Republicans and Free Marketeers Fiddle while the World Burns
By Donald Hunt and Simon Davies
SOTT.net
In Nigeria oil workers are protesting the ongoing wave of violence against their industry which operates with legal impunity among the poorest people on earth.
Unemployment soared in the US and Canada; while Obama's dreams of bipartisan support for the rescue of the US economy took a beating as the pathological Republicans in the Senate played their usual games of economic dogma and political mendacity seemingly oblivious to the risk that when the whole house of cards comes down they might not have that cozy seat in an underground bunker they think is reserved in their name. But at least one US politician has had the courage to tell defaulting homeowners to resist eviction for as long as possible.
Unemployment is rising the world over while the social infrastructure in many countries, weakened by years of deliberate destruction from pernicious application of Friedmanite free market ideology, is already struggling under the strain. We are living the Shock Doctrine in real time.
Economic Overview
World stock indexes rose last week as job losses mounted. Agreement in the United States Senate on a bailout package helped stocks rise, despite signs of economic depression nearly everywhere.
Africa
In South Africa, concerns that drops in exports are happening now and will be announced later this month led to the head of the central bank hinting at an emergency meeting of the Monetary Policy Committee.
In Nigeria there was more trouble in the oil regions, as there usually is whenever oil prices get too low. Funny how that works.
Concern about Japan's economy spread last week, as exports plunged. The big problem is that Japan has recently moved away from the traditional concern with the long-term welfare of employees to a more U.S. style employment insecurity, a change that's taking place in France and in many other previously socially progressive countries.
Eastern Europe
Russia is working to keep the Ruble stable by limiting money available to currency speculators.
Western Europe and the U.K.
Norway announced a $15 billion financial bailout fund "to keep institutions lending" or rather to prevent them imploding.
The Governor of the Bank of France and member of the European Central Bank Governing Council, Christian Noyer lost all credibility last week by saying the recession in Europe will be brief, that French banks are "largely healthy," and by defending French President Nicolas Sarkozy's response to the crisis.
The U.K. further cemented its reputation as the economy most like the U.S. in this crisis when the leaders of its financial institutions paid themselves and their staff huge bonuses while being bailed out with public money.
Latin America
Brazil released some bad economic numbers last week, threatening the hope that its economy had somehow decoupled from the collapsing world economy. While there has been some basis for the decoupling theory, Brazil remains a country of extreme wealth inequality in which the middle class have been all but wiped out (economically) over the last ten to fifteen years.
United States and Canada
Shocking job loss numbers for January were released last week in the United States and Canada. Canada lost a stunning 129,000 jobs putting the unemployment rate at 7.2% and the United States lost 598,000 jobs for an official unemployment rate of 7.6%.
SOTT.net
In Nigeria oil workers are protesting the ongoing wave of violence against their industry which operates with legal impunity among the poorest people on earth.
Unemployment soared in the US and Canada; while Obama's dreams of bipartisan support for the rescue of the US economy took a beating as the pathological Republicans in the Senate played their usual games of economic dogma and political mendacity seemingly oblivious to the risk that when the whole house of cards comes down they might not have that cozy seat in an underground bunker they think is reserved in their name. But at least one US politician has had the courage to tell defaulting homeowners to resist eviction for as long as possible.
Unemployment is rising the world over while the social infrastructure in many countries, weakened by years of deliberate destruction from pernicious application of Friedmanite free market ideology, is already struggling under the strain. We are living the Shock Doctrine in real time.
Economic Overview
World stock indexes rose last week as job losses mounted. Agreement in the United States Senate on a bailout package helped stocks rise, despite signs of economic depression nearly everywhere.
Africa
In South Africa, concerns that drops in exports are happening now and will be announced later this month led to the head of the central bank hinting at an emergency meeting of the Monetary Policy Committee.
In Nigeria there was more trouble in the oil regions, as there usually is whenever oil prices get too low. Funny how that works.
Nigerian Union to Strike Over Attacks, Abductions in Oil RegionAsia
Nigeria's white-collar oil workers' union will begin an "indefinite" strike on Feb. 9 in protest at attacks and abductions by armed groups in the country's southern oil region.
[ ] Members will also shut premises of foreign oil companies operating in Nigeria, it added. Royal Dutch Shell Plc, Exxon Mobil Corp., Chevron Corp., Total SA and Eni SpA run joint ventures with the Nigerian government producing more than 90 percent of the country's oil.
