raised in coming weeks and a default averted, as is highly likely, the extreme partisanship shown by lawmakers risks pushing the fragile economy back into the mire.
Americans should contact their Congressional representatives and thank them for ensuring that they will enjoy the equivalent of the Great Depression's "double dip" with the 1937 recession within the depression.

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By 1936, all the main economic indicators had regained the levels of the late 1920s, except for unemployment, which remained high. In 1937, the American economy unexpectedly fell, lasting through most of 1938. Production declined sharply, as did profits and employment. Unemployment jumped from 14.3% in 1937 to 19.0% in 1938. A contributing factor to the Recession of 1937 was a tightening of monetary policy by the Federal Reserve.
Americans will have the Republican party to thank for this trip down "memory lane".

Restructuring the US Two-Party System

For over a year I've been hypothesizing that the Republican party has doomed itself to disappear and that the Democrats would split to form a new, more reasonable, two-party system for the US with the "blue dog" and centrist Democrats forming a centre-right party and the progressives forming a left wing party.

Here is a bit from a post by Brad DeLong that echos this viewpoint:
Well, the big bourgeoisie--the bankers--are really annoyed at Boehner. Interestingly, they are not so annoyed at Obama: they understand that he has not created this mess.

With any luck they will draw the lesson that, as Clive Crook put it in one of his few moments of courage, "the Republican Party… deserve[s] political annihilation" for this clown show, and shift their political weight over to supporting the Rubin wing of the Democratic Party.
I don't expect this to happen overnight, but I do expect the Republicans to be punished in 2012. It may take a new third party rising in the interim that lures the right wing of the Democrats to form the new opposition and recreate a workable two party system for the US.

Of course Obama would move to this new right wing party because "Mr. Change You Can Believe In" didn't bother to mention that he wanted to bring the right wing Republican revolution to the Democratic party. He needs to be leading a party that actually wants to follow him with his centre-right views.

Confusing Signals from the US

Some columnists complain that an income of $500,000 a year is not "wealthy" and are up in arms that somebody would think these people should be taxed more than they are.

Other columnists (and sometimes the very same one!) think that a senior with an income of $30,000 is "wealthy" and can afford to have their government benefits trimmed "for the greater good of the country" to fight the "debt problem".

Here is an example provided by Dean Baker in his Beat the Press blog:
Robert Sanuelson Redefines "Wealthy"

The Washington Post once ran a front page piece questioning whether people who earned $250,000 a year, President Obama's cutoff for his no tax hike pledge, were really rich. However, it also features Robert Samuelson on its opinion page telling readers that seniors with income of $30,000 a year are wealthy. I'm not kidding.

In a piece titled "Why Are We In This Debt Fix? It's the elderly stupid," Samuelson tells readers:
"some elderly live hand-to-mouth; many more are comfortable, and some are wealthy. The Kaiser Family Foundation reports the following for Medicare beneficiaries in 2010: 25 percent had savings and retirement accounts averaging $207,000 or more."
Let's see, we have retirees who have their Social Security checks, plus a stash of $207,000. If someone at age 62 were to take that $207,000 and buy an annuity this money would get them about $15,000 a year. Add in $14,000 from Social Security and they are living the good life on $29,000 a year. And remember, 75 percent of the elderly have less than this.

To be fair, many of the people with $207,000 in savings will be older than 62 so their money will go further, but it is hard to believe that anyone can think of this as a cutoff for being wealthy, or at least anyone other than Robert Samuelson and his colleagues at the Washington Post.
I think the confusion can be explained. You are wealthy and "part of the problem" if you are in the bottom 90% of the population. You are not wealthy and need ever more "tax cuts" if you are in the top 1% of the population.

The US Credit Downgrades Have Begun

From the Moody's rating serivce:

Moody's Investors Service has placed under review for possible downgrade the Aaa ratings of 177 public finance credits, affecting a combined $69 billion of outstanding debt. The credits include 162 local governments in 31 states, 14 housing finance programs and one university. A complete list of affected securities and additional analysis is available at

These actions relate to Moody's July 13 decision to place the Aaa government bond rating of the United States under review for downgrade, and reflect the rating agency's assessment that some Aaa public finance ratings would likely be indirectly affected by potential credit deterioration of the sovereign.

