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Thursday, October 15, 2009

Mirable Dictu! The Republicans Are Now Scheming to Tank the Market!

I suppose one might classify the logic here as a tactical loss to secure a long-term gain, or in chess terms, sacrificing a pawn to take the queen.

So get this: the Republicans (well, to be more accurate, House Minority Leader John Boehner, but we’ll treat him as a good proxy) are really really unhappy at all this recovery talk, since it is Team Obama’s only claim to fame thus far. And in case you missed it, it appears that all this great PR is working. They managed to turn a combo relief rally/short squeeze into something bigger by getting the media to play along (this is not just our conclusion, BTW). And then they cleverly pointed to the stock market as proof certain that Things Are Getting Better when the reality is Things Are Merely Getting Worse Less Rapidly. But this is America, the land of open skies, pink flamingoes, Prozac, and plastic surgery, so we’ll happily go along with the idea that maybe the powers that be can restore status quo ante, since the alternative is painful, and we don’t do the hair shirt and sack cloth routine very well.

So what do Boehner and Co. want to do? They want to attack the idea that the economy is getting better! Now if people quit believing that, the stock market would be one of the first casualties. But they are apparently willing to let a little blood from their collective constituents in the hope of winning a bigger prize, that of the mid-term elections and the presidency in 2012.

Frankly, I don’t think they need to go to this much effort. I am no fan of the Republicans (truth be told, I don’t like either party, but I have more antipathy for the Republicans overall). Unless the employment situation turns around (and David Rosenberg has given a very persuasive reading why it is likely to get worse), the cheery talk about recovery will be revealed to be the result of stimulus measures soon to wane and an inventory bounce (although some economists argue even that effect won’t be as strong as is widely anticipated). I suspect it will in the fullness of time become evident to all that things are as rosy as consensus forecasts now assume, and that calendar will play well into the mid-term elections, at least as far as the Republicans are concerned.

From Roll Call (hat tip reader John D):

House Minority Leader John Boehner (R-Ohio) has assembled a group of economic experts to help Republicans lob attacks at Democratic assertions that the economy has begun to rebound as a result of the Obama administration’s policies…

“One of the tools in that fight, [as] the White House gears up to make more outlandish claims about the ‘success’ of the ‘stimulus,’ is a kitchen cabinet of economic advisers that Boehner put together, including [Doug] Holtz-Eakin, Keith Hennessey, Alex Brill, Jim Capretta, Tom Miller [and] Donald Marron,” Boehner spokesman Michael Steel said. “This team helps us assemble the facts to push back and keep the pressure on the Democrats.”…

In his memo, Holtz-Eakin took aim at a letter sent Monday from White House economic adviser Lawrence Summers to Boehner in response to Republican assertions last week that the $787 billion economic stimulus package failed to create jobs or jump-start the ailing economy….

Holtz-Eakin said Summers’ response was “disappointing and often irrelevant.”

“Jobs keep disappearing, unemployment is expected to keep rising, and the Obama Administration’s only apparent plan is to double down on a failed strategy for economic stimulus,” Holtz-Eakin wrote..

Holtz-Eakin said the economic stimulus was poorly designed and placed too little emphasis on infusing state governments with capital and cutting tax rates to be truly stimulative.

If this sort of tit for tat continues, economic discourse will become even less grounded in reality, if such a thing is possible. Both sides seem to be perfecting an art form of making statements that have some truthful or at least defensible arguments and using that to camouflage claims that are utter rubbish. For instance, it is true that the Obama stimulus plan was not stimulative enough. Giving more dough to states to prevent them from cutting their budgets would have been a faster shot in the arm than some of Obama’s measures and therefore is a legitimate bone of contention. But tax cuts? Please.

I keep reminding this would all be great theater if we didn’t have to live with the consequences.

Topics: Economic fundamentals, Investment outlook, Politics

Email This Post Email This Post Posted by Yves Smith at 2:13 am

30 Comments » Links to this post

30 Comments:

  • Jack B. Nimble says:
    October 15, 2009 at 2:33 am

    In the abstract it’s certainly fine to “not like either party”, but when you get down to policy and philosophy, it’s not even close. One party nearly universally believes in a magical free and efficient market fantasy, and the other party is a mix of people who are cynical and/or timid, and people who don’t believe in the stupid fantasy and would like to do the right thing re: the distribution of power in society/the economy.