President Umaru Yar'Adua's government has shown "ineptitude" in dealing with violent unrest in the Niger Delta, Pengassan [an oil workers union] said. [ ]
Armed attacks, including kidnapping and hijacking of vessels in the Niger Delta, which is home to Nigeria's oil industry, have cut its exports by more than 20 percent since 2006. Nigeria is Africa's leading oil producer and the fifth- biggest source of U.S. oil imports.
The Movement for the Emancipation of the Niger Delta, the main armed group in the region, says it's fighting for the region's poor. [ ]
Shot Dead
The union decided to take action after gunmen shot dead an 11-year-old girl in the oil hub of Port Harcourt and abducted her 9-year-old brother last week. They were the children of an employee of Royal Dutch Shell Plc's local subsidiary.
Pengassan issued an ultimatum to the government to ensure the release of the boy and other kidnap victims or the unions will pull members out of oil locations in the region. Though the boy was released yesterday, the union said many oil workers abducted by armed groups are still being held.
Pengassan and its blue-collar counterpart, the National Union of Petroleum and Natural Gas Workers of Nigeria, or Nupeng, in the past warned they may suspend work over insecurity in the Niger Delta. This is the first time either union has called a strike over the issue.
Concern about Japan's economy spread last week, as exports plunged. The big problem is that Japan has recently moved away from the traditional concern with the long-term welfare of employees to a more U.S. style employment insecurity, a change that's taking place in France and in many other previously socially progressive countries.
Japan's export troubles are causing a drop in the value of the Australian dollar to sixty U.S. cents, since Japan is the largest purchaser of Australian goods and inventories are piling up in Japan.
Japan on the brink of the abyss?
The economic outlook in Japan is very grim, as brief overviews below indicate. Right now, Japan has the worst growth outlook in Asia. That is a surprising fact, if one recalls that this is a country presumably dusting itself off from the collapse of its own bubble nearly two decades ago.
After such a long period of economic crisis, Japan should be renovated and ready to thrive. Instead, it may be in worse shape than even the United States (though clearly not Iceland and much of Eastern Europe). Exports plunged a record 35% annually in December, while the industrial production figures for November revealed a record 8.9% month-over-month drop.
Japanese financial institutions were not big players in the markets for collateralized debt obligations, credit default swaps and the other toxic assets that have ravaged the capital bases of banks in the US and much of Europe.
Rather, Japan's key policy failure would appear to be over-reliance on exports as the engine of growth, while hoping that the fruits of this growth would trickle down into the rest of the economy and bolster demand.
But in the rest of the economy, deregulation of labor and other markets had seen firms shifting to insecure employment (especially part-time and contractual staff) and rolling back pay, thus crimping the level of demand. And that weak domestic demand was of course blunting domestic-oriented businesses' incentives to invest (compared with incentives for export-oriented businesses).
With the startling 35% drop in exports in December 2008, it's as if someone kicked the chair away from a man who was standing on it to test out what it felt like to have a noose around his neck.
The ruling Liberal Democratic Party and Prime Minister Aso Taro are trying to assert that the problem is global, a once-in-a-century event. But the pattern of fallout varies among low toxic-asset countries (especially Asian), notably in accordance with their degree of reliance on the trade bubble.
Japan seems to be suffering the legacy of the structural reforms of former prime minister Koizumi Junichiro and financial services minister Heizo Takenaka in that the reformists were content to rely on exports (stimulated by ultra-low interest rates) and to use deregulation, privatization and (to some extent) tax cuts to eviscerate the public sector's role and let the market determine the strategic focus of the economy.
They were loath to look at the Scandinavian model as a guide to building safety nets for encouraging labor mobility and laying a strong floor as the basis of the domestic economy (also by investing in education and encouraging higher remuneration and professionalization in elder care and other growth sectors).
They disparaged the role of the public sector in framing markets and in sketching the strategic focus of the overall economy, such as in deciding targets in energy and environmental areas and thus giving incentives for market actors to achieve.
Koizumi's neo-liberal brain, Heizo Takenaka, still recently trumpeted in the Japanese weekly, ekonomisuto (economist), the small state and deregulatory nirvana. Elsewhere he has blamed Japan's current crisis on insufficient deregulation.