In the event the U.S. government's Aaa rating is downgraded, Moody's will determine the outcome of each review by evaluating the strength of the sovereign linkages to each affected credit, including direct and indirect reliance on federal spending, sensitivity to deteriorating macroeconomic conditions and vulnerability to disruptions in the financial markets. Moody's will also consider positive credit attributes of each issuer such as financial position, operating flexibility and management responsiveness.

In a previous action on July 19, Moody's placed the ratings of five Aaa U.S. state governments under review for possible downgrade, affecting approximately $24 billion of general obligation and related debt. Those states are Maryland, New Mexico, South Carolina and Tennessee and the Commonwealth of Virginia.

Some 400 other Aaa-rated public finance credits have not been placed on review for possible downgrade. At this time, Moody's considers their ratings to be resilient to a one-notch downgrade of the U.S. government's bond rating. Should the sovereign rating be downgraded by more than one notch, Moody's would likely assess whether these remaining Aaa ratings should also be placed on review for downgrade.
The idiotic Republican party has created a firestorm and is too stupid to realize it.

Just like the "deregulate, deregulate, deregulate" madness under Bush created the housing bubble that burst in 2008 and clobbered Main Street, the Republicans are doing it again.

Techniques to end the US Debt Ceiling Stalemate

It is amazing to watch the US flail about unable to simply agree to pay its legally contracted debts. The US President appears to be unable to lead on the issue, find a compromise, or put pressure on the parties in Congress to come to a resolution.

Funny, Barack Obama found no problem ignoring the War Powers Resolution law in sending troops to fight in Libya. The law clearly states that the President can initiate military action, but must request authorization:
The War Powers Resolution requires the President to notify Congress within 48 hours of committing armed forces to military action and forbids armed forces from remaining for more than 60 days, with a further 30 day withdrawal period, without an authorization of the use of military force or a declaration of war.
As it stands, Obama is willing to flout this law, from Wikipedia:
Although the constitutionality of the act has never been tested, it is usually followed, most notably during the Grenada Conflict, the Panamanian Conflict, the Somalia Conflict, the Gulf War, and the Iraq War. The only exception was President Clinton's use of U.S. troops in the 78-day NATO air campaign against Yugoslavia during the Kosovo War.
But Obama mysteriously is unwilling to take advantage of the 14th Amendment to the US Constitution which begins:
Section 4. The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.
Most legal scholars says that means, if the US has contracted an obligation, it is the President's duty to ensure that the debt is paid. So the "debt ceiling" is in conflict with the Constitution and pretty well every Constitutional lawyer (of which Obama is supposedly one) will tell you that the Constitution has precedence over mere Congressional "law". But Obama refuses to make use of this device.

So here is Paul Krugman on his NY Times blog with other suggestions for Obama to "solve" the debt ceiling crisis:
I think we can safely say that the political process has failed. Now what?

Well, there do appear to be legal loopholes. Jack Balkin gives us the platinum coin option:
Sovereign governments such as the United States can print new money. However, there’s a statutory limit to the amount of paper currency that can be in circulation at any one time.

Ironically, there’s no similar limit on the amount of coinage. A little-known statute gives the secretary of the Treasury the authority to issue platinum coins in any denomination. So some commentators have suggested that the Treasury create two $1 trillion coins, deposit them in its account in the Federal Reserve and write checks on the proceeds.
And he also gives us the exploding-option option:
The government can also raise money through sales: For example, it could sell the Federal Reserve an option to purchase government property for $2 trillion. The Fed would then credit the proceeds to the government’s checking account. Once Congress lifts the debt ceiling, the president could buy back the option for a dollar, or the option could simply expire in 90 days.
These things sound ridiculous — but so is the behavior of Congressional Republicans. So why not fight back using legal tricks?

And there is the constitutional option. Ronald Dworkin says that it works — or, at the very least, will put the issue into the courts for a while, which is better than destroying the economy next week.

Outrageous behavior demands extraordinary responses. Over to you, Mr. President.
So why is Obama allowing this "debt ceiling" mess to fester and allow the stock market and the debt market to begin to crash? Already the credit rating agencies are saying that even if a "deal" is found, it is too late. They are going to move to downgrade US debt with the result that interest rates for business will rise in the US. In effect this is a "tax" that the Republicans have now imposed on Americans because they supposedly were "against taxes"! With a numbskull political party like the Republicans, the American people don't need enemies. They have have an organized anti-American terrorist organization already burrowing inside America to destroy it: the Republican party.

