Once Upon a Time

"The outlook is for the end of the decline in business during the early part of the 1931, and steady... revival for the remainder of the year."

-- The Harvard Economic Society's Weekly Letter,
November, 15, 1930

Note: In 1931, the economic squeeze of the depression forced the Harvard Economic Society to suspend publication of the Weekly Letter.

Source: "The working person's history of the great depression," Show me the Money, Issue 10, Autumn 2001.

Turn Over the Hourglass

On May 6, 1935, Pres. Roosevelt signed executive order 7034 creating the largest public works program in history. The Works Progress Administration created 8.5 million jobs during the Depression of the 1930s.

The problem we face today is lack of demand for products and services because all the money has trickled up an little is left for lower and middle classes. It's like an hour glass with all of the sand stuck in one end (among the top wealth bracket).

For the betterment of society we need to turn the hourglass over so that money flows to the people so the people will provide the demand that will generate supply defining economic activity, and lets do it in ecologically sustainable way.

Why all the Economics Fallacies?

An insight published in 1946 that holds true today:

Economics is haunted by more fallacies than any other study known to man. This is no accident. The inherent difficulties of the subject would be great enough in any case, but they are multiplied a thousandfold by a factor that is insignificant in say, physics, mathematics or medicine -- the special pleading of selfish interests.

Source: Economics in One Lesson by Henry Hazlitt

Where Does Boundless Economic Growth Inevitably Lead?

Yesterday I explored the notion of "imperialism," that natural tendency for industrialized nations with mass production that manufactures too much to be absorbed at home and must be sold abroad... by force if necessary (the imperialism part).

OK, so lets take the long view. "Economic Growth" is actually an acceleration; it's not good enough to be stuck at x% growth... the increase needs to be increasing year after year. This raises questions about carrying capacity and the wisdom of an economic framework that demands growth for the sake of "a healthy economy."

This question is explored by William Fort, 80-year-old founder of Praxis, a transnational corporation that is on par with with large nations. Fort is a fictional character, living in 2010, but his insights are pretty real. He knows that the global carrying capacity is finite and he is smart enough to know that economic growth in today's sense isn't sustainable; the economic model must change. The setting is a discussion among a few people chosen by William Fort to think about this issue:

One morning he spend an hour talking about feudalism -- how it was the clearest political expression of primate dominance dynamics, how it had never really gone away, how transnational capitalism was feudalism writ large, how the aristocracy of the world had to figure out how to subsume capitalist growth within the steady-state stability of the feudal model.

One can debate whether or not this question should be left up to the "aristocracy of the world", but the existence of the underlying question is not open to debate.

William Fort eventually reveals his insights on the matter to his select group:

The opportunities for growth are no longer in growth.

Sounds like a puzzle stated by a martial arts instructor or something. Fort continues,

We've got to identify the new nongrowth growth markets, and get into them.

He talks about "nonmarketable capital", which he boils down infrastucture investment, a long-term investment. One of the participants in the discussion observes that such "nonmarketable capital" is publicly owned, to which William Fort responds:

Yes. Which means close cooperation of the governments involved. Praxis's gross annual product is much larger than most countries'. What we need to do is find countries with small GNPs and bad Country Future Indices [bad future prospects]. ... We identify those, go to them and offer them a massive capital investment, plus political advice, security, whatever they need. In return, we take custody of their [nonmarketable captial]. We also have access to their labor. It's an obvious partnership. I think it will be the coming thing.

It's not "coming;" it's already been here. It's "imperialism" writ large. It's privatization. A particularly insidious form is described John Perkins' "Confessions of an Economic Hit Man."

Sources:

Green Mars, by Kim Stanley Robinson.

IMF Uses the D-Word

This might be old news, BUT on Febrary 7, 2009 Bloomberg News reporters Angus Whitley and Shamim Adam wrote an article, which stated:

Feb. 7 (Bloomberg) -- Advanced economies are already in a "depression" and the financial crisis may deepen unless the banking system is fixed, International Monetary Fund Managing Director Dominique Strauss-Kahn said.

Why is it in the IMF's interest to use the eye-popping term "depression"? Because their original job description, before being captured by corporate powers, was to bail out entire national economies. The IMF is trying to use shock value to convert the non-believers, like many in the Republican Party, that the unraveling of the economic system is for real.

Meanwhile, Anarchists and Rush Limbaugh are cheering for the failure of the state.

Psssst... Do Something

• Contact the Broadcast Media
  
• Contact the Newspapers
  
• Contact the US Senate
  
• Contact the House of Representatives

Sources:

Bloomberg News, IMF Says Advanced Economies Already in Depression, February 7, 2009, Angus Whitley and Shamim Adam.

Bloomberg News, G-7 loses its financial savior status, By Simon Kennedy, February 13, 2009.