    It’s not remotely close. False equivalences (or near equivalences) are a tool of the US right. You’re better than that, Yves.

    • Yves Smith says:
      October 15, 2009 at 2:53 am

      Right now, the Democrats are as badly in the pocket of the banking interests as the Republicans, with the only difference being that the Democrats try to manage the optics so as to disguise that fact. Both are backing Mussolini style corpocracy. If you are not willing to halt the plutocratic land grabs, you will in the end lose on all other fronts. It is simply a matter of timing. You just get to the same end game more slowly with the Democrats at the helm.

      I am getting more and more disgusted by Obama, truth be told. The party has failed to live up to what it stands for, and Obama and others are perfectly wiling to sell it out as long as they can manage the spin and call the crumbs they secure a victory. And there is absolutely zero party discipline. Olympia Snowe backs the health care reform bill and Lieberman opposed it.

      So much for Obama treating him with generosity when he stabbed the party in the back. As I feared, it was interpreted as a sign of weakness and established the template ever since. Lieberman would be lying in a pile of blood if he tried that stunt with LBJ. Nixon would have had the IRS audit him.

      • squanto says:
        October 15, 2009 at 3:42 am

        Yves,

        I agree completely. I was just thinking today that Obama is going to be blamed for the the economic debacle that’s unfolding. Perhaps it’s all preordained: Obama was set up as the fall guy who will discredit Democrats for a generation.

      • mannfm11 says:
        October 15, 2009 at 4:18 am

        Clearly anyone with a brain knows Robert Rubin engineered this whole thing. It was Woodrow Wilson and the progressive Democrats that created this corporate state. The unfortunate thing was we lost the old democratic party 100 years ago and then we lost the old Republican Party with Nixon and Eisenhower, along with Socialist Hoover. Few know Hoover did what Roosevelt did, which is what Obama and the Fed are doing now.

        As far as this Obama thing? The headlines in the Bloomberg stuff I see on the net is exaggerated on everything. Something Beats estimates? The actual news stinks, but because they lined up a bunch of liars in advance, it was good news. The unemployment claims are higher than any last year prior to December. There was a recession going on supposedly from December the prior year, yet the recession was getting worse with less job losses and now geting better with more? They have manufactured too many stats that don’t mean a damn thing about recovery to invent a recovery.

        • Skippy says:
          October 15, 2009 at 6:45 am

          Funny that a tall, athletic, intellectual person could be such a doormat.

          When a small bespecled career buracrat can strike the fear of the All Mighty into his and the oppositions party ..eh

          Skippy…Go figure…Rudd the CAT.

    • kevin de bruxelles says:
      October 15, 2009 at 8:03 am

      Jack,

      Please. Let’s just look at health care to see the fundamental problem with the Democrats (sorry if this veers OT).

      The Democrats have 60 Senators, control of the House and the Presidency. They could have had a bill on the President’s desk last January. But instead now they are blaming the Republicans who are delaying this bill.

      The Republicans long ago did their job on health care. Their rich supporters who matter (their peasant supporters obvious don’t) have had excellent health care for some time, often subsidized by working class taxpayers who have crap health care. So of course the Republicans will delay it; they see any new health care bill as watering down the excellent plans their rich supporter already have. It’s Democratic supporters who need health care and it’s the Democrats who have the power but apparently not the will to act.

      As mentioned above after the 2008 elections the Democrats have total control of all three branches of government. At that point they had three ways to move forward. Now just to make my point more clearly, I will use a metaphor of the three classifications of male animals in evolutionary psychology, Alphas (dominators), Betas (stable providers), and Omegas (evolutionary dead-enders, no females ever mate with them) to show the three approaches available to the Democrats.