The Democrats do not need a Republican party to oppose them. They have Obama acting as a Republican simulacrum working hard to achieve the Republican agenda.

The American people have yet one more burden to bear beyond the Bush induced Little Depression, the Home Foreclosure disaster, the endless wars overseas, and a "security state" gone wild. They have a President elected by them on a platform of "hope" and "change you can believe in" who has completely surrendered to the policy platform of the Republican party and is actively in cahoots with the Republicans to deliver the nation a disaster of monumental scope rather than take active measure to counter the mad dog Republican agenda.

From The Atlantic magazine, here is the situation that Obama has delivered to the American people:
While Washington sets itself on fire, the economy is frozen stiff. GDP has grown 1.6% in the last year, a third lower than analysts had thought as early as yesterday. Between January and March this year, it grew by 0.4%, which means it practically stopped. If you're wondering why there are no new jobs, you can probably stop wondering. There is no real recovery.

Meanwhile, Washington is debating whether or not to shut down government borrowing. It goes without saying -- or, I hope it goes without saying -- that there couldn't be a worse time to shut down Washington, fire government workers, or front-load spending cuts. The end of stimulus has already resulted in the firing of so many state and local government workers that total government employment has now declined by more than the private sector in Obama's term.

A national economy is complicated. But what's hurting us is simple. Incomes and spending aren't growing for the vast majority of workers. The San Francisco Fed found that typical consumer is spending $2,000 less this year than he would be if pre-recession growth had continued. The other components of GDP -- business investment, exports and government spending -- aren't strong enough to compensate for that basic, central weakness.

The debate in Washington over the debt ceiling is about improving our fiscal health. But the chief indicator of fiscal health is our debt-to-GDP ratio. Debt as a share of the economy is the only thing that matters. If the economy isn't growing, it does not matter how small your deficits are. The ratio won't decline, and your fiscal health won't improve.

What would be the ideal way out of this mess? The politically implausible, but economically sound, answer is higher deficits today, from more spending or lower taxes (or both). Deficits are a dirty word in Washington, where "borrow-and-spend" has because a slur. But the ability of the government to borrow and spend represents an ability to rake money into the economy, not unlike exporting a good in exchange for cash. The private sector isn't growing, business investment is weak, and exports are a tiny sliver of the U.S. economy. If government doesn't continue to pursue high deficits, we're dooming ourselves to month after month of jobless, "recovery-less" recovery. Which is to say: Basically, we're doomed.
The fact that Obama is unwilling to admit that his policies have failed to deliver growth because his stimulus was too small (and half of it was "tax cuts" and not spending because he wanted to "compromise" with the Republicans!) means that things are bad and not really improving. And now Obama is adding to the misery by doing this two-step with the Republicans whose only political agenda is to destroy America so that voters in 2012 will be mad enough about the mess to vote in Republican crazies.

Bruce Bartlett Analyzes Obama

His conclusion: Obama does not have any experience with tough negotiations.

He sees Obama time after time trying to compromise with Republicans who view each concession as merely a confirmation that they should be demanding more. Inevitably Obama caves to the Republican position.

Here is the key bit from the article in The Fiscal Times:
Unfortunately, Obama is really too young to have the kind of experience that previous presidents like Reagan brought to the White House in terms of understanding intransigent enemies and how to deal with them. Consequently, Obama has really been caught flat-footed by the Tea Party era Republican Party. He believed it would respond positively if he offered it half a loaf on just about every issue.

For example, some 40 percent of the 2009 stimulus legislation consisted of tax cuts even though his economic advisers knew that they would have almost no stimulative effect. But Obama viewed them as an important concession to Republicans. Yet despite total rejection of his stimulus package by the GOP, Obama kept the tax cuts rather than reprogramming the money into more effective programs such as state aid or public works.
We are in the midst of a debt crisis that
stems largely from Obama’s inability to accept
the intransigence of his political opponents.

Nevertheless, Obama offered Republicans another half-loaf by putting forward a health reform plan almost identical to those that they and conservative groups such as the Heritage Foundation had proposed in the 1990s. Obama’s offer was summarily rejected and Republicans suddenly decided that the individual mandate, which previously had been at the core of their own health reform plans, was unconstitutional.

