Get Ready for TARP 2.0

Washington DC appears to be readying itself for a repeat of the TARP, namely, the passage of unpopular legislation to appease the Market Gods (and transfer even more income from ordinary Americans to the Masters of the Universe). It isn’t yet clear whether this drama will be played out via generating bona fide financial market upheaval or mere threat-mongering (the Treasury market seems pretty confident that well-trained Congresscritters will fall into line). But unlike the TARP, which was a classic example of well-placed interests finding opportunity in the midst of upheaval, this reprise is a far more calculated affair.

The latest episode of brinksmanship is the breakdown in talks between Obama and John Boehner Friday afternoon. Boehner claims Obama retraded the deal, asking for more tax increases; Obama, in an unusually incoherent press conference, says he bent over backwards and the Republicans just won’t be satisfied. Obama demanded talks resume on Saturday.

The presumed deadline for reaching the outline of a deal is Monday, given the need to finalize language. But that assumes that the shortfall hits August 2. Barclays and Normura reports claim that internal Treasury forecasts indicate the crunch probably does not start until the 9th or 10th.

Let’s review how we got here. Obama made it clear before he took office (hat tip reader Hugh) that he intended to go after Social Security and Medicare. As we discussed, shortly after he took office, Obama was privately reassuring conservatives that he’d curtail entitlements once the economy was on a better footing. Clearly, he’s been willing to settle for “better” being tantamount to “not in imminent danger of falling off a cliff.” And if you had any doubts, Obama made his intentions abundantly clear (to use that Nixonianism) by creating a Deficit Reduction Commission and staffing it with enemies of Social Security, former Clinton chief of staff Erskine Bowles and Senator Alan Simpson.

The second thing to keep in mind is that his deficit ceiling crisis is contrived. The Bush Administration bumped up against it multiple times and never used it as a basis for budgetary theatrics, even though it was also keen to cut Social Security. Obama could have taken action long ago, before the midterm elections, which were seen as putting the Democratic majority in the House at risk, to gain more headroom.

One also has to wonder at the position reached by respected Constitutional scholar Lawrence Tribe on the clearly worded 14th Amendment (““the validity of the public debt of the United States, authorized by law … shall not be questioned”) and the only Supreme Court decision on it, which clearly stated that Congress may not “alter or destroy” existing debt. That clearly includes issued Treasury bonds, and arguably includes existing Federal obligations.

The problem with his reading is that it’s based on an operational misunderstanding, that the government has to issue new debt to fund itself if tax revenues are insufficient. No one wants to admit that the bond issuance is a political constraint, and when Congress has already approved the expenditures and you have both the Constitution and related Supreme Court decisions stressing the importance of honoring existing Federal obligations, it’s hard to see why direct expenditures would be problematic if the alternative was a clear breach of these strictures. And even if you did subscribe to the Tribe/Obama view, other work-arounds have been broached, both the Ron Paul suggestion of canceling the $1.6 trillion of Treasuries held by the Fed, or the coin seignorage idea. Yet the Treasury pointedly fails to acknowledge that other options exist.

Consistent with the “let’s create a crisis” view is the talk of Armageddon coming from the officialdom. They’ve even hauled Hank Paulson out of the mothballs to give the concerns more weight. From the Financial Times:

The collapse in the talks came after Tim Geithner, US Treasury secretary, met top officials from the Federal Reserve as well as Hank Paulson, his predecessor, to step up preparations for a possible default on US debt, which could occur as early as August 2.

After Mr Geithner spoke on Friday with Ben Bernanke, Fed chairman, and Bill Dudley, president of the Federal Reserve Bank of New York, they issued a joint statement saying they had discussed the “implications for the US economy” of a default but were confident that the country’s borrowing limit would be lifted.

Mr Paulson, who earlier had breakfast with Mr Geithner, was blunt in his assessment of the dangers. “Failing to raise the debt ceiling would do irreparable harm to our credit standing, would undermine our ability to lead on global economic issues and would damage our economy,” said Mr Paulson, who dealt with the financial crisis. “The sense of urgency is clear.”…

Calls with Mr Dudley are also common but none of these discussions are normally publicised. Both the Treasury and the Fed have been reluctant to discuss any contingency plans in case of default.

Now as the article also indicated that Mr. Market has been singularly unconcerned; 10 year and 30 year bond yields fell slightly on Friday, but that was before the talks broke down. The release of concerned chatter among Geithner, Paulson, Bernanke, and Dudley, appears an effort to rev up the engines in case they feel they need to go into full out alarmist mode and rattle the markets to pressure Congress into acting.

But we can see how the endgame is already being scripted. Ezra Klein, the Democratic Party’s answer to Baghdad Bob, is already telling us how this staged drama will play out. The messages in his piece tonight: Boehner allegedly doesn’t have the votes, and not having a deal (just like not passing the TARP) is The End of The World As We Know It (in his words, “disaster,” “unleash a market panic,”). So the only solution is for the Democrats to give in to this Republican non-negotiable posture and presumed market armageddon (which we indicated, might not be the calamity the DC punditocracy presumes it will be).

But the average person loses out no matter what happens. Budget trimming in a weak economy will assure flagging growth or a contraction next year. If you have any doubts, debt to GDP ratios have worsened in the European countries that have put on the austerity hair shirt. Cutting Social Security and Medicare is not popular and not necessary (even Ron Paul, who favors extremely aggressive budget measures, pointedly avoided advocating cuts to Medicare and Social Security in an interview today; as we and many others have noted, Medicare is not a “Medicare” problem but a health care cost problem, which the Obama “reforms” will only make worse).