But he and Koizumi were champions of low interest rates, even though these rates cost domestic savers some 35 trillion yen per year (nearly 12% of their previous income). This was not only a subsidy to the export industries. Low rates also helped keep zombie firms (about 20% of small and medium enterprises) in business, since low interest allowed them to roll over their loans even though they were effectively broke.
A strategic investment focus from the central government during the Koizumi "structural reform" years would have put momentum into the recovery on the domestic side and allowed the ratcheting up of interest rates while softening the damage from failures of zombie firms that simply couldn't modernize fast enough as their low-interest security blanket was lifted.
The extra income for savers (from normalization of interest rates) would have bolstered the domestic economy enough to provide new employment opportunities to labor and capital shed by many inefficient enterprises and retraining could have been offered to the hard-core unemployed.
That's all hindsight of course, but it beats the hindsight on offer recently: many of the newly anti-market crowd are trumpeting "Edo" (old Tokyo) society and even the Jomon Era (14,000-400 BC) as models for the present, lauding their closeness to nature, stability, and community values. One Jomon booster is a former free-market cheerleader who got his economics PhD from Harvard and has been big in government deliberation councils.
Japan's public debate still hasn't cut through the nonsense of idealizing the "free market" or the "unique Japanese" and come to focus on what the public sector of this advanced, industrialized country needs to be doing in the midst of the worst economic crisis since the 1930s.
Eastern Europe
Russia is working to keep the Ruble stable by limiting money available to currency speculators.
Bank Rossii told lenders yesterday it will restrict loans to force banks to convert foreign-currency holdings into rubles, Kommersant newspaper reported, citing unidentified bankers. "Almost all" of the loans secured by bonds or other collateral in so-called repurchase auctions last month were used by banks to bet against the ruble, according to Natalia Orlova, chief economist at Moscow's Alfa Bank.The Czech Republic announced that it may need to exceed the 3% government deficit rule the European Union rules imposes on countries planning on adopting the Euro if the economy does poorly. These arbitrary EU rules are likely to be points of great contention in the near future as they limit the ability of governments to provide much needed social support in the crisis thereby effectively moving key elements of national sovereignty to the unelected technocrats in Brussels..
"This is a signal from the central bank that further speculation can be stopped," said Evgeny Gavrilenkov, chief economist in Moscow at Troika Dialog, Russia's oldest investment bank. "Those who accumulated dollars and euros will now have to start selling and the central bank will be able to maintain their level."
The currency slumped 35 percent against the dollar since August as Bank Rossii drained more than a third of Russia's foreign-exchange reserves, the third-largest worldwide, to stem the drop. A war with neighboring Georgia, sliding oil prices and the worst global financial crisis since the Great Depression spurred investors and locals to withdraw at least $290 billion from the country since Aug. 1, according to BNP Paribas SA.
Western Europe and the U.K.
Norway announced a $15 billion financial bailout fund "to keep institutions lending" or rather to prevent them imploding.
The Governor of the Bank of France and member of the European Central Bank Governing Council, Christian Noyer lost all credibility last week by saying the recession in Europe will be brief, that French banks are "largely healthy," and by defending French President Nicolas Sarkozy's response to the crisis.
The U.K. further cemented its reputation as the economy most like the U.S. in this crisis when the leaders of its financial institutions paid themselves and their staff huge bonuses while being bailed out with public money.
Latin America
Brazil released some bad economic numbers last week, threatening the hope that its economy had somehow decoupled from the collapsing world economy. While there has been some basis for the decoupling theory, Brazil remains a country of extreme wealth inequality in which the middle class have been all but wiped out (economically) over the last ten to fifteen years.
New economic figures rattle BraziliansMarkets
Luciano Coutinho, head of Brazil's national development bank, has strong views on what has become a controversial subject for investors and economists looking at the world's tenth biggest economy.
"There is an idea going around that decoupling is over," he says. "That's a mistake. Decoupling has, yes, taken place and you'll see it in the rate of economic growth."
Brazil was widely said to have decoupled from the rest of the world because its increasingly vibrant economy has become less vulnerable to destabilising forces from overseas. Thrown off course by the Russian and Asian crises of the late 1990s, it had until recently weathered the current global crisis better than many expected.
But decoupling came under severe questioning this week after the release of some alarming economic data. Nevertheless, other contradictory evidence suggests that while Brazilians are suffering a crisis of confidence, they also believe their economic downturn will end soon.