Now we are in the midst of a debt crisis that stems largely from Obama’s inability to accept the intransigence of his political opponents. Last December, he caved in to Republicans by supporting extension of the Bush tax cuts even though there is no evidence that they have done anything other than increase the deficit. There were those who told Obama that he ought to include an increase in the debt limit, but he rejected that idea, believing that Republicans would behave like responsible adults and raise the debt limit just as they did routinely when their party held the White House.
This incompetence by Obama would be bearable if he showed some ability to "learn on the job". But Obama keeps repeating the same mistake. He is hopeless. He really should be running with the rest of the pack of Republican hopefuls and not as a candidate for the Democrats.

Obama Fiddles While His Presidency Turns to Ashes

Here is a bit from a good post by Yves Smith at the Naked Capitalist blog:
Some historical accounts of the Great Fire of Rome, which destroyed three of the city’s fourteen districts and damaged seven others, depict it as an urban redevelopment project gone bad. Emperor Nero allegedly torched the district where he wanted to build his Domus Aurea. Hence any lyre-playing was not a sign of imperial madness, but a badly-informed leader not knowing his plans had spun badly out of control.

President Obama’s plan at social and economic engineering, of rolling back core elements of the Great Deal out of a misguided effort to cut spending in a weak economy, is similarly blazing out of control. The debt ceiling crisis was meant to be a scare to provide an excuse for measures that are opposed by broad swathes of the public. Polls predictably show that voters want five contradictory things before noon: they are against cutting Social Security and care much more about more jobs than about less deficit, but yeah, they’d like that too if they can have it.

While members of the administration may dimly recognize what a firestorm they have unleashed, their crisis responses look to be no better than Nero’s. Obama has severely limited his options by playing up the rigidity of the debt limit. In the meantime, the Republicans are playing chicken and are looking very convincing by claiming the Tea Partiers had removed the steering wheel from the car.
She goes on to look at whether Obama can invoke the 14th amendment to unilaterally ignore the debt ceiling. (Answer: yes!)

Then she gets technical about what actions may/should happen as the US plunges into the abyss:
But a related question is why is the Administration not doing a better (as in any) job of crisis preparation as a way of calming rattled nerves? Of course, part of the answer is that since this is a manufactured crisis, they really feel they need to keep the heat on and are locked into their current strategy. But a piece by Gillian Tett of the Financial Times lists five areas where the Fed and Treasury owe the public answers on what takes place if there is no debt deal before official finances become strained. I’m not in agreement with all the questions on her list. For instance, “What might the US government do to support the US money market funds if American debt is downgraded, or suffers a technical default?” Paul Volcker was vehemently opposed to the backstopping of money market funds in the crisis, and the assumption underlying Tett’s question assumes that these reserves are entitled to some sort of official protection. Money market fund managers have reportedly raised cash levels substantially in anticipation of redemptions; Treasury-only money market funds won’t dump Treasuries; AAA only funds would presumably in the event of a downgrade (other types of institutional investors are seeking waivers, but I think it would be a non-starter in a product branded as AAA). But her general point is valid: the authorities have been way too close mouthed given the worries they have whipped up. It is astonishing, for instance, that the false August 2 deadline is still widely reported in the media when it is now widely acknowledged that the real drop dead date is August 10.
And she sums up the mess that Obama has created by his craven "negotiating" strategies:
It is hard to come up with words that are strong enough to describe what an appalling display of misguided ego, inept negotiating postures, bad policy thinking, and utter disregard for the public interest are on display in this fiasco. But as a friend of mine likes to say, “Things always look darkest before they go completely black.”
The whole thing is pathetic. The Democrats should get busy trying to find a real Democrat to run for the presidency in 2012.

How "Balanced" News Distorts the News

Here is a bit from an excellent NY Times op-ed by Paul Krugman that examines how the media's insistence on writing a "he said, she said" story and which puts "balance" on a pedestal, distorts proper political analysis:
Some of us have long complained about the cult of “balance,” the insistence on portraying both parties as equally wrong and equally at fault on any issue, never mind the facts. I joked long ago that if one party declared that the earth was flat, the headlines would read “Views Differ on Shape of Planet.” But would that cult still rule in a situation as stark as the one we now face, in which one party is clearly engaged in blackmail and the other is dickering over the size of the ransom?

The answer, it turns out, is yes. And this is no laughing matter: The cult of balance has played an important role in bringing us to the edge of disaster. For when reporting on political disputes always implies that both sides are to blame, there is no penalty for extremism. Voters won’t punish you for outrageous behavior if all they ever hear is that both sides are at fault.