So it isn’t clear why Democrats should sign an Obama suicide pact. Market turbulence, of course, would hit big donors worse than ordinary voters, which is presumably why it should be avoided at all costs. Yet it was the Blue Dog corporate Democrats, and not the progressives, that took it in the chin in the midterms.

The fact that Obama is regularly being compared to Herbert Hoover and now Nixon should give him pause; it’s an indication that he is vulnerable. A bit of upheaval and discomfit to the moneyed classes might be the best thing that could happen to Obama in the very unlikely event Democratic Congressmen prove to be as difficult as their Republican counterparts. But I suspect he’ll get his way and perpetuate the now well honed practice of using crises, whether real or not, to transfer more income to the top of the food chain.

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  1. attempter

    Boehner claims Obama retraded the deal, asking for more tax increases

    There’s an example of the Democrat being not just as bad as but worse than the crazy Republican.

    Both gangs want to gut as much public interest spending as possible. That’s a given. But hikes in regressive taxes (under kleptocracy, all taxes on the non-rich are regressive) can possibly be averted, since many elites oppose any tax hike, out of ideology or political fear.

    Always remember that every dollar taken from us in taxes is:

    1. A dollar we critically need lost to us.

    2. A dollar which will be thrown down a corporate rathole, and therefore

    3. A dollar that will be used against us, to further enslave us.

  2. ambrit

    Concerning Medicare and Social Security: The ‘Third Rail’ of American politics wasn’t named that for nothing. The seriousness of that isn’t lost on parts of the elites either. Just look at the crawfishing going on with AARP over the subjects. Older prople tend to vote in higher percentages and worry more about such things. This demographic can very well be a lightening rod for the discontent building in this country. Trolls and others can argue all they want about ‘absolute’ poverty measurements. Percieved poverty is what counts. People only have to see a visible decline in their standard of living to want to do something about ‘the problem.’ Pseudo Libertarian types often like to say that; “No one fights a war for a ‘standard of living.'” However, when that ‘standard of living’ is closely tied to your self image, the dynamic changes. Sociologists attest to the fact that lower middle class people can most easily be manipulated by appeals to their fear of being percieved as ‘lower class.’ Thus, elites have generally been able to ‘divide and conquer.’ Well folks, anti-elites can do the same thing, if they can get their ‘act together.’ See you at the barricades!

  3. Middle Seaman

    1. I hope a miracle happens and there is no agreement.
    2. Some Democrat MUST run against Obama in the primaries. Obama is a despicable person.

    1. Eric

      Some authentic progressive must run against Obama in Democratic primaries. I propose it be Bernie Sanders.

  4. ambrit

    Dear NC Person;
    Did I read aright a few days ago that the US is the only developed nation with a Debt Limit? Some information please. Why should that be so? What were the political forces behind this unique constraint? If this is so, it sounds like; “Pull back on hammer, aim at own foot of personal choice, place chewy object between teeth, pull trigger.”
    Thanks, Perplexed.

    1. Cedric Regula

      Here’s the history of it from wiki. Also, note that the US was able to convince the world in Bretton Woods II talks that the US should be the primary reserve currency due to our fiscal and monetary prudence.

      Debt ceiling

      See also: 2011 US debt ceiling crisis

      Article I Section 8 of the United States Constitution gives the Congress the sole power to borrow money on the credit of the United States. From the founding of the United States through 1917 Congress authorized each individual debt issuance separately. In order to provide more flexibility to finance the United States’ involvement in World War I, Congress modified the method by which it authorizes debt in the Second Liberty Bond Act of 1917.[31] Under this act Congress established an aggregate limit, or “ceiling,” on the total amount of bonds that could be issued.

      The modern debt limit, in which an aggregate limit was applied to nearly all federal debt, was substantially established by Public Debt Acts[32][33] passed in 1939 and 1941. The Treasury has been authorized by Congress to issue such debt as was needed to fund government operations (as authorized by each federal budget) as long as the total debt (excepting some small special classes) does not exceed a stated ceiling. Since 1979, the House of Representatives by rule has automatically raised the debt ceiling when passing a budget, except when the House votes to waive or repeal this rule.[34]

      The most recent[35] increase in the U.S. debt ceiling to $14.294 trillion by H.J.Res. 45 was signed into law on February 12, 2010.[36]

      First time in a hundred years we can’t increase it!

      1. ambrit

        Mr Regula;
        Thanks for the info. Unless I’m more than usually dim, it looks as if the ‘limit’ was enacted during times of war or economic depression. Was the ‘automatic’ raise of the limit to match the budget previously just happenstance or old time ‘business as usual’? If so, the decoupling point would be a good measure of when the ‘starve the Beast’ movement gained traction.
        Here’s a real ‘Starve the Beast’ suggestion. Repeal all tax exemptions for Religious Entities except those funds specifically targeted to charity; Food Banks, Housing Assistance, Legal Aid etc.
        Thanks again Mr Regula.

  5. Because

    Sorry, but you are wrong. There is no deal, because there will NEVER be a deal. It is all political theatre, one the Republicans thought was fun to play for a few extra votes, but Obama, much like Clinton wants to use the pulpit over them……..for a few extra votes…….get it?