Two Pieces of the Econmic Puzzle

It's easy for the current economic issues to become a blur. Economist James Galbraith recently brought some order to the issues by highlighting the distinction between the economic stimulus legislative package and the financial system bailout package. During a recent interview on DemocracyNow! with Amy Goodman Galbraith explained they are distinct, but mutually supporting pieces of the economic puzzle.

AMY GOODMAN: Professor Galbraith, do you think the stimulus package is large enough?

JAMES GALBRAITH: The stimulus package is a very good bill, and it should pass. It will not, by itself, deal with the economic crisis that we’re in. I think we should be very clear about that... A major problem that we face is that the stimulus package is sized so that it will work only if the revival of credit, which is part of the plan that the Treasury is announcing today (2/10/09), also works.... I think it’s very important to understand that this spending package is really geared to the success of this other piece, and this other piece is much more problematic than the spending package is.

Treasury Secretary Timothy F. Geithner is taking the lead on the second piece, propping up the financial institutions and getting the main street credit system working. This second piece, in theory, addresses freeing up the loans necessary for small businesses to have liquid cash to buy inputs to their products, to make payroll, for students to get loans, for creditworthy people to get car loans all of which are part of making the economic engine run.

Geithner's press event last Tuesday on the plan to stabilize the financial system was blasted as being too vague... Team Obamaa probably should have saved Geithner's announcement for after last weekend's G7 meeting in Rome, because Geithner was unable to provide details before he worked out some international details.

The financial system problem in a nutshell: Most, if not all, of the dozen or so biggest banks have bad debt on their books, probably making some of the banks insolvent. The banks won't make loans to each other, because they don't trust each other to pay back the loans. So what does Geithner's plan offer as general approaches?

In one case, government guarantees would be provided to protect a bank from future losses caused by the toxic assets. In another case, the government would buy the assets outright from a bank. [2]

Either way, "government" = "tax payer."

As expanded on in the upcoming Episode 6 of the GDAE Podcast, the bottom line is that government accountants must have access to the bank's books. That's happening to some degree already, but needs to be done in a comprehensive and systematic way... sooner than later. It's also best to have international coordination when examining the books, because a lot of bad news is hiding on those books and the negative fallout has international implications:

This need for coordination is more than just rhetoric, officials said. If the United States develops a method to examine the books of banks and evaluate the real worth of their assets, it would likely affect financial firms around the world. Other countries would have to consider similar actions.[2]

We all need to raise our voices and urge Team Obama to direct sufficient resources to the FDIC to send their examiners into the banks to look a the books. The longer they delay, the more we pay.

Psssst... Do Something

• Contact the Broadcast Media
  
• Contact the Newspapers
  
• Contact the US Senate
  
• Contact the House of Representatives

Sources:

1. DemocracyNow!, Economist James Galbraith: Bailed-Out Banks Should Be Declared Insolvent, February 10, 2009.

2. Washington Post, Geithner Takes Plan To Global Leaders
Secretary Reassures Counterparts About U.S. Rescue Strategy, February 15, 2009.

Korean Blogger Arrested?

Paul Krugman ponders why Team Obama's economic plan falls short of providing enough stimulus to reduce unemployment to "natural" levels. His calculations suggest, within three years the Obama plan will push unemployment down to about 7.3% (from an estimated peak of 8.7%.... "natural full employment" is pegged at 4.3%).

My Comment on the matter:

Maybe Team Obama is considering a two-objective problem in which the objectives conflict with each other:

1) Minimize Unemployment
2) Minimize Inflation

Perhaps they have a trade-off curve that shows a break-point when unemployment is at 7.5% with diminishing returns on driving down unemployment as inflation goes through the roof.

Elaboration: As US dollars are flooded into the world market they loose their value. The Fed has already pumped out way more than the Treasury Department's $700 billion for the financial bailout, with little fan fare. Word is that inflation is a certainty and will likely be taking off while the uninformed TV pundits are still lamenting the deflationary economic collapse.

BTW, has you heard about the popular Korean blogger who was arrested after he posted a piece on Korea moving away from US Treasuries? Here's a Digg article on it for you to help promote.

The word is that the mad rush from US Treasury bonds is going to take place fairly soon; there is already movement away, in part because there is legitimate concern the US cannot pay off the bonds, as mentioned recently in an opinion piece published by the Washington Post [1].

I'm thinking about 1) Taking a loan, the interest of which will be inflated away (that's effectively the US plan for getting out of debt), 2) Buying assets now (stocking up on the basics like toilet paper while it's still cheap), and 3) Gold.

Update: What happened to the blogger Park Dae-Sung?

The 31-year-old Park, better known as his pen name "Minerva,'' was arrested early this year on charges of circulating false rumors in cyberspace but was exonerated in April. The prosecutors appealed the court decision, though.