Brazil is the second biggest of the so-called Bric countries - the others are Russia, India and China - which many economists say will deliver most of the world's growth as developed nations slide into recession.
So investors were rattled this week when figures for December showed Brazil's economy apparently hitting a brick wall. Industrial output slumped by 14.5 per cent year on year while, seasonally adjusted, more than 200,000 jobs were lost in the month, mostly in manufacturing. Both figures reversed recent steady gains, and were the worst on record.
However, also this week, a widely respected opinion poll showed approval of the government and of president Luiz Inácio Lula da Silva at all-time highs. Mr Lula da Silva's approval rating, at 84 per cent, is extraordinarily high for a president half way through a second term, suggesting Brazilians believe him when he says the crisis will be shallow and short.
By some measures, Brazilians should indeed have little to fear. The amount of credit in the economy is small by international standards, reducing the potential impact of a cut in lending.
And although Brazil's recent growth has been fueled by exports of commodities, the country has not been hit hard by falling commodity prices. It has a healthy domestic market and exports are equal to only about 14 per cent of GDP - much less than many of its peers.
So why did the economy stumble in December? Many observers say it is because banks, made nervous by the global crisis even though they source little of their funding overseas, simply stopped lending.
Shaun Wallis, head of HSBC in Brazil, rejects this. "Banks are open for business," he says. "The problem is primarily one of demand, not of supply."
He concedes that banks have become more cautious in the crisis but says many companies, themselves worried by the global slowdown, have chosen to fall back on cash reserves. Meanwhile salaried consumers, who by law receive an extra month's pay at the end of each year, used those bonuses instead of debt to fund year-end spending. Many retailers actually had a better December last year than in 2007.
Francisco Valim, head of Serasa, which provides credit risk evaluation services to banks, says the biggest danger to Brazil now is "fear of recession". And he warns that, without decisive action from the government, this fear could become a self-fulfilling prophecy.
The government has acted on several fronts. The central bank began cutting interest rates last month, although at 12.75 per cent a year its base rate is still high and market lending rates are much higher.
Mr Coutinho's development bank has been given an extra 100bn reais ($443m) to lend, especially for much-needed infrastructure projects. And on Thursday the central bank announced it would release $36bn from its international reserves to lend to companies with foreign debts falling due up to the end of the year, providing relief to many who would find it impossible to raise dollars on international markets.
Nevertheless, many economists worry about the government's capacity to promote growth through fiscal stimulus. Heavy commitments to new public sector employment have earmarked much of the available money, while tax revenues are falling as the economy slows. The government is still aiming for 4 per cent growth this year but many market economists expect growth to fall below 1 per cent.
Mr Valim at Serasa says banks should be obliged to make more credit available, although recent initiatives in this direction have had little impact.
With limited scope for action, the government must hope that Brazilian's faith in their president will outweigh their fear of the outside world and make decoupling a reality.
The markets this week (to Feb 9th)
| Previous week's close | This week's close | Change | % change | |
|---|---|---|---|---|
| Gold (USD) | 928.90 | 914.30 | 14.60 | 1.57% |
| Gold (EUR) | 725.02 | 706.51 | 18.51 | 2.55% |
| Oil (USD) | 41.66 | 40.17 | 1.49 | 3.58% |
| Oil (EUR) | 32.52 | 31.04 | 1.48 | 4.54% |
| Gold:Oil | 22.30 | 22.76 | 0.46 | 2.08% |
| USD / EUR | 0.7805 / 1.2812 | 0.7727 / 1.2941 | 0.0078 / 0.0129 | 1.00% / 1.01% |
| USD / GBP | 0.6878 / 1.4539 | 0.6763 / 1.4786 | 0.0115 / 0.0247 | 1.67% / 1.70% |
| USD / JPY | 89.920 / 0.0111 | 91.893 / 0.0109 | 1.973 / 0.0002 | 2.19% / 1.80% |
| DOW | 8,001 | 8,281 | 280 | 3.50% |
| FTSE | 4,150 | 4,292 | 142 | 3.43% |
| DAX | 4,338 | 4,645 | 306 | 7.06% |
| NIKKEI | 7,994 | 8,077 | 83 | 1.03% |
| BOVESPA | 39,301 | 42,756 | 3,455 | 8.79% |
| HANG SENG | 13,278 | 13,655 | 377 | 2.84% |
| US Fed Funds | 0.19% | 0.25% | 0.06 | 31.58% |
| $ 3month | 0.23% | 0.27% | 0.04 | 17.39% |
| $ 10 year | 2.85% | 2.99% | 0.14 | 4.91% |
United States and Canada
Shocking job loss numbers for January were released last week in the United States and Canada. Canada lost a stunning 129,000 jobs putting the unemployment rate at 7.2% and the United States lost 598,000 jobs for an official unemployment rate of 7.6%.