    10 and 30 year bonds will CONTINUE to fall and will fall to 0% if the government doesn’t borrow more to boost the economy. You don’t get it, you don’t get how debt markets work and you don’t get who is pushing for higher(like 2-3 trillion deficits for the next few years). Obama is irrevelant. Stop overblowing him. Once US debt holders finally give up on the US THEN US yields rise, but it won’t be long term yields, it will be short term yields, creating a massive inversion essentially destroying the US economy as all capital transactions freeze.

    Follow debt markets and the electorate(and the failure to the electorate to act in 2009 like they needed to).

    1. Yves Smith Post author

      With all due respect, you are apparently new to this site. We’ve repeatedly debunked the notion that interest rates will rise, even with large government deficits, when households are deleveraging and the business sector (in aggregate) is refusing to invest (ie, is a net saver too). The government must deficit spend or prices and wages will adjust downward. That’s deflation, which makes debt to GDP worse (as mentioned in passing in the post). And the best place to be in deflation is cash or high quality bonds. That means, contra Obama, no crowding out (there’s been no net investment by business even during the last expansion, 2003-2005, so why the hell should they invest now when the economy is so much worse?).

      Long winded way of saying don’t accuse us of making arguments we never made.

      1. Rycoka

        Hi Yves,
        I love your site but I would like to unpick a little the statement that the “government must deficit spend or prices and wages will adjust downward”.
        The global problem is the creation of too much money and money like instruments. For the government to see the only solution to this problem as the creation of more and better quality money is irrational.
        Certainly the government does have an obligation to act in support of its citizens, but the government needs to face the fact that the global financial system is broken (, and bleeding the faith and credit of the United States into this system through the issue of government debt is fundamentally against the interests of the American people (and their allies).
        From a governance perspective the issue seems to be around conflict of interest. No legislature that is is put together on the basis of the ability to attract corporate sponsorship can ever be free of a perception of conflict of interest. The events of the last three years seem to be bearing out the fact that the conflict of interest is real and corrupting the decision-making processes.
        The true solution to the current global finance glut is mark to market and bankruptcy. This can only be achieved by the concerted efforts of sound and talented governments and judiciaries cooperating across geographical boundaries.
        On the issue of international cooperation, has anyone looked at the potential for the “Greek Crisis”, “Debt Ceiling Crisis” to be viewed as a skillfully contrived currency manipulation battle with aims far different to the current discussions being played out in the media and blogosphere?

    1. ambrit

      Or: Fascism – Change With Order.
      If we take the textbook definition at face value, we’re in a Corporate Fascism right now.

  6. GLH

    I haven’t listened to Ezra Klein for a long time because he is such a sycophant. I loved and agree with the comparison of him to Bagdad Bob. I apoligize to Bob.

    Concerning the 30 year Treasury, I noticed yesterday that the yield was falling before Boner announced there was no agreement and started back up for awhile after the annoucement. But, then the yield resumed its fall. If there is no debt deal, will it affect the bond market?

    I understand that the S&P downgraded Japan and it didn’t matter whatsoever.

    1. psychohistorian

      Reading Yves consistently excellent posting and your comment make me think that this version of Tarp will allow all the super rich to get out of bonds and leaving the pension funds, local government and few unlucky schmucks twisting slowly in the wind.

      1. Just Tired

        Then our private pension funds will be funded with phony IOU’s just like SS. No one seems to want to talk about the fact that the SS cuts being discussed are merely designed so as to get the SS “Trust” back on a pay as you go basis so that the IOU’s will never have to be repaid (because they cannot possibly be!). As an accountant, it has always been a mystery to me how a society could buy into the insane notion that your right pocket owes your left pocket money and you are are somehow better off. Here try this:


        Cut out the two and place one in each pocket, then tell me how much better you feel.

        1. Orin Snatch

          Lame. Who’s pocket is the war effort being grifted from? (3.2 trillion for the genocidal Iraq and Afghan wars – so far.)

          1. ambrit

            Dear Utah Saint;
            Point taken. Wars have always ben ‘paid for’ by the ‘little people,’ (and I don’t mean the Sidhe.)

        2. ambrit

          Considering the machinations of fiat curency afficionados, your ‘comment’ isn’t too far off the mark at that. What’s your alternative, The Gold Standard?

      2. Jim Haygood

        Just Tired,

        I’m not an accountant, but I play one on the internets. What stuns me is that although the Treasury publishes an annual Financial Report of the United States using appropriate accrual accounting, U.S. budgeting is still done on a de facto cash basis.

        Because Usgov has tens of trillions in unfunded future obligations (although Medicare and Soc Sec are treated as off balance sheet since they are noncontractual and can be modified or cancelled at any time), cash based budgeting grossly understates the true level of deficits and indebtedness.

        Anyone who takes accrual accounting seriously is obliged to conclude that Usgov is massively insolvent (i.e., has negative net worth) but (for now) liquid.

        As strange as water running uphill is the ability of an insolvent government to borrow short-term at zero percent. This bizarre flouting of the laws of financial gravitation is an artifact of the dollar-centered global fiat currency system.

        Naturally the ability of a bankrupt entity to continue borrowing interest free depends on confidence. That’s the huge risk of even a one-day default: once confidence is broken, it can’t be restored.

        From Beijing to Brussels, there will be a global clapping of hands to foreheads, as the cry goes up in a cacophony of languages: ‘What the HELL were we thinking?’

        The only consoling counsel will come from the MMT loony-tunes brigade: ‘Bond issuance is merely a political constraint.’ Yeah, right — how did that work out for Dr. Gideon Gono, the patron saint of MMT?