      The Alpha move would have been to get the best health care bill possible with 50 senators and then cram it down the Republicans throats with gusto, forcing them to filibuster. Once the filibuster got started the Alpha would use it to humiliate the Republicans as crying sissies. Once the Republicans realized their adversaries had spines of steel, they would meekly submit to the Democratic Alpha’s dominance and wait their turn in line at feeding time. This would have been my approach but then again I’m from a working class background.

      The Beta move would have been to get the best bill you can get with 60 Senators and then gently force down the Republican’s throats while uttering the occasional apology. In this case a health care bill would have passed in February. It’s a slightly wimpy move but I could live with this approach since social animals often need to compromise to survive.

      The Omega move would be to ask the more dominant Republicans to cooperate and approve any bill. The Omega is scared at every step and would never take an independent move for fear of displeasing the more dominant males. Sadly this is the approach the Democrats have chosen.

      Omega political parties, just like Omega males, provoke disgust in all observant beings who come in contact with them. Omegas exist for one reason only: to die. This is because their genetic line needs to be wiped out in order for the species to prosper. This is the inescapable fate of the Omega; and this should be the fate of the Democrats.

      But alas, the Democrats have been Omegas since just after LBJ left office and as so you may ask why are they still alive? That’s because within the limited political ecosystem of the two-party US system, the Omega Democrats serve the wealthy in the very important function of blocking out any Alpha party from developing to serve the interests of the majority of the American people. So it should be clear that keeping the Omega Democrats alive, however nice their spineless words may sound on paper, is evolutionary suicide for middle and working class Americans.

      • RW says:
        October 15, 2009 at 12:48 pm

        Most of “the rich” are represented by Democrats now, not Republicans. This story was linked on Drudge earlier this week.

        The Democrats get far more money from the rich than Republicans do now.

        Both Obama and Kerry got tens of millions of dollars from a few rich plutocrats: Soros, the Progressive Insurance guy, some Saudi funneled money.

        Your claims are out of date by at least a decade. Did those Tea Party protesters look like rich people to you? How about the crowd Obama hangs with in San Francisco, Copenhagen and Oslo? Sarah Palin representing the rich? John Kerry a “Man of the People”? (I actually had a union guy tell me this in 2004, I spit up my beer I laughed so hard.) Al Gore? Poor son of a tobacco farmer?

        • Anonymous Jones says:
          October 15, 2009 at 3:37 pm

          Please…Which party is trying to repeal the estate tax? Which party is trying to lower taxes on the upper income classes?

          The Democrats are despicable, but the reason they are getting more contributions is because they are in power, not because they are more beholden to the rich than the Republicans.

          You can point to anecdotes about poor brainwashed teabaggers all you want and bring up Al Gore again and again (God, people think a mention of him is always proof positive of something…get over it…no one with a brain cares about Al Gore). None of this will make the Republicans less despicable than the Democrats; it’s frankly not even that close.

      • DownSouth says:
        October 15, 2009 at 1:05 pm

        Kevin,

        Another great methaphor.

        One only has to look at troday’s news to confirm what you say:

        All eyes were on Senator Olympia J. Snowe, the Maine Republican whose call for a “trigger” that would establish a government plan as a fallback is one of the leading compromise ideas.
        Two senior administration officials, speaking on condition of anonymity, said the White House looked favorably on the Snowe plan. But liberal Democrats were maneuvering against it Wednesday, arguing that Ms. Snowe, the lone Republican to vote in favor of the Finance Committee’s bill, was gaining undue influence over the talks.
        “It’s one vote, she won’t make the commitment on the final product, and she says she’s got to have the trigger,” said Representative Raúl M. Grijalva, Democrat of Arizona, who is leading an effort in the House to round up votes for a government plan akin to Medicare. “I think the administration has put her in the driver’s seat; it’s very disconcerting.”
        http://www.nytimes.com/2009/10/15/health/policy/15public.html?hp

    • eric anderson says:
      October 15, 2009 at 11:04 am

      Jack, that’s just sad.

      The Democrats believe that they can spend like drunken sailors and the money for it can be borrowed or magically created without side effects that are as bad or worse than the alleged benefits. They believe if they prop up their banking buddies, these horrendous loan losses can be papered over and prosperity will return.