Global jobs crisis deepens: US sheds 600,000 jobs in JanuaryEnough U.S. senators reached agreement this past weekend to pass a weakened and reduced stimulus bill, which helped to buoy world stocks momentarily. The problem was to get even three Republican senators to support the Bill, the Democrats had to agree to decrease the overall size of the package while increasing the tax cutting components and decreasing the infrastructure spending components. Last year's Nobel Prize in economics winner, Paul Krugman explains why this is bad:-
In a clear indication the economic crisis is rapidly heading into a severe global depression, US employers purged 598,000 jobs in January, the most job losses in a single month since 1974. January's firings raised the unemployment rate to 7.6 percent, the highest level since 1992.
Job cuts accelerated even more rapidly in Canada, where 129,000 jobs were eliminated, the highest monthly toll ever, with the unemployment rate spiking to 7.2 percent from 6.6 percent. Given a Canadian population of about one tenth that of the United States, the job losses are equivalent to about 1.3 million US cuts. Canadian economists, who had anticipated a figure of 40,000, were left dumbfounded by the data from Statistics Canada.
The new US Labor Department figures, released Friday, also far surpassed the expectations of economists, who had anticipated 524,000 lost jobs. The figure for December (577,000) was also revised upwards. In the coming period, job losses are expected to soar well above 600,000 a month.
Economists used the following terms to describe the Labor Department figures: "horror show," "alarming," "terrible toll," "endless spiral," "no end in sight," "slow motion train wreck," "horrific," "massive hemorrhage," and "stunning."
In the 12 months since January 2008, the American economy has hemorrhaged 3.5 million jobs, the most in one year since 1939, during the Great Depression. About half of those job cuts came in the past three months alone.
According to the Labor Department, there are now 11.6 million unemployed workers in the US. In addition, there are 7.8 million more who are underemployed, workers who seek full-time employment but are unable to find the hours they need.
If underemployed and marginally attached workers are counted, the US unemployment rate stands at 13.9 percent, according to the Wall Street Journal. The industrial sector suffered the most, with 207,000 jobs lost, after losing 162,000 in December. This represented the steepest decline since 1982, when US industrial production was intentionally decimated by the high interest rate "shock therapy" of former Federal Reserve Chief Paul Volker, who is now a key economic advisor to President Barack Obama. There are now only 12.6 million US factory workers, the lowest number since 1946.
In Canada, meanwhile, nearly 80 percent of January's job losses were among factory workers, with Ontario particularly hard-hit. This is an indication that the collapse of the US economy is ravaging Canada's export-oriented industries and their suppliers.
In the US, the job losses extended across economic sectors. White collar and managerial workers were eliminated in large numbers, 121,000 in all. Construction companies cut 111,000 jobs; 76,000 temporary worker were fired; 45,000 retail workers lost their jobs; and 28,000 more workers are now unemployed in the "leisure and hospitality" industry.
The unemployed face increasingly long periods between jobs, if new jobs are to be found, Labor Department statistics reveal. The average job hunt for unemployed workers has increased to 19.8 weeks, up from 17.5 weeks one year ago.
The wave of job cuts is being undertaken in tandem with a broad assault on the conditions of those workers fortunate enough to keep their jobs. In keeping with the spirit of the Obama administration, employed workers are being asked to make new "sacrifices."
Over the previous months, US employers have launched an unprecedented wave of pay and benefit cuts, hours reductions, and other takeaways. The sacrifices of the employed are also registered in an increase in productivity, which the Labor Department recently revealed has shot up by 3.2 percent in the last quarter of 2008.
The flood of job losses in the US is such that the system of unemployment benefits has been overwhelmed, both financially and physically. After decades of free-market orthodoxy, the social safety system in the US is woefully ill equipped to confront an economic crisis.