        1. Joe Firestone (LetsGetitDone)

          Yours is a truly silly perspective. You can’t talk about unfunded future financial liabilities without talking about uncreated future financial assets. Since the ultimate source of net financial assets in our economy is the currency issuer, the US Government. All its financial obligations can be met by its creating those financial assets.

          See this one applying that notion to the debt ceiling:

          Oh yes, I’m a member of the MMT-brigade in good standing, which is how I know that your post is total Petersonian BS.

          1. Traderjoe

            But in our current monetary system, all of our currency is borrowed from private corporations and banks. So we are not operationally sovereign in Federal Reserve Notes. Bring back the US Note and I’ll agree with you.

        2. lambert strether

          Well, the Zimbabwe Number (Z) on Haygood’s subthread is 1, since “Gideon Gono” is a cute way to say “ZOMG!!!! Zimbabwe!!!!”, Gono being the Governor of the Reserve Bank of Zimbabwe. As MMT people have explained, there’s no possibility of inflation from minting money unless and until the productive capacities of the economy are fully engaged. We’re nowhere near that point. Haygood surely knows both the facts of the case and the arguments pro and con, but prefers to repeat semi-humorous talking points. Smarter trolls, please.

    2. Cedric Regula

      Uncle Samurai does things different. They make Zombie Jap banks buy Japanese bonds at whatever rate the Uncle Samurai deems fair to pay. No one need listen to ratings agencies. If the japanese private sector wants yield, they buy US bonds or Oz bonds.

      My guess on the US bond market is they are assuming the debt limit gets raised; they are really looking at a economy that they believe is deleveraging and dis-inflationary and in some risk of a double dip; and last but not least the chase for yield/safety. Slim pickings around the world.

  7. Norman

    Dragging Mr Paulson out to comment, well, the U.S.A. already is the laughing stock of the World, Washington is drowning in the koolaid that the Financial sector has provided. The “KABUKI” taking place would seem comical if it wasn’t so damn destructive to the vast majority of people in the country. Talk about a “drunken sailor”, it’s more like a virus, all the elite have been taken by their fantasies of power, similar to that scene in the movie “Weird Science” when the two teenage boys sat in front of the computer with their “jockey shorts” on their heads making a wish. I would ask the question: “where are these elites going to live when the home planet is destroyed? Where do they do?”

    1. Cedric Regula

      It’s simple really. You move to the chateau in Davos and keep the wine cellar stocked.

      1. Cedric Regula

        Of course if Uncle Sam comes knocking on the door and says “We are all one and the same people, aren’t we? – and I’ve commingled our accounting in the General Fund”, you have to remember to emphatically say “Bullshit”.

        This is something they teach at rich people seminars.

        1. ambrit

          Mr Regula;
          I thought really rich people had minions and flunkeys to do all that for them, (sort of like Young Werther.)

          1. Cedric Regula

            Of course. This seminar just tells them why they need the minions and flunkies.

            The other thing they teach is that government borrowing obligations (aka treasury bills, notes and bonds; Phony IOUs, intergovernmental debt, etc…) are USG future claims on the US taxpayer. This emphasizes why it is so important to not find oneself in the unenviable position of “taxpayer”.

          2. ambrit

            Mr Regula;
            Heavens to Murgatroyd! Good Sir, are you suggesting that we all get rich! What an utterly [insert expletive here] idea! Then where will be the cachet in slurping jelloshots from out the barmaids errogenous zones?
            Uncle Scrooge will hear about this!

          3. Skippy

            HA!…should the middle class and destitute combine their net worth and start a hedge fund. Liquidate all non-preforming assets…cough…C/RE…and do a paulson on their tormentors?

            Skippy…if voting is now redundant ie SCOTUS opines, it seemingly would be the most market driven solution, considering all the other options, market trumps representation thingy.

      2. R Foreman

        I’m sure they have an underground bunker there that’s well provisioned as well… and I’m certain it is much more hardened than anything the Iranians can build at Natanz.

        They’ll play this to its conclusion, bring the critical industries into the fold, then shut everything down and watch the unwashed zombies kill each other (from hidden cameras or satellite).

        It’s amazing what you can do if you own 95% of the world’s assets.

        The Egyptians are catching on quick though, and I’m sure other starving populations will as well. Haha.. imagine their surprise when they overthrow their government and then nothing changes.

        1. ambrit

          Mr Foreman;
          Be careful what you ask for. Remember, it was the WW1 German General Staff who helped Lenin back into Russia in ’17. Short term goal: successful. Long term effect: Utter chaos and warfare.

  8. LeeAnne

    The bankers will back Obama financially or they won’t. That may matter to Obama, but it doesn’t matter to the far right corporatists. They get their way no matter what in their extremely violent World War against liberal democracy.

    Bush did his job for the cause, putting 2 extreme right wing judges on the Supreme Court while Obama does his part gutting Social Security and Medicare given to the extent he’s given the means to do it.

  9. Neildsmith

    Some day we’re going to have to fully discredit the cranks in the GOP. Otherwise, when they return to power, they will completely dismantle the social safety net. The only hope, in my opinion, is to make enough of a cut to entitlements that Americans see the job as complete before 2016. The attempt to do this with health care last year hasn’t really done the trick so I assume that most people really aren’t interested in an equitable and compassionate society. If Obama’s game is damage control(and I don’t know that it is), then I’m OK with it. Either way, something is going to give whether progressives like it or not.