      But parties have their own brand of magical thinking. If we do not substantially clean out Congress in the next election, it is only a choice between the Scylla and the Charybdis of competing disasters. I don’t think the problem is so much the parties as the fact that the power elites of each party are living in their own fantasy land.

      Main street Democrats and Republicans see what is happening and how their parties have failed America. Hopefully enough that they will focus their anger on the ballot box next November.

  • Max says:
    October 15, 2009 at 2:43 am

    That was really lame, Jack. You’re better than that.

    • Dave Raithel says:
      October 15, 2009 at 11:34 am

      I rather like Kevin de Bruxelles metaphor, especially as he does say it is a metaphor and not some reductionist philosophy of politics to natural selection. But like him, my history on planet earth has shown me that there’s as much truth to the sociology of “Malcolm in the Middle” as there is entertainment – some people only respond to having sand thrown in their eyes and their shins kicked.

      Republican taking heads and front-men politicians generally affect a belligerent posture, a menacing demeanor. There are exceptions, I’ll grant (the pretty boys often seen standing off to the side, and the Tucker Carlson nerdy geeky types aspiring to be the erudite heirs of Bill Buckley, etc.) and lately I’ve come to think of Glenn Beck as the Stewart Smalley of reactionary politics – so there’s something ambivalent about reactionary character, and the demographic drawn to reactionary politics – that is both disturbing and disturbed. Scary people. Always victims, they are going to go get those people who are out to get you.

      On the other hand, when I see a gaggle of Democrats, I sense little more than fecklessness and appeasers – people who look like they cannot say what they really think, as if they are biting their tongues for fear of leaking some truths. Like Mr. de Bruxelles, I won’t object to compromise and cooperation in the interest of sociality; but Dems claiming we are going to be better off when they submit belly-up is as real as that Monty Python Knight who, losing limb after limb, insists he’s still in the fight …

      To extend the notion of “regulatory capture” to the Democratic Party, I’d say we do have something of an explanation for why the Dems are so useless – “ideological hegemony.” Nobody who challenges the fundamental assumptions of how we should be can get elected to office – and people who try to do what’s right while refusing to talk about it have to eventually suffer from a guilty conscience.

      Belligerence or guilt – there is no equivalence here, but neither is there a promising choice between them.

  • Simpson says:
    October 15, 2009 at 3:39 am

    Ha Ha. That’s pretty funny. Of course the reason why the stimulus bill did not have more money for the States is that the Republicans (Susan Collins specifically) cut this out of the bill: http://www.msnbc.msn.com/id/29050187/

    • mannfm11 says:
      October 15, 2009 at 4:21 am

      funny. The Dems have a veto proof majority. Plus they have 2 or 3 plants on the Republican side. I agree with Yves though and don’t care to endorse either side. America needs some new parties. The bankers keep that from happening.

  • mannfm11 says:
    October 15, 2009 at 4:27 am

    In any case, the Republicans don’t need to tank the market. we are in a deflation. The Fed might be buying, but the liabilities are the same. The debts are the same, only the Fed now holds the assets. The Fed owes the assets back and there is already more debt than the economy can pay. Plus, the Fed has destroyed the capacity of people to earn off their retirement. The stock market has a 2% dividend, so it is priced to yield below risk free and after some more dividend cuts is poised to make people wish they had earned 1/2% on their retirement. The equivalent bottom to Japan is 2000 on the Dow. We will be lucky if it stops there, as Japan had the US to sell to. Yang money from China, to quote Richard Pryor, don’t spend outside the country.

  • thekingofcheap says:
    October 15, 2009 at 8:55 am

    Kevin, great breakdown of American politics.

    /Voted Nader
    //Will find his own way out

  • Amit Chokshi says:
    October 15, 2009 at 10:27 am

    Hopefully Obama’s weakness and the use of the Clinton network will spark greater interest in progressives. Alan Grayon, Kucinich, and those types are what we need more of in Washington. Jim Hines in CT is a good step in the right direction too. Republicans however are the party of No for everything, they stand for nothing but obstructing everything.