The National Conference of State Legislatures recently released a report revealing that seven states have depleted their unemployment insurance funds, and eleven others will likely do so within a year. On Thursday, the Washington Post published an article noting that rising unemployment "is overwhelming claims offices" that are short on staff, facilities, and equipment to meet the needs of desperate workers ("Deluge Is Holding Up Benefits to Unemployed").
The prospects for the coming year are grim. Analysts anticipate that 3 million more jobs will be lost, although even these dire estimates are contingent upon passage of Obama's stimulus package and the administration's assertions on job creation.
"We see job losses accelerating for at least the next several months to the point where that 600,000 mark will soon be a dot in the distance behind us," said economist Guy LeBas of Janney Montgomery Scott LLC. Robert MacIntosh, chief economist with Eaton Vance Management in Boston, said, "it is just another confirmation that we're in a deep and long recession, and the bottom is not even in sight."
The flood of job losses in North America is an expression of a world process. In December, Japan experienced the sharpest increase in unemployment in 41 years. More layoffs are to come, as industrial production declines precipitously. The Japan Manufacturing Outsourcing Association has stated that 400,000 temporary workers will be laid off by March. Many of these live in company dormitories, and will be made homeless in the process.
Earlier this month, China announced a massive growth in unemployment. Some 20 million of the country's 130 million migrant workers are unemployed. Manufacturing jobs for export production have been particularly hard-hit.
In Europe, economists anticipate that the overall unemployment rate will climb to 8.7 percent for the 27 EU countries. French employers purged 217,000 jobs last year, and the unemployment rate is expected to rise to 10.6 percent by the end of next year. In Spain, Europe's fifth-largest economy, the unemployment rate is at 14.4 percent and rising. Industrial output in Spain fell by nearly 20 percent in December.
The International Labor Organization recently released a report that forecast global job losses with a range of 18 to 51 million. In the latter scenario, global unemployment would climb past 7.1 percent.
The Destructive CenterActually, at sott.net we call them by their proper name, psychopaths.
What do you call someone who eliminates hundreds of thousands of American jobs, deprives millions of adequate health care and nutrition, undermines schools, but offers a $15,000 bonus to affluent people who flip their houses?
A proud centrist.
For that is what the senators who ended up calling the tune on the stimulus bill just accomplished.Of course, massive government deficit spending scares most people in the United States, but what is the alternative when the world is facing a deflationary spiral? According to the blogger Badtux, the alternative is Mexico North, he has a point:-
Even if the original Obama plan - around $800 billion in stimulus, with a substantial fraction of that total given over to ineffective tax cuts - had been enacted, it wouldn't have been enough to fill the looming hole in the U.S. economy, which the Congressional Budget Office estimates will amount to $2.9 trillion over the next three years.
Yet the centrists did their best to make the plan weaker and worse.
One of the best features of the original plan was aid to cash-strapped state governments, which would have provided a quick boost to the economy while preserving essential services. But the centrists insisted on a $40 billion cut in that spending.
The original plan also included badly needed spending on school construction; $16 billion of that spending was cut. It included aid to the unemployed, especially help in maintaining health care - cut. Food stamps - cut. All in all, more than $80 billion was cut from the plan, with the great bulk of those cuts falling on precisely the measures that would do the most to reduce the depth and pain of this slump.
On the other hand, the centrists were apparently just fine with one of the worst provisions in the Senate bill, a tax credit for home buyers. Dean Baker of the Center for Economic Policy Research calls this the "flip your house to your brother" provision: it will cost a lot of money while doing nothing to help the economy.
All in all, the centrists' insistence on comforting the comfortable while afflicting the afflicted will, if reflected in the final bill, lead to substantially lower employment and substantially more suffering.
But how did this happen? I blame President Obama's belief that he can transcend the partisan divide - a belief that warped his economic strategy.
After all, many people expected Mr. Obama to come out with a really strong stimulus plan, reflecting both the economy's dire straits and his own electoral mandate.
Instead, however, he offered a plan that was clearly both too small and too heavily reliant on tax cuts. Why? Because he wanted the plan to have broad bipartisan support, and believed that it would. Not long ago administration strategists were talking about getting 80 or more votes in the Senate.
Mr. Obama's post-partisan yearnings may also explain why he didn't do something crucially important: speak forcefully about how government spending can help support the economy. Instead, he let conservatives define the debate, waiting until late last week before finally saying what needed to be said - that increasing spending is the whole point of the plan.