  10. Jackrabbit

    An engineered crisis? C’mon, how could anyone believe that? Why it would require:

    – Ignoring imbalances that might bring down the economy

    – Providing too little stimulus to pull us out of such an economic dip so as to prolong the pain and get people in the mood to sacrifice

    – Reducing Federal Revenues and spending lavishly on nonessential things so as to increase the debt to an unsustainable level

    – Insulating wealthy donors from the pain by lowering taxes and monetary gimmics like TARP

    – Study and planning over many years (but surely such plans would leak out to some extent)

    – A compliant media that has a disincentive to piece together the whole picture or “rock the boat”

    – A political class that knows where its bread is buttered because steps have been taken to ensure that MONEY is uber important for elections

    – Undermining people and institutions that seek to look out for people’s interests like Government and Unions, possibly via an under-the-radar campaign that attacks “big government” and “socialist” “elites” (and while your at it may laud the capitalist class as “job providers”).

    Oh. Um . . , uh . . . all of these have actually happened!

    1. Just Tired

      Rahm Emanuel said “You never want a good crisis to go to waste”. Well Obama and the Dems wasted a real good one. What we are seeing now is a do-over. “Last time”, he will say, “all them other bums wasted it. Now I’m here to show ya how it should be done”. And to keep us all from arming ourselves and rioting in the streets, Obama has us poised to go to war with…whoever. I can hear his words now: “We have met the enemy and he is not us.” Sure would be interesting to see what history would be like if WWII hadn’t come along just when it did.

    2. Jackrabbit

      Oh yeah, and another unlikely occurance but an important one:

      – an increase in police forces and capabilities so as to quell any disturbance that might arise (as a precautionary measure) – of course that would have to be justified by very very very real dangers

      What a strange happenstance that ALL of these “unlikely” circumstances have come together to make it, um . . . conceivable . . . that powerful interests could/are/have extract a increased share of national income while sticking everyone else with “austerity”.

      But at least we can rely on the goodwill of our elected representatives who surely have our best interests at heart while they conduct the “people’s business.” Yes, they would not, knowingly or unknowingly, allow the craven to take advantage of fortuitous circumstances that have somehow developed. Would they?

    3. baldski

      This Republican drama was dreamed up by Jude Wisinski a long time ago. He started the “two Santa’s Strategy” that this latest drama is part of. Since the Democrats spent money on the populace, the Republicans could play Santa too by cutting taxes and starving revenue. Then when the Democrats are in power, You scream about the deficits. You notice, they did not say a word about deficits, when Bush was in. Wisinski sounds like a nut. He promoted the Laffer curve to Cheney and Rumsfeld. Maybe that’s where Cheney learned that deficits don’t matter. I wonder why the CCCP (Corporate Controlled Conservative Press) never says a word about “Two Santas” or Jude Wisinski?

  11. Victor Berry

    The worst thing that can happen is for the Republicans to deny a debt limit increase just to see what happens to the financial markets on August 2. If there’s not an immediate catastrophe, then the Republicans and their syncophants will be convinced that Obama, Geithner, Bernanke, et al were bluffing. When the 9th or 10th rolls around and all hell breaks loose, confusion will reign and who knows what Obama and Congress will agree to then.

  12. Chauncey Gardiner

    “I shouldn’t have done my research just in prisons. I should have spent some time inside the Stock Exchange as well.”

    “But surely stock-market psychopaths can’t be as bad as serial-killer psychopaths,” I said.

    “Serial killers ruin families,” shrugged Hare. “Corporate and political and religious psychopaths ruin economies. They ruin societies.” —Jon Ronson, author, quoting Robert D. Hare, PhD., psychology; “How to Spot a Psychopath”; The Guardian (UK); Saturday, May 21, 2011

    “Elite”… I think NOT. At some point We the People are going to have to recognize them for who and what they are and what they have done to us, and act to arrest and reverse the damage they have caused and are continuing to cause us. The sheer brilliance of their criminal schemes and their resultant control of the purse strings of power and media through which they have and continue to conduct their programs of exploitation, corruption, persuasion and propaganda complicates our task. But it doesn’t make it impossible.

  13. Victor Berry

    By the way, if there’s another TARP, it will most likely result from the bankruptcy of Bank of America and/or Citibank. Taking one or both of them out of the bookie-like credit default swap market will create an imbalance of payors/payees just as big as the AIG fiasco.

    1. Mark P.

      Yes. The six TBTFs have sold on to each other and thus hold 85 percent of their own risk, by some estimates.

  14. avg John

    Well, I guess since the top 1% profited the most from our “trickle-down global economic policies”, it’s only fair that we bottom feeders pay the bill for such brilliant long-range economic planning that has finally came due.

    Just be thankful for you lucky star, that we have an equally brilliant set of economic geniuses, bureaucrats and politicians that put our country first, before special interest, and will lead us out of this crisis.

    And if you don’t like it, remember, Wall Street can self-destruct and take the entire nation down with it. So go jump through a flying donut hole, if you don’t like it.

  15. Pitchfork

    I love progressive NC, but I want the debt reduced DRASTICALLY. And the sooner the better. Raising the debt ceiling is capitulation.

    That said, let’s be clear that three different questions are being muddled together here: do we NEED to cut the deficit and debt right now; do we WANT to cut it; and whose ox gets gored if we do cut it right now.

    In particular, whether we face a looming debt/bond market crisis or not is a very different question from whether we want to saddle future generations with tons more debt (assuming we can finance it). I don’t, even if it means lower GDP for the next couple of years. Is that so crazy?