    Obama is weak as are most Dems. As Grayson said, why the hell does he Obama want some piece of crap healthcare bill just to get Olympia Snowe’s vote when she comes from a state that has less than 0.5% of the US pop? The gang of six in general is laughable in terms of representation of US pop and Mad Max Baucus had $4MM in healthcare donations and even had a wellpoint PR person next to him feeding him info during the hearings.

    Obama is not a progressive although he campaigned as one. That’s why he is looking behind his back and seeing fewer people back him because it was on progressives backs that he walked into the WH and now he’s dropped many key items that progressives cared about.

    Plus for some guy portrayed as a slick Chicago politician he really is pathetic with his politicking. This guy brought Sotomayor to the fray who was more or less a centrist judge (if u actually looked at her rulings) and people went crazy in opposition. He hsould have brought a hardcore progressive judge into the mix and then give the fools something to crow about.

    Same with healthcare. Obama’s starting point was so wishy washy and watered down. He should have had a guy like Dr. Dean in there pushing hard for single payer from teh very start. Instead we’ll end up with a disaster bill in all likelihood.

    The republicans however have no intelligence, no compassion, and stand for nothing but bombing countries. Party of Bachmann, Beck, Limbaugh, Boehner, McConnell…it’s a joke and more a representation of the pathetic level of intelligence in this country more than anything.

  • weinerdog43 says:
    October 15, 2009 at 10:42 am

    Thanks Amit. Well said.

  • MG says:
    October 15, 2009 at 11:27 am

    Doesn’t surprise me this comes from Boehner. Congressional leaders are always going to have plenty of barbs (e.g., intellectual lightweight whose aides really carry any heavy lifting on policy details, schill for the US Chamber of Commerce on any big business issue) thrown at them but it Boehner’s case they seem to stick more often that not.

  • ScottB says:
    October 15, 2009 at 11:58 am

    Yves, the link to the David Rosenberg piece is messed up.

  • Peripheral Visionary says:
    October 15, 2009 at 12:19 pm

    This may be theater on the part of the Republican leadership, but it will be effective theater, as they are tapping into a deep pool of emotion building among American voters. The people are frightened and angry, as they see their prosperity disappear even as the talking heads on television talk cheerfully about the “recovery”. Like it or not, at some level Republican leaders are more connected with the emotions of the American working class, and are using that connection to great effect.

    On another note, I am hesitant to characterize Republicans as being staunchly free trade. Given the large and growing number of blue collar workers within the Republican Party, I would not at all be surprised to see a jump in protectionism. That would be in conflict with the right’s ideological leadership, but I suspect the leadership will follow the people rather than vice versa. Given the number of Republicans that are intent on shutting the border to immigration, it should not come as a surprise if they begin to push for shutting the border to the importation of goods.

  • Hugh says:
    October 15, 2009 at 1:06 pm

    I have used several metaphors to describe the difference between the Republicans and the Democrats. If we were on the Titanic, the Republicans would suggest knocking half a dozen holes in the side opposite from the gash left by the iceberg to let the water out. The Democrats would say that was crazy but agree to punch 3 holes in the side just in case and to avoid criticism from the right.

    Or if we are flying toward the edge of the cliff, the Republican philosophy would be to deny the existence of cliffs in general and accelerate to 90 mph just to reinforce the point. The Democrats would again be horrified at the insanity of the Republicans. They would demand a pause to reasonably assess the situation. They then would agree to go on as before (toward the cliff) but would observe the speed limit doing so.

    The Republicans are more obviously crazy and their policies would bring about collapse and disaster faster but ultimately the results of both parties’ actions would be the same. We would still sink or go off the cliff. What makes this so frustrating to those of us sitting, disempowered, on the sidelines is that our problems are solvable. There are reasonable, workable solutions, even now. But the electorate is confused, paralyzed, apathetic, and the two parties and the elites which run them can act only as they have acted. They will continue to do so to the point of collapse and beyond.

    • Anonymous Jones says:
      October 15, 2009 at 3:42 pm

      I always liked the metaphor of a train headed toward a destroyed bridge. If we can just stoke the locomotive with more coal, everything will turn out all right!

      Everything in your comment was well said.