And Mr. Obama got nothing in return for his bipartisan outreach. Not one Republican voted for the House version of the stimulus plan, which was, by the way, better focused than the original administration proposal.
In the Senate, Republicans inveighed against "pork" - although the wasteful spending they claimed to have identified (much of it was fully justified) was a trivial share of the bill's total. And they decried the bill's cost - even as 36 out of 41 Republican senators voted to replace the Obama plan with $3 trillion, that's right, $3 trillion in tax cuts over 10 years.
So Mr. Obama was reduced to bargaining for the votes of those centrists. And the centrists, predictably, extracted a pound of flesh - not, as far as anyone can tell, based on any coherent economic argument, but simply to demonstrate their centrist mojo. They probably would have demanded that $100 billion or so be cut from anything Mr. Obama proposed; by coming in with such a low initial bid, the president guaranteed that the final deal would be much too small.
Such are the perils of negotiating with yourself.
Now, House and Senate negotiators have to reconcile their versions of the stimulus, and it's possible that the final bill will undo the centrists' worst. And Mr. Obama may be able to come back for a second round. But this was his best chance to get decisive action, and it fell short.
So has Mr. Obama learned from this experience? Early indications aren't good.
For rather than acknowledge the failure of his political strategy and the damage to his economic strategy, the president tried to put a post-partisan happy face on the whole thing. "Democrats and Republicans came together in the Senate and responded appropriately to the urgency this moment demands," he declared on Saturday, and "the scale and scope of this plan is right."
No, they didn't, and no, it isn't.
The paradox of thriftSpeaking of Latin American-style disparities of wealth, tax scandals have derailed several of Barack Obama's high-level appointees. More important than the non-payment of some taxes was the clear indication of the different world these people live in. Coupled with bank CEOs whining about having to live on $500,000 annual salaries, populist anger is justified. As Joe Kishore put it,
Now, some folks have wondered why I consider personal savings going up as a problem. The answer is simple: by reducing consumption, this adds deflationary pressure to prices, which in turn makes people unemployed, which in turn causes consumption to decline even further. More importantly, by reducing the number of people that banks can lend money to (since businesses seeing reduced demand will not borrow and people who are increasing their savings will not borrow), it increases the effective reserve ratio and thereby decreases the money supply due to the fractional reserve multiplier effect basically operating in reverse to de-multiply. As I pointed out previously, if the ratio of reserves to loans rises from 10% to 15%, this is effectively a 33% decrease in the money supply -- which adds even more deflationary pressure to the economy.
This is called the Paradox of Thrift. The paradox of thrift can be explained simply: What is beneficial on a personal microeconomic level (keeping your consumption level down and savings level high so that you can more easily cope with changes in economic conditions), can be disasterous on a macroeconomic scale, resulting in a lower standard of living for everybody as consumption, wages and prices decrease yet debts stay the same (thus debt inflation, the primary characteristic of deflationary spirals).
Now, does this mean that you should immediately go out and spend down your savings? No. You have to make personal decisions based upon what is best for you. But it does mean that, if millions of other Americans are making this same personal decision to decrease consumption and increase savings, that there needs to be significant government intervention to a) re-inflate the money supply (by, for example, borrowing these excess reserves in order to build infrastructure projects), and b) increase consumption (by, for example, consuming goods from the economy in order to build infrastructure projects). Otherwise there is a significant risk of entering a deflationary spiral, and said deflationary spiral, sans government intervention, ends up with a typical Latin American solution -- most people chronically un-or-under-employed living in utter squalor and poverty, and a few wealthy people owning all the wealth of the nation. Which is nice if you're one of the few wealthy people, but not particularly good for America, since under-employed or un-employed people living in utter squalor and poverty are not contributing much to the economy.
So any time you see Rethuglicans saying "Obama's recovery plan is extravagant and spendthrift", recall what the end result of following their advice is: Mexico North, with most Americans under-employed or un-employed living in cardboard boxes in utter squalor and poverty. While their advice makes superficial sense because it works on the micro-economic (i.e. personal) level, on a macro-economic level their advice is pure disaster. America is currently in the process of de-leveraging -- reducing debt and increasing savings -- and while that can be a good thing in the long term, in the short term it requires significant government intervention to avoid going into a deflationary spiral, a deflationary spiral which Republican oligarchs have wet dreams about -- but which would be a nightmare for the rest of us.