    1. Hampton Don

      Capitulation for whom? The debt “panic” is allowing a ferocious assaults on workers and cheerleading to cut “social services”. Meanwhile, it’s Billions more for Defense Inc with nary a freeper whisper.

      1. Cedric Regula

        Much more than a whisper. All budget discussions begin with the statement “Defense and Homeland Security cuts are off the table. Period and Double Period”

        It’s like saying the Pledge of Allegiance.

    2. ambrit

      Dear Pitchfork;
      (Is that a peasants hand I see lustily gripping your oaken shaft?)
      All snark aside, SS and Medicare are dedicated social economic programs. They ultimately depend on the continuing strength of the ‘Revenue Stream’ and not on just the economic condition of the nation. Absent tax revenue adjustments, (in either direction, mind you,) the system is guaranteed to eventually collapse. The simplest solution to “Unfunded Mandates’ is to RAISE REVENUE. Now, channeling Willie Sutton for a moment, just where is the money nowadays? That’s right! In the pockets of the Rich! Q.E.D.

    3. Kraken

      It’s not crazy if the reductions come from the Military-Industry- Security complex, and the free money for insolvent banks.

  16. Cujo359

    “The fact that Obama is regularly being compared to Herbert Hoover and now Nixon should give him pause; it’s an indication that he is vulnerable.”

    If you accept my assumption that the guy is a con artist for a moment, then it will be clear that this doesn’t matter. Win or lose next year, he’ll be taken care of by the elites either way.

    There’s no money in working for the poor, and damn little in working for the middle class. Obama may not be as bright as some folks seem to think he is, but he’s smart enough to understand that.

    1. ambrit

      Mr Cujo359;
      You make a very important point. The old concept of ‘Government Service’ presupposed that financial gain was a distinctly dishonorable motive for acquiring public office. In fact, there are numerous laws, (fraud, peculation, bribery, for instance,) based on precisely that concept. In a perfect world, politicians caught practicing such would be prosecuted and punished. Obviously, given the facts on the ground, we live in a Dystopia.

  17. Herb Brownell

    There are two groups that want the financial collapse of Capitalism……Radical Islam and Marxist/Socialists.

    It is sure good to know that The Community Troublemaker that sits in the White House was never associated with either of those. Francis Pivens, his Poli Sci professor @ Columbia, explained it all in her Cloward/Pivens Strategy.

    1. PianoRacer

      I think the mistake you’re making is confusing what we have now with “Capitalism”.

      1. Herb Brownell

        Our mistake is to spend valuable time on definitions when complete social and economic chaos might well be 1 or 2 weeks away. When these events have happened during my 66 years, and that which happened in the earlier part of the last century, most of it on film, food and economic riots turned violent followed by martial law, cancellation of rights, and often, cancellation of elections. The big question is, “Martial Law under the control of whom?”

        Active duty soldiers talk about the “Oath Keepers.” None of us know for sure who will obey what orders.

        After the crash, if Perry & his legislature immediately declare state sovereignty (not succession) under the 10th, perhaps other states will immediately follow the lead of Texas, & declare the Fed. and their bureaucrats can no longer regulate, confiscate bank accounts, property, and arrest people.

        Then the fun would really start.

        The next big question is, “what type of government will emerge?” It is always an opportunity for Tyrants. The strong and best organized survive to run things for a while.

        The transition is often traumatic, usually for every one. Lots of people loose lots of property & money. Sometimes, lots of folks loose their lives.

        Right now, there are no guarantees. Will it be someone like Soros & crew? Remember him talking about how much fun he had in Poland turning in Jews. I think his chosen word with a big grin and a twinkle in his eyes was “empowering”. Now that is a something to contemplate.

        Or the world wide amalgamation of Koch Brothers Inc.?

        Or the Chinese Capitalist? Or the Muslim Brotherhood?

        The Minority/Progressive/Liberal/Marxists are in control for the time being. No one can guarantee they will be able to keep it.

        The Constitutional/Limited government/Conservative movement is splintered. But another Waco, Ruby Ridge, 911 type event might galvinize them to action.

        I have no idea. What is your guess? Are you preparred for something heavy duty?

        1. PianoRacer

          I really have no guess as to the actual form of the collapse, nor the politics that will emerge in its aftermath. What I do believe is that it is absolutely essential to air all the dirty laundry to understand how we got here, and blaming “Minority/Progressive/Liberal/Marxists” is not, in my opinion, helpful in that process. I also would hate for people to abandon capitalism because they wrongly blame it for our ills.

          I disagree with many of your characterizations, but I emphatically agree that the time to prepare is now. To answer your question, I am as prepared for the wide array of possible outcomes (and time lines) as my limited means allow me to be. I have eliminated my debt, converted my meager 401k and IRA to physical gold and silver, purchased a water filter (Royal Berkey), six months of food and bottled water, a fold-able solar array, rechargeable batteries, CREE flashlights, medical supplies, gas masks, FRS radios, a firearm that I need to actually fire and learn to use, and several contingency / emergency plans for various scenarios. I am very proud of what I have been able to put together in the six months since my “awakening”. Yves was a big part of that; I started my journey determined to understand why my home had lost 30% of its value since I bought at the peak, and NC was one of the only places telling the whole story; that was my where my journey down the rabbit hole of our global financial system began.