MORE from the Korea Times, September 28, 2009.

Sources:

1. Washington Post, DEFAULT OPTION: We're Borrowing Like Mad. Can the U.S. Pay It Back? January 11, 2009.

Economic Stimulus Message to Obama

Below is a message I just sent to "Comments" at www.Change.gov (will anyone read it? Probably a young staff person, who will be slightly more educated as he or she engages others in Washington, DC.)

A bit wonkish, but...

You don't have to pay Paul Krugman, but you should heed his advice. Too much tax cut, as a stimulus, won't be effective.
1. Some of it goes into savings.
2. Much of it goes to cheap goods from WalMart/Chnia
3. It is merely consumption, not investment, e.g., in infrastructure.

As a State government manager, I urge you to a) fund local government jobs, b) fund design work, not just "shovels in the ground." Designer jobs are jobs too and we can expect to need well over a year of stimulus, so today's designs will be tomorrows "shovels in the ground."

Psssst... Do Something

Click on the Change.gov link above and leave a message for Obama's young staffer. You'll feel better for it.

Sources:

Thanks to Paul Krugman for the motivation on this one.

First Rate Progressive Economic Voices

According to Paul Krugman:

the Obama administration’s new economics advisory board would seem like a very good place to give progressive economists a voice. There are a number of excellent people whom Obama might not want to put in line positions but would be very much worth bringing in to offer well-informed alternative views. At the risk of insulting those I forgot to mention, I would think immediately of James Galbraith, Larry Mishel, Dean Baker, Jared Bernstein.

Sources:

Paul Krugman's Blog entry, About that advisory board.

Who Caused the Cookie to Crumble?

The Associated Press coverage of the historic economic summit in Washington, DC the last two days summed up with this sobering indictment of US economic policy under both Republican and Democratic Party leadership:

Talk of blame was kept to a minimum, though many still hold the belief that the primary fault for the cascade of ruinous events lies with a U.S., where it has become the norm to offer easy credit, outsize rewards for high-risk investing, and lax oversight to the whole process.

Also remember: It wasn't an accident, as if they thought the bottle wouldn't break when they threw it on the ground. The economic policies were designed to create speculative expansion (a phony economic bubble). Insiders knew how to reap huge profits before the inevitable bubble burst. They also knew that the vast majority of people would get hammered, but some like to argue that "the economy grew a lot during the expansion." It grew alright, for a small slice of insiders (it's that 'wealth distribution' detail that is so easy to overlook). And "the insiders" include Democratic Party people too, not just Republicans.

On a more specific here's who's responsible for the collapse.

Sources:

Associated Press, Econ summit vows action — takes few concrete steps, November 15, 2008.

The Economic Meltdown: Seven Key Factors

There are seven key factors that underlie the current economic tectonic shift.

1. Financialized Economy

2. Debt (which relates to #1)

3. Real Estate Boom/Bust

4. Global commodity inflation

5. Dishonest Economic Statistics

6. Price of Oil

7. Demise of the US Dollar

Read More

Suddenly Regulators are the Good Guys

I recently wrote about the Death of the Free Market, by which I meant the free market fundamentalism in which regulation was bad. Watch how quickly the free market touts run from that unquestioned economic principle, which has dominated for the past three decades. You'll hear revisionist statements from both Democrats and Republicans, "We never really meant "free" markets. We've always recognized the necessary role of regulation."

Sorry. Too late. The damage has been done. Now the regulators are attempting to ride to the rescue. Unfortunately, after years of being the bad guys, having budgets and staff cut, the regulators probably don't have the tools and experience needed to do the job.

In response to news about the negotiations to control the collateral damage from the Lehman Brothers' implosion, J.P. Morgan economist Jim Glassman said,

For us to know there's a comprehensive approach going on, that's a constructive theme for the markets.... It's in everyone's interest to take a stab at this and be good public citizens because if this problem keeps spreading, eventually it's going to engulf everybody.

In other words, "The invisible fist of the market is about to pummel us, so we better forget about free market competition and work collectively, outside of the economic paradigm, to resolve this social crisis." Milton Friedman's free market fundamentalism is dead.

Sources:

Washington Post, Major Financial Players Map Out Lehman Options, September 14, 2008.

Quarterly Foreclosure Rates: 2006 to 2008

Many people knew the real estate boom of 2000-2005 was creating a house of cards. The figures above come from RealtyTrac, an online foreclosure listing service based in Irvine, Calif.

Former Nixon political strategist, Kevin Phillips, suggests we might want to be wary of the economic numbers these days. His warning applies not only to government statistics but to private sector rating companies and even RealtyTrac's statistics.