The proliferation of scandals - and in particular tax scandals - involving top government picks in the new Obama government reflects the outlook of the layer from which these posts are filled. Those considered "qualified" for the top positions - that is, those with sufficient connections to the political and financial establishment - are drawn mainly from a relatively small and thoroughly corrupt social milieu.Given the context of class struggle bubbling up in the United States, a milestone was crossed last week. A member of the U.S. Congress from Ohio, Marcy Kaptur, advised homeowners facing foreclosure to stay in their homes as squatters if threatened with eviction:
American society is characterized by an enormous social chasm. In the midst of the biggest economic crisis since the Great Depression - which is leading [to]massive job losses, wage cutting, and impoverishment - the American ruling class has moved rapidly to engineer the transfer of hundreds of billions to the financial aristocracy.
These class divisions are reflected in the personnel of the political establishment, increasingly composed of millionaires who move in and out of government and corporate positions. Corruption is pervasive and exudes out of every pore of the political system.
For this layer, laws, including the payment of taxes, are considered optional (Leona Helmsley once encapsulated this sentiment with her famous declaration, "We don't pay taxes. Only the little people pay taxes."). In fact, if an ordinary person were to commit the "mistakes" committed by Daschle and Geithner, he would find himself with massive fines, financial ruin, and potential imprisonment.
Kaptur advises owners facing eviction to stay
U.S. Rep. Marcy Kaptur (D., Toledo) is advocating home-owners threatened with foreclosure exercise squatter's rights in trying to stave off the loss of their house.
"I'm saying to them possession is 99 percent of the law; you stay in your house," Miss Kaptur said yesterday, continuing a crusade she started several weeks ago in Congress and CNN picked up Thursday night.
She said she believes that many so-called predatory and subprime loans - those made to borrowers who did not qualify for a conventional mortgage - may have been illegal.
She urged homeowners not to panic and leave their home just because they receive a foreclosure notice from their lender, and she said they should demand that the mortgage-holder produce a mortgage audit.
"I say to the American people, you be squatters in your own homes. Don't you leave," she said during a speech in Congress earlier this month.
Miss Kaptur was interviewed Thursday night on CNN by Lou Dobbs, and a CNN report cited a woman who lives on Cass Road in South Toledo as an example of the trend of homeowners ignoring foreclosure notices from their lender.
But Jim Moody, a Realtor who is running for mayor of Toledo as a Republican, said Miss Kaptur may be misleading people into thinking they can stop a legal foreclosure once a judge has issued an order.
"I think those are dangerous statements," Mr. Moody said. "What's she going to say when the sheriff comes and puts all their stuff on the street when they didn't leave because Marcy Kaptur said they could stay and become a squatter?
"I think she's clueless. This is goofy. Of course, the attorneys file the proper paperwork," Mr. Moody said.
Allen Seelenbinder, a Toledo-based mortgage banker with Main Street Financial, said the only audit the borrower is entitled to is an audit of the borrower's payments.
Asked if the mortgage lender is required to prove that its loan was made properly and that the borrower was qualified to sign the loan, he said, "absolutely not - you're under a contract that you both signed.
"The only audit they're required to provide to you is that the payments that you made are made correctly. It's a transaction history," he said.
But Sandusky lawyer Dan McGookle, who is representing a homeowner trying to have a predatory loan rescinded, said mortgage firms may not be able to prove they complied with truth-in-lending laws and other state and federal procedures.
"We have strong reason to believe that a majority of the mortgage loans made in the last 10 years are defective - unenforceable for various reasons," Mr. McGookle said.
Ironically, Mr. Moody agreed that people threatened with foreclosure should try to work out a solution and should stay in the home as long as possible.
Cathleen Tillman, director of the Lucas County Sheriff's Department's civil section, which carries out court-ordered foreclosures and evictions, also said people should remain in the homes until the deed has been transferred, and not to abandon a home that is still listed in their name.
"The foreclosure takes a long time," she said. More than 4,000 foreclosure actions were filed in 2008 in Lucas County, and the sheriff's department carried out 85 foreclosure-related evictions.
Miss Kaptur said she started advocating that homeowners fight foreclosure by staying their home after it became clear that the $700 billion bailout of the financial industry passed last year was not working as intended by Congress.
Labels: economic collapse, Job losses, shock doctrine, stimulus plan
posted by Donald Hunt at 6:48 PM
0 comments