          Each of their can-kicking exercise gives me more time to prepare and attempt to convince others. It astounds me that Americans can listen to, for example, the apocalyptic rhetoric surrounding the debt-ceiling “debate” and yet take absolutely NO steps to prepare themselves for the possibility of the realization of those concerns. I wonder if they knew how fragile the system really was, would they do anything differently? Normalcy bias is a powerful thing.

          1. Herb Brownell

            Congratulations….welcome. I had some great mentors in the ’50s & ’60s. I also had a self professed Marxist professor in ’63. The same year I 1st read Atlas Shrugged. I worked for Goldwater. I watched the 1st night of the ’65 Watts Riots from an overpass on the Harbor Freeway. Went to see Stokley Charmichael, Tom Hayden, and Angela Davis speak at UCLA during the Viet Nam protests. The Weather Underground and Students for a Democratic Society were the most violent pro Marxist groups at the time. Bill Ayers, Wade Rathke, Andy Stern, Jeff Jones, were every day names in the news in those days. I read their “Manifesto” when it came out in the early ’70s. Then they faded away from our news/consciousness until they showed up 40 years later, gathered around The Community Trouble Maker.

            My excitement for Reagan lasted only a couple of months until David Stockman got his butt kicked trying to do the other half of the plan……cut the government down to size.

            I thought we might save it when The Gingrich Revolution took over Congress & saved Clinton’s Presidency.

            Then Bush, the Rockefeller East Coast Republicans, destroyed everything the Gingrich movement started.

            It has been faster down hill ever since.

            I published “Normalcy Bias” in editorials this last March. Amazing, isn’t it? Most of my friends and family suffer from it & think everything is just great.

            Spread the word. Good Luck.

  18. Nate

    What is the mean time between the default and bankruptcy? 60 days?

    If the federal government of the USA does go bankrupt, this is a time to cleanup and redistribute the wealth. I presume all the banks will be immediately nationalized. All debts owed by the federal government will be canceled. All debts owed by individual to government will be canceled, mostly home mortgage and student loan. A special bank will be setup to continue the payment of social security but not the medi-care. War will be stopped in Afghanistan, Iraq, Libya. USA will stop bribing foreign regime to stay loyal to USA. I guess with things are about to restart, some of the wealthy and self sufficient states will not rejoin the union. New banks with new debt limit set, we restart the capitalism this time wiser.

    1. Nate

      $4.5T will be lost by the foreign investors, If BK.

      Top 2% of the wealthy folks control this democracy of USA, and the bottom 30% are just struggling almost day to day to survive, with 15% on a food-stamp program. Anymore slow down in economy will cause more lose of livelihood by foreclosures. And all the foreclosures in the pipeline what will it take to clear that up? BK sounds like a good solution, as the top 2% don’t want to carry the country by paying more taxes. It is their country, and rest of the people are hanger-ons.

    2. Joe Renter

      You are on to something Nate.
      This is the end-game for capitalism. Market forces have dragged us into this mess with it’s unlimted greed and destructive power. The future ecomonic dymanic will based on the needs of humanity at large. The changes will be challenging no doubt, but there are those who have a blueprint in hand waiting to come forward. Bartering and a mix of two thirds socialism to one third capitalism will be the norm. Look for a teacher and guide to step into the spotlight soon. Nothing less than the second coming. We need nothing less. See this site:

  19. Joe Firestone (LetsGetitDone)

    Yves, very, very nice analysis. This will be the second suicide pact Obama has forced on the Ds. The first was the hcr bill, a big factor in the defeat of 2010. Medicare for All would have won the election for the Ds, especially since it would have resulted in 2 million new jobs. Seeing them line up for this latest suicide pact, really makes me wonder about them, and about Pelosi too. Does she really think that the Democratic Party can long endure as a right of center party helping to maintain a stagnant economy with a shredded social safety net, and an increasingly angey and disconsolate base filled with frustration, frequent episodes of anger and hatred and contempt for its leaders?

  20. justanobserver

    you have to admit, if Obama is completely gung-ho on continuing the wealth transfer upward – why didn’t he just erase the revenue increases and just let Boehner have what he wanted ?

    1. ambrit

      It’s just an artifact of what other observers have dubed the Kabuki Syndrome. A highly ritualized and abstract performance. Everyone involved knows all the parts, and, as in any good repertory company, anyone can, and does, play any part.
      Obama has to keep the ‘Party Faithful’ fooled long enough to get his nefarious plans effectuated. Otherwise, a real palace revolt could intervene and upset the Golden Apple Cart.

    2. Jackrabbit

      Revenue increases will come from BS sources like a) a much reduced (but not zero) tax on repatriation of corporate overseas profits; b) better IRS enforcement of laws already on the books; c) closing tax loopholes that have been allowing the wealthy to sidestep a HUGE amount of tax; and d) tinkering with Social Security.

      Essentially, virtually all of the revenue side will likely come from money that the government already had every right to collect (and will even forgive a portion of THAT). I haven’t seen any news about increasing tax rates or creating new taxes.

      Redefining inflation for social security benefits is actually a tax. It will be billed as “saving” SS but it is just a regressive tax.

      It seems likely that the Repugs will not allow any other tax increases (e.g. do the wealthy need a mortgage deduction?). While the revenue side will barely pinch the wealthy, the spending cuts will likely be painful for those that rely on the affected programs.

      This will be trumpeted as a bipartisan agreement that shares the burden. Both sides will express regret that the financial crisis – which no one is responsible for – has forced their hand. Boehner and Obama will be all smiles and recess to their much-deserved luxury vacation spots where they can hobnob with people-that-matter(tm).