The Atlanta Journal-Constitution took a close look at the company's data after it said that Atlanta's foreclosure rate had jumped an alarming 75% from June to July. RealtyTrac admitted to the newspaper that it made mistakes in its calculations, and that the month-to-month increase was really 14%.

But don't jump to the conclusion that "Oh, so things aren't as bad as we're being told." Kevin Phillips, and others, question the rosy government statistics:

I think the government has cooked the books, and as a result, we get this unrealistic view of where the economy is.

Real economic growth can be expressed as the rate of Gross Domestic Product (GDP) minus the inflation rate. If the outcome is negative, then we're in recession. Phillps continues:

For example, they pretend that inflation is in the two- to three-percent range. So, if you’ve got nominal [GDP] growth of four percent and you subtract for inflation, you still would get a positive number if you use the number of, you know, 2.6 or three percent inflation. But if you’ve got nominal growth at four percent and inflation is really six to nine percent, then you’ve got big-time negative growth, and the economy is contracting.

The very fact that our society is cooking its statistical measures is symptomatic of a deeper structural failure of the Nation. Phillips argues joins a chorus of thinkers who are explaining that the US isn't merely entering an economic downturn. Rather, the US has been in a downturn for decades (See Lester Thurow's The Future of Capitalism). We might now be watching a final, more obvious, descent. As we watch, we should demand honest numbers.

Update: Second Quarter Headline, "Foreclosure Activity up 14% in Second Quarter, 2008."

This was a 14% increase from the previous quarter, and a 121% increase from the same quarter in 2007. Ouch!

This is where the action is:



Update: Third Quarter Headline, "Foreclosures soar 76% to record 1.35 million." That's in terms of 76% from a year ago.

Sources:

Graphic Credit: Associate Press.


Reality check for RealtyTrac, Peter Viles, Los Angeles Times Blog, posted by Annette Haddad on November 14, 2007.

US Backs Palestinian Executive, Not Parliment

The symbolism is emblematic of the Bush Administation's revolutionary expansion of executive power in the US: Bush backs the Fatah Palestinian executive branch, President Abbas, in his struggle with Hamas, which was elected to lead the Parliment, the branch closest to the people.

Bush can say the word "democracy," but he means the "freedom" of economic power to have its way, which invariably means a minority of the "haves" exploiting opportunities at the expense the majority "have-nots". It flies in the face of the underlying democratic principle of "one person, one vote."

Payday Loan Business

Wow. Google payday loan business and you'll get over 2 million hits. Many are singing the praises of this business:

How to Start a Payday Loan Business

Why should you buy a payday loan or other money lending business?

You'll also see snippets like this one:

H&R Block To Settle More Payday Loan Suits ...

Some call it Legal Loansharking. Thought the 24% APR on a credit card was tough? On the average payday loan of $300 for eight days, a 15% fee equates to an APR of 459% according to Maureen Rooney.

But there's a story within the story. These seedy store fronts you see in depressed neighborhoods are "Big Business" posing as a little businesses, like Citigroup.

According to Danny Schechter, who appeared on Media Matters March 25, 2007 points to a similar operation.

One of the phenonomena that is very topical is people who go to various tax preparation services to get their refunds right away... they end up paying an exhorbtant fee charge on this. What we discovered was that there were these rat trap kind of little store fronts in the ghetto ... and behind the scenes was the HSBC Bank which was taking $1.6 Billion dollars out of poor neighborhoods with these tax refund businesses brokered through all kinds of differerent companies including H&R Block.

We tried to interview the head of this program at HSBC, and of course they refused to go on camera. Just the other day HSBC reported a $10 Billion dollar loss on its subprime loan situation. So, a lot of these people who are predators, predatory lenders, are now facing a big problem because these people have defaulted and they are left holding the bag, though they have made a small fortune on it.

One of the things I also found out about was a hundred thousand veterans coming back from Iraq, who are in hock up to their eyeballs, and have these payday loans, and down in Norfolk, Virginia, where we did some filming we found out that there were like three payday lenders around the base in Norfolk a year ago. Today there are twenty-six lenders

Danny Schechter continues to describe the Naval and Marine Corps relief society, which has researched the situation. They've discovered that the problem payday lenders are causing serious pain for military families.

Schechter continues to point out that the progressive community "by and large has not really spoken out on this."

People who are in MoveOn and other groups... and a lot of the bloggers are totally focused on every burp in Washington, every mini scandal problem to show that Bush is a liar, he's a liar, he's a liar, how many times have we heard that? But they don't really look at the institutional issues. And they don't look at the economic issues too often. So what I'm encouraging ... is that we have to focus on the economic realities, not just the political realities.

Schecter expands on this in an March 26, 2007 article entitled, "Lets Broaden Our Focus To Include Economic Issues: It’s Time To ‘Stop The Squeeze’" not Scheckter
.