Good News for Tea Baggers & Anarchists

Who me not posting enough?! True.

Saw the headlines today: "Atlantic Divide: Europe and US Disagree on Continued Simulus Spending."

What's in it for Tea Baggers and anarchists? Tea Baggers want Obama to stop deficit/stimulus spending, and anarchists want to smash the system. Well, Europe is poised to stop stimulus spending and that very well could accelerate the crumbling of the system.

The UK Independent reports:

[German] Chancellor Angela Merkel flatly rejected warnings from President Barack Obama that Europe's attempts to save its way out of the debt crisis could put fragile global economic growth in danger.

Not to get into nerdy economics, but the track record from the US Great Depression and the Japanese malaise of the 1990s indicates that deficit spending to prop up a flagging economy has merit. However, the debate on both sides is a bit moot. Stimulus spending might work, but it would probably just prolong the inevitable.

My judgment is that the US has crossed the Rubicon; the US is now a great power in decline. It has been going that way for decades... Detroit, MI and surrounding area is a stark case-in-point, but books are filled with all sorts of statistics on the decline in manufacturing, jobs, income, etc..

Now, with Europe cutting the spigot of stimulus spending, and putting the screws to the needy in the face of the rich getting richer, the Tea Baggers can say "What's good enough for Europe is good enough for the US," and the anarchists can sit back and smile as the establishment system teeters.

Sources:

The Independent of UK, "Merkel rejects Obama warnings that cuts will damage global recovery," June 23, 2010.

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.

RNC Chair Michael Steele's Voice "unimportant"

Michael Steele, former Lt. Governor of Maryland and newly appointed chair of the Republican National Committee, has egg on his face. In discussing Obama's stimulus package on Democracy Now, James Galbraith, economist and professor of public affairs and government at the University of Texas, dismisses the wacky verbiage of Michael Steele.

AMY GOODMAN: Professor Galbraith, what do you make of the new RNC chair, Michael Steele, saying these aren’t jobs, they’re simply work?

JAMES GALBRAITH: Well, it’s interesting that this semantic philosopher has taken over the Republican National Committee. It’s going to lead to some exceptionally—historians will have fun with the logic chopping and sentence parsing that we’re going to get from Mr. Steele, obviously, during his tenure. But otherwise, it’s unimportant.

Steele supposedly coined the slogan "drill baby drill." It's said that when a political party is initially discredited, like the Republican Party is today, most of the moderate members run for cover. This leaves a vacuum for the fringe elements, like Michael Steele and Sarah Palin, to take center stage. As media studies professor Susan Douglass recently said about Sarah Palin, following her is like watching a train wreck over and over, which can be entertaining if you enjoy the surreal.

Sources:

Democracy Now, Economist James Galbraith: Bailed-Out Banks Should Be Declared Insolvent, February 10, 2009.

Congratulations, Lets Get to Work

Welcome to Washington President Obama. Now we can start sending our e-mails to 1600 Pennsylvania Avenue when we want to Contact Obama. And today, we can raise our voice in unison on a specific economic issue: Obama's proposed tax cuts.

The Godless Liberal Homo blog lays out some rationals for sending this message to Team Obama:

Bush's tax cuts have been disastrous. The small checks for middle class and poor people did nothing to help our economy. They might have stimulated China's economy marginally, but China doesn't buy much anything from us.

Bush's enormous tax cuts for the rich have played a key role in our desperate economic situation. They contributed significantly to our government and foreign debt while doing nothing to create jobs here in the US. The wealthy used these unearned windfalls in an orgy of speculation, creating bubble after bubble (stocks, subprime mortgages, oil, gold, etc.) leading to crash after crash. Our treasury was looted to a huge extent to create money which mostly disappeared in 2008.

He's not alone. The January/February 2009 issue of Mother Jones Magazine also lays out the most "stimulating" actions that government can take to keep this recession from going further south.

You can read the Mother Jones article Stimulus is for Suckers for an explanation of the chart above. It's hard to see in the graph, but according to this analysis from Moody's Economy.com, an across-the-board tax cut only generates 3-cents of stimulus per dollar in cuts, whereas food stamps generates 73-cents per dollar of stimulus.

A bit wonkish I admit, but when Obama said in his inaugural speech that we need to be more responsible, this level of attention is part of what he was talking about.

Psssst... Do Something

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

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.