      1. ambrit

        Mr Jackrabit;
        So, the optimal solution here is for a ‘cabal’ of genuine, (even if hidden,) “Progressives” to gain control of the House and Senate Committees controlling the IRS. Then they can control which bills are submitted to the full Congress concerning ‘Revenue.’ Turn the ‘Starve the Beast’ strategy ‘on its head.’
        Another possibility is that the apparently imminent ‘financial collapse’ will set the stage for a major restructuring of the Government. Having contingency plans in place would be only prudent.

  21. Thomas Barton, JD

    Ezra Klein is Obama’s Baghdad Bob. Now that’s how you throw a big right hand, Yves. Keep punching and I hope that Dylan Ratigan will put you on the MegaPanel and drop that insipid bald headed lobbyist from Mediocrity Hell.

  22. Sunny129

    I see the mud slinging between the so called Liberals vs Conservatives, red vs blue, Dems vs Repbs and get a big laugh and a yawn every time one blaming the other, not just here but on many blogs!

    The men behind the screen running this ‘circus’ are Corporatocracy/Financial oligarchy controlling both parties ( Repocrats), Congress and the W.H.(irrespective of BOZO of either party) via K-Street where legislation are made and NOT at the Capitol hill! 90% of MSM is controlled by 5-6 mega corporations! There are 800 US bases across 140 countries whose main mission is to control the interests of Multi-Nationals who continue to outsource the jobs and pay as little tax as possible. Through campaign contribution they control the WHOLE democratic process! Elections are joke! GOP controlled Supreme court by 5-4 has declared a Corporation as a citizen!

    So quit the suckers’ game of blaming liberals vs Cons and realize who is REALLY controlling this Country and pulling the strings!

    AMERICA, the Best Democracy Money can Buy!

    1. Rex

      Sunny? That name choice seems a bit ironic.

      Not sure what might have set you off but I think you are preaching to the choir. Most of us who have been hanging around here for a while are well aware of everything you just mentioned. Not many here are still afflicted with simple team affiliations.

  23. Thomas Barton, JD

    Bartlett’s analysis of the Nixonian presidency vs Clinto, Bush and Obama is compelling and interesting but it ignores the vast and rapid growth of the Banksters from 1996 to 2011. This would make a compelling graph to show the relative GDP strength of the big banks under Nixon which grew into the grotesque Collosus under the 3 worst Presidents for the middle class of America, the loathsome troika of Clinton, Bush and Obama. Any analysis of their Presidencys must explicitly and thoroughly address the Financialization of the US and world economy.

  24. Max424

    YS: “So it isn’t clear why Democrats should sign an Obama suicide pact.”

    The way I see it, everybody in Washington is suicidal, and the Beltway crazies have made this into an unadorned race to the gun cabinet, to see who can get to the loaded shotgun first.
    Great post, Yves.

    I do believe: ten miserable years of Bush and Obama have made it necessary to re-examine the legacies of Ike and Nixon.

    Like, how bad were they? In relative terms, in my opinion, not only were they, “not that bad,” but today looking back, they look absolutely terrific.

    Shit man, I never thought I’d say it, but Tricky Dick Nixon — the killer of millions — was in the deep recesses of his cold political heart, a liberal man, and compared to the treasonous personalities that gain the top spot these days, he was true blue patriot.

    Did Nixon commit crimes? Yes. Should the wretched and despised “Machiavellian Madman” been forced to do some maximum security jail time? Yes. But modern day Presidents commit multiple Nixonian-type crimes every day before breakfast, and they go unpunished, and will continue to unpunished — until the end of time.*

    Note: Nixon was dabbling in Modern Monetary Theory toward the end of his reign; talking about a National Bank, full employment, interest free loans for the states, and, get this, national infrastructural projects that didn’t involve highways and interstates! Whaaaat!

    In other words, he was talking crazy shit, and maybe that’s why they got him.

    *Unless they have sex — or something resembling sex — outside the bounds of holy matrimony.

  25. IdahoSpud

    If I recall correctly, the Bush administration wanted to change social security so that “a portion” of it would be invested.

    Now the Obama administration wants to whack benefits in order to provide TARP 2.0 to big money.

    Looks like Wall St. is going to get the SS trust fund one way or the other, since it’s the last remaining solvent portion of the government.

    Why otherwise the laser-like focus of the snakes on the solvent SS rather than on the unfunded Medicare?

  26. 60sradical

    Great piece, as usual, Yves.
    And re: Kraken’s notion of “military-industrial-security complex”: that is precisely the “person” hiding behind the curtain. Americans, in general, love to be lulled pleasantly into zombie dreamland by endless curtains. Hell, Obama plays golf with the House majority leader. Would one be surprised if such creatures were designing TBTF curtains as we speak? Thereby making fat old white guys richer and the rest of us feudal slaves even poorer? Not me.
    I haven’t been on the blog for a while….Was Eric Cantor’s short position on US treasuries covered? I assume so. Y’all keep punchin’!!

  27. b.

    In reference to the section on S&P here …

    A rating agency – one that should be discredited at best, investigated at worst for its performance leading up to 2008 – is attempting to dictate policy choices by changing its ratings for political reasons. The fiction that Obama has been mouth-breathing from his Bully Pulpit – “our nation’s credit card” – is now turned into real leverage through financial market manipulation of interest rates for public borrowing.

    If you are looking for a “coup” where monied elites and their bankster thugs are taking over, this is probably as blatant as it will ever get.

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