Let me give you an example of what I’m talking about. As you may know, President Obama initially tried to strike a “Grand Bargain” with Republicans over taxes and spending. To do so, he not only chose not to make an issue of G.O.P. extortion, he offered extraordinary concessions on Democratic priorities: an increase in the age of Medicare eligibility, sharp spending cuts and only small revenue increases. As The Times’s Nate Silver pointed out, Mr. Obama effectively staked out a position that was not only far to the right of the average voter’s preferences, it was if anything a bit to the right of the average Republican voter’s preferences.

But Republicans rejected the deal. So what was the headline on an Associated Press analysis of that breakdown in negotiations? “Obama, Republicans Trapped by Inflexible Rhetoric.” A Democratic president who bends over backward to accommodate the other side — or, if you prefer, who leans so far to the right that he’s in danger of falling over — is treated as being just the same as his utterly intransigent opponents. Balance!

Which brings me to those “centrist” fantasies.

Many pundits view taking a position in the middle of the political spectrum as a virtue in itself. I don’t. Wisdom doesn’t necessarily reside in the middle of the road, and I want leaders who do the right thing, not the centrist thing.

But for those who insist that the center is always the place to be, I have an important piece of information: We already have a centrist president. Indeed, Bruce Bartlett, who served as a policy analyst in the Reagan administration, argues that Mr. Obama is in practice a moderate conservative.

Mr. Bartlett has a point. The president, as we’ve seen, was willing, even eager, to strike a budget deal that strongly favored conservative priorities. His health reform was very similar to the reform Mitt Romney installed in Massachusetts. Romneycare, in turn, closely followed the outlines of a plan originally proposed by the right-wing Heritage Foundation. And returning tax rates on high-income Americans to their level during the Roaring Nineties is hardly a socialist proposal.


But making nebulous calls for centrism, like writing news reports that always place equal blame on both parties, is a big cop-out — a cop-out that only encourages more bad behavior. The problem with American politics right now is Republican extremism, and if you’re not willing to say that, you’re helping make that problem worse.
What I find funny is the idea the expectation that political beliefs can be laid out along a single line. I guess it is my inner mathematicians, but I would expect that a proper representation would be in a multidimensional space. At a very minimum a three-cornered representation such a Timothy Ferris in The Science of Liberty is interesting because it allows for a tension between three impulses:
  1. Conservative - the impulse to maintain traditions and social stability

  2. Liberal - the commitment to individual liberty, free thought (science), and an openness to change

  3. Progressive - an emphasis on justice and equality, the valuing of lives requiring equal opportunity, rights to equal education, and legal system that ensures fair play
Sadly, Obama has only a tenuous commitment to liberalism and progressivism. He appears to be deeply conservative, but he sold himself in 2008 as a liberal commited to "change you can believe in" and people mistook his community organizer background and his racial background as indicators that he would be sensitive to the needs of progressivism. Sadly, that is not true. Instead, he comes out as deeply committed to one value: gathering as much political funding for his re-election as possible which means he listens most closely to the "needs" of Wall Street and the big banks, not the unemployed or those dispossed of their homes by the foreclosure crisis.

Thursday, July 28, 2011

Washington's Political Games are Now Affecting Main Street

Here is a post from the Calculated Risk blog site identifying the first big rumblings from the credit markets. The idiocy of the "debt ceiling" is now affecting the real world and will quickly ramp up over the next three days:
Debt Ceiling Charade impacting Short-Term Credit Markets

From the NY Times DealBook: Debt Ceiling Impasse Rattles Short-Term Credit Markets
Over the last week, big banks and companies have withdrawn $37.5 billion from money market funds that invest in Treasury debt and other ultra-safe securities, the biggest weekly drop this year. Meanwhile, in the vast market for repurchase agreements, in which many financial firms make short-term loans to one another, borrowers are beginning to demand higher yields.
From the WSJ: Default Worries Dry Up Lending
Banks ... are scrambling to design emergency plans to avoid a trading logjam in the huge markets for Treasurys and short-term funding facilities if Congress fails to raise the U.S. borrowing limits by next Tuesday's deadline.
Trading executives from the largest Wall Street dealers agreed on a Wednesday conference call, conducted by the industry trade group the Securities Industry Financial Markets Association, to a number of procedures to trade Treasury bonds if the U.S. misses a payment on its debt.
From CNBC: Will Debt Feud Clip Future Economic Growth?
Washington's political feuding over the deficit has damaged business and consumer sentiment in an already weak economy ...
I've heard comments from several executives this week that business has slowed sharply over the last week. People are getting nervous.