  • tfitzaz says:
    October 15, 2009 at 2:16 pm

    I think it is time for Naked Capitalism to do a story on ‘dark holes’ trading. New York Times covered this today, in it’s cursory fashion.

  • George Washington says:
    October 15, 2009 at 2:53 pm

    Quote of the day: “I keep reminding this would all be great theater if we didn’t have to live with the consequences.”

  • thushara says:
    October 15, 2009 at 5:18 pm

    Democrats need to support the existing systems of production/trade – they all hold the view that solutions to our problems can be found within that paradigm. However, a careful analysis of the systems in place reveals that it gets progressively harder and harder to solve our problems within the prevailing logic of the system.

    So we need a political party that takes on the task of changing the fundamentals of the system. And in a global economy that needs to have a global perspective / application.

    I think middle class Americans are still relatively ok so their minds don’t look outside the current paradigm. They hope in vain that these half-hearted attempts by the Dems will work. As this recession progresses and it actually starts becoming painful, I predict a lot of that thought process will change. Unfortunately, seems like we do not yet have a political party with the vision and integrity to lead that next phase of the struggle.

  • I have a name says:
    October 15, 2009 at 10:35 pm

    This is all the expected result of the corruption of money.

    The elites have worked to destroy the public educational system because when everyone has an equal opportunity to learn, it turns out that the first born son of the elite family actually isn’t smarter than his peers. In fact, his peers are often more motivated and therefore more productive and make the scion look like a fool.

    The solution for the elites is to remove the possibility that their children won’t have the leg up on the masses, i.e. get rid of quality public education. But the problem is that quality public education is the foundation of every great society. Now to get access without money, one must go deeply into debt before they even start their working career. Good luck paying those loans off working in social services, or even worse, teaching.

    Of course we will be a third world country, but that is only a problem for those who aren’t rich.

    The takeover of America by the elites is not just beginning, but rather is in the 8th inning at least, and the elites are winning by a large margin. Obama just got elected by a different bunch of suckers (I was one of them, and I feel badly sucker-punched, and I really don’t like being tricked). The Republican elites used the Christian right for votes, and Barry the Knife just used the unions and labour to get elected, while administering policy that simply erodes more wealth and security from the middle/labour class, while guaranteeing the rich/elite class will maintain its desired status. Obama is Goldman’s slave. At the very least he’s Goldman’s hired goon. Maybe even a prank monkey. http://en.wikipedia.org/wiki/Homer_vs._Dignity

    Barry’s making enemies of his former supporters, and that can never end well. I’m really less sure if he’s a tool or a fool. Either way, he is clearly one of them. The Republicans are worse and more obvious, but I’m doubtful that I will ever give another vote to a Democrat.

    http://www.alternet.org/politics/141819/is_the_u.s._on_the_brink_of_fascism/

    Yep, much closer to the final out than any non-rich American would ever like to admit.

    • thushara says:
      October 16, 2009 at 1:57 pm

      If you don’t vote Dem, who do you vote for? Do you see a viable political party that can conceptualize this correctly, at the very least?

  • bill w says:
    October 15, 2009 at 10:47 pm

    Yves,

    Will you give it a rest and grow up. Read some of Denninger, ZH or even your own posts 9 months ago. The liberal policies of the Democrats and their bankster buds are what brought all this crap on in the first place. Eventually all of those socialist policies must be paid for, and when you overpromise the results are not pretty. As GW said, I would not mind if I did not have to be here and be punished along with those that brought it on us. As Denninger and Reggie Middleton so plainly point out , the Fed has just created more of the same bubble trying to postpone the inevitable. Things are not getting better. Any reading of Calculated Risk and TPC clearly show that the real economy is still tanking. The Fed has just taken our money and created a bubble in asset prices in the stock market in hopes that it would revive the real economy. What a waste of several trillion dollars.

  • Siggy says:
    October 16, 2009 at 1:23 pm

    Things are not getting better. The best that can be said is that things are getting worse with less speed. As to tanking Obama etal and their social programs; I don’t think they need a great deal of help.

    Sometime soon we shall see that what the stock market is doing is just another bubble. This is a process that is abount money. Until we fix the money we will be trying to piss up a rope!

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