I've been trying to ignore the charade - obviously Congress will agree to raise the debt ceiling and pay the bills - but it is now impacting the economy.
Sadly, the inmates are running the asylum. The fanatics don't care that they are destroying the US economy. Those who elected these crazies had no idea that this was the "mandate" they gave them. It reminds me of the poor German people who voted in the Nazis in 1932 not knowing that they would crush the Reichstag and bring democracy to an end in Germany and then plunge the country into a war that would leave the cities destroyed and most of a generation of men dead. But that is what you get when you play footsie with fanatics.

Dispelling the Right Wing Lies

Here is a key bit from a post by Robert Reich that clarifies the upcoming "crisis" is an artificial one created by the Republicans but made real by Obama's willingness to play by the Republican's rules:
A friend who’s been watching the absurd machinations in Congress asked me “what happens if we don’t solve the budget crisis and we run out of money to pay the nation’s bills?”

It was only then I realized how effective Republicans lies have been. That we’re calling it a “budget crisis” and worrying that if we don’t “solve” it we can’t pay our nation’s bills is testament to how successful Republicans have been distorting the truth.

The federal budget deficit has no economic relationship to the debt limit. Republicans have linked the two, and the Administration has played along, but they are entirely separate. Republicans are using what would otherwise be a routine, legally technical vote to raise the debt limit as a means of holding the nation hostage to their own political goal of shrinking the size of the federal government.

In economic terms, we will not “run out of money” next week. We’re still the richest nation in the world, and the Federal Reserve has unlimited capacity to print money.

Nor is there any economic imperative to reach an agreement on how to fix the budget deficit by Tuesday. It’s not even clear the federal budget needs that much fixing anyway.

Yes, the ratio of the national debt to the total economy is high relative to what it’s been. But it’s not nearly as high as it was after World War II – when it reached 120 percent of the economy’s total output.

If and when the economy begins to grow faster – if more Americans get jobs, and we move toward a full recovery – the debt/GDP ratio will fall, as it did in the 1950s, and as it does in every solid recovery. Revenues will pour into the Treasury, and much of the current “budget crisis” will be evaporate.

Get it? We’re really in a “jobs and growth” crisis – not a budget crisis.
Go read the whole post.

Notice the bit about "unlimited capacity to print money". Yes, that is one way to fix the problem. It would cause some damage but mostly to the ultra-rich. It is not my preferred solution to the debt ceiling fight, but Obama should use it to call the bluff of the Republicans. He should simply print the money required to pay all claims on the US treasury. That will immediately put great fear in the ultra-rich about inflation. It shouldn't bother the bottom 90% too much (except for pensioners on fixed non-indexed incomes). There is a beneficial side-effect of printing money to pay the bills.

The inflation that would be unleashed would goose the economy, create jobs, and make it easier to pay off debts. Since this unfairly benefits some at the expense of others, it is not the preferred solution, but if the Republicans want to play "hardball", then Obama should too. But the truth is that Obama is more Republican than Democrat, so he will never take this approach to solve the impasse.

The problem for the Democrats rests squarely with one man: Obama. Here is a bit from another post by Robert Reich on his blog:
How can it be that with over 9 percent unemployment, essentially no job growth, widening inequality, falling real wages, and an economy that’s almost dead in the water — we’re locked in a battle over how to cut the budget deficit?

Part of the answer is a Republican Party that’s the most irresponsible and rigidly ideological I’ve ever witnessed.

Part of the answer is the continuing gravitational pull of the Great Recession.

But another part of the answer lies with the President — and his inability or unwillingness to use the bully pulpit to tell Americans the truth, and mobilize them for what must be done.

Barack Obama is one of the most eloquent and intelligent people ever to grace the White House, which makes his failure to tell the story of our era all the more disappointing and puzzling. Many who were drawn to him in 2008 (including me) were dazzled by the power of his words and insights — his speech at the 2004 Democratic convention, his autobiography and subsequent policy book, his talks about race and other divisive issues during the campaign.

We were excited by the prospect of a leader who could educate — an “educator in chief” who would use the bully pulpit to explaini what has happened to the United States in recent decades, where we must go, and why.

But the man who has occupied the Oval Office since January, 2009 is someone entirely different — a man seemingly without a compass, a tactician who veers rightward one day and leftward the next, an inside-the Beltway dealmaker who doesn’t explain his comprises in light of larger goals.

In his inaugural address, Obama warned that “the nation cannot prosper long when it favors only the prosperous.” In private, he professes to understand that the growing concentration of income and wealth at the top has robbed the middle class of the purchasing power it needs to keep the economy going. And it has distorted our politics.

He is well aware that the Great Recession wiped out $7.8 trillion of home values, crushing the nest eggs and eliminating the collateral that had allowed the middle class to keep spending despite declining real wages — a decrease in consumption that’s directly responsible for the anemic recovery.

But instead of explaining this to the American people, he joins the GOP in making a fetish of reducing the budget deficit, and enters into a hair-raising game of chicken with House Republicans over whether the debt ceiling will be raised.

Never once does he tell the public why reducing the deficit has become his number one economic priority. Americans can only conclude that the Republicans must be correct — that diminishing the deficit will somehow revive economic growth and restore jobs.

Instead of powerful explanations we get the type of bromides that issue from every White House. America must “win the future,” Obama says, by which he means making public investments in infrastructure, education, and basic R&D. But then he submits a budget proposal that would cut nondefense discretionary spending (of which these investments constitute more than half) to its lowest level as a share of gross domestic product in over half a century.
The people need to tell Obama he is a one-term president and they want a real Democrat in 2012.

A Meditation on Greed

From Umair Haque's blog at the Harvard Business Review:
The monsters, they say, come out at night. And right now, we're in a long, dark night of the economy.

So to a stage crammed with the now familiar-pantheon of modern-day monsters — the clueless chairmain of the board, the narcissistic chief executive, the proudly sociopathic investor, the servile, principle-less politician — let me introduce a minor new setpiece: the playhouse for the super-rich (which can easily cost more than the average income of the people formerly known as "the middle class"), as described in an eyebrow-raising New York Times piece, beginning:
Apart from the open bar by the swimming pool, the main attraction at parties held at the Houston home of John Schiller, an oil company executive, and his wife, Kristi, a Playboy model turned blogger, is the $50,000 playhouse the couple had custom-built two years ago for their daughter, Sinclair, now 4.
If $50,000 seems a bit off for that kind of purchase, don't worry — other playhouses in the piece went for as much as a cool $250k.

Call me a heretic, fire up the kindling and ready the stake, but I'd say this particular item — which I'll readily hold up my hands and admit hit a nerve — is a peculiarly apt metaphor for what's gone wrong with the economy today: the super-rich, whose gains reflect little social value creation, have gotten richer — and are hyperconsuming the stuff of idle, yawning luxury with an appetite that makes Caligula look like a blushing bride.

There's something wrong with this picture: the neatly-groomed children of the super-rich cavort in designer playhouses while right under their patrician noses, the poverty rate for the children of the not-so-rich has spiked to its highest level in half a century. Perhaps those kids without designer playhouses are part of the 44 million using food stamps to try and make increasingly threadbare ends meet, or one of the 41% of all American children whose families don't have enough income to meet their basic needs. Throw in a broken education system that's not just unaffordable, but slightly pointless, a frightening tax bill for their parents and grandparents' profligacy, and a global youth unemployment crisis, and it becomes clear why economists are increasingly dubbing today's young a "lost generation."

If you ask me, let alone those participating in the wave of dissatisfaction and dissent rippling across the globe from Cairo, to Tunis, to Madrid, to Athens: it's a heartless, cruel divide that's the accelerant for revolution, whether social, cultural, economic, or political.

And yet, before we throw a match on that fuel, consider this possibility: our monsters are reflections of us.
There is more. Go read the whole article and get the embedded links.

I find it interesting how Haque drifts into "we are all monsters". Nope! There is a significant segment of the top 1% who are monsters, and some wanna be followers among the rest of the population. These "monsters" make up less than 3% of the population. What Haque doesn't dwell on is the power this 3% has over the rest of us. They use money, law, and politicians to ensure their power. Haque doesn't really identify how to get rid of the monsters. The only way to dispel their power is to "out" them. Point them out, make people aware of the stranglehold this 3% and their vicious ideas have on the rest of us, and ultimately refuse to play their game. We need to take back our society by shunning the greedy and embracing those who show humanity and compassion, those who recognize the social nature of human society and the debt we owe to the past as well as the future, those who recognize that government is not an oppressor but our tool to achieve goals bigger than ourselves.