Category Archives: Economic fundamentals

Summer Rerun – The Empire Continues to Strike Back: Team Obama Propaganda Campaign Reaches Fever Pitch

Readers new to this site may be unfamiliar with our summer reruns, in which we reprise vintage NC posts that we think have stood the test of time pretty well.

We’ve done these more or less in chronological order (our last one was our post on the unveiling of the TARP), but we decided to skip ahead to one in 2010 because it focuses on a crucial bit of history that is too often overlooked, and were were reminded of it by a very good Frank Rich piece in New York Magazine on Obama’s failure to bring bankers to account.

Even Rich’s solid piece treats Obama more kindly that he should be. He depicts the President as too easily won over by “the best and the brightest) in the guise of folks like Robert Rubin and his protege Timothy Geithner.

We think this characterization is far too charitable. Obama had a window in time in which he could have acted, decisively, to rein the financial services in, and he and his aides chose to let it pass and throw their lot in with the banksters. That fatal decision has severely constrained their freedom of action, as we explain below.

The U-Shaped Jobs Recovery

Cross-posted from Credit Writedowns Since the recession in 1990-91, the recovery of employment in the US has had a U-shape that is nothing like the previous post-World War II employment recoveries. This one will be the worst. Source: The Changing Shape of Unemployment

Andrew Sheng Says Sustainability Means Caging Godzillas

Andrew Sheng, Chief Adviser to the China Banking Regulatory Commission, is wonderfully straightforward and realistic for an economist. He is willing to say, as he does in this video, things that are obvious yet somehow unacceptable to ‘fess up to in policy circles, like the planet simply cannot support 3 billion people in Asia living European lifestyles. He warns of the danger of creating the mother of all crises if governments cannot stem the tide of leveraged capital flows, and also discusses the role of China on the global stage.

On Eurozone budgetary constraints

Cross-posted from Credit Writedowns “Slovenia becomes the new problem child of the EU”. This is the headline today in Handelsblatt, a leading German financial newspaper. Below is a translation of that article and a few comments: Slovenia was long regarded as a model country. But now it is becoming a new problem case for the […]

Philip Pilkington: Economic Fetishism – Three Objects of Perverse Intellectual Pleasure

By Philip Pilkington, a journalist and writer based in Dublin, Ireland

Watch out, I have a large, very large fur, with which I could cover you up entirely, and I have a mind to catch you in it as in a net.
– Leopold von Sacher-Masoch

Many aspects of contemporary economic theory certainly seem to have their origins in the mythic and the moral rather than in the realm of the rational. But while this seems to be an accurate description of the system as a whole, it does not seem quite able to account for certain aspects of this system which appear to be rather obsessive in the minds of its adherents.

These obsessions, or ‘fetishes’, can be explained in like terms, that is: compared to certain primitive rituals and superstitions. To do so we will first have to form a better understanding of the fetish itself; an Enlightenment concept that has a long and interesting history.

The specific fetishes we will explore will be the most important today: the government, inflation and gold. All these phenomena are interconnected in neoclassical economic theory (yes, even gold, or at least the ghost thereof), however, they tend to lead their own individual existence outside of the Grand Neoclassical System itself. In and of themselves they are, for economists and economic commentators, fetishes that can be worshipped in dark rooms away from the great hall. They are like fragments of the main theory that adherents smuggle out of the temple and obsess over in their own private shrines.

DeLong Illustrates Why We Should Be Scared of Economists

Several readers sent me links to a Brad DeLong post which they took to be a rebuttal to a takedown I did of a recent Ezra Klein piece.

Since DeLong did not link to or mention my post, I doubt his piece had anything to do with mine. But his post is noteworthy for a completely different reason: it illustrates how economists have refused to learn much, if anything, from the crisis.

Tom Adams: How Treasury’s “Kick the Can” Strategy Exacerbates Mortgage Market Woes (Mortgage Insurer Edition)

By Tom Adams, an attorney and former monoline executive

Barron’s published a detailed take down of the mortgage insurance industry weekend that highlights how Treasury’s approach to the mortgage mess will ultimately make matters worse. As the article points out, in the fairly likely scenario that mortgage claims exceed the amount of capital the insurers have available to pay them, the parties taking the biggest hit will be Fannie Mae and Freddie Mac. That means taxpayers are probably on the hook for more bailouts.

Despite having questionable capital reserves for the future claims they face, mortgage insurers are still continuing to write significant insurance business. Why would anybody want to continue to buy insurance from such shaky companies?

The continuing business of the mortgage insurers help shed light on the fact that virtually the entire mortgage industry is run through zombie companies that ought to have expired years ago.

Alex Andreou: Democracy vs Mythology – The Battle in Syntagma Square

By Alex Andreou, a successful lawyer turned actor living in London. Cross posted from SturdyBlog

I have never been more desperate to explain and more hopeful for your understanding of any single fact than this: The protests in Greece concern all of you directly.

What is going on in Athens at the moment is resistance against an invasion; an invasion as brutal as that against Poland in 1939. The invading army wears suits instead of uniforms and holds laptops instead of guns, but make no mistake – the attack on our sovereignty is as violent and thorough. Private wealth interests are dictating policy to a sovereign nation, which is expressly and directly against its national interest. Ignore it at your peril. Say to yourselves, if you wish, that perhaps it will stop there. That perhaps the bailiffs will not go after the Portugal and Ireland next. And then Spain and the UK. But it is already beginning to happen. This is why you cannot afford to ignore these events.

Eurozone Brinksmanship: Ministers Walk Back Greek Rollover Commitment, Demand Austerity Measures First

One of the interesting features of the seemingly unending Eurozone crisis is that the half life of rescue measures is decreasing.

The elephant in the room, which we will put aside to focus on the current state of play, is that everyone knows the Greek debts must be restructured. To have Greece pay out punitive rates on past debt will simply grind the economy into a deeper hole, worsening its debt to GDP ratio and eroding its physical and human infrastructure. All the delay of the inevitable does is allow for more extend and pretend while Western financial firms strip the economy for fun and profit. And this is terribly inefficient looting; their profits from this pilferage will be small relative to the pain inflicted on the Greek populace.

Late last week, various commentators made a bit too much of the clearing of one obstacle to the extension of yet another short lifeline to Greece, namely, that Angel Merkel had relaxed one of conditions that stood in the way of a planned €12 billion credit extension. She had wanted private creditors to share in the pain, and agreed that a rollover of currently maturing debt would do. Before she had insisted on a full bond exchange, which would have resulted in a much more significant hit to investors.

This concession did not go over well in Germany.

Stephen Roach: America is a Zombie Nation just like Japan

Cross-posted from Credit Writedowns Stephen Roach has written an Op-Ed in today’s Financial Times that is worth reading. He outlines his version of Richard Koo’s Balance Sheet Recession theorem, opining that “the global economy is being hobbled by a new generation of zombies – the economic walking dead.” His main points are: American consumers are […]

Martin Wolf: Why China Could Fail Like Japan

The Financial Times’ economics editor Martin Wolf takes up the theme treated at some length by China-based economist MIchael Pettis: that Chinas’ economy has moved into unknown and dangerous terrain. No sizeable economy has had investment and exports combined constitute nearly 50% of GDP, and that model is not sustainable. As we have indicted, there is evidence that investment is becoming less and less productive. China is taking $7 of debt to generate $1 of GDP, when the US at the tail end of the bubble needed a mere $4 to $5 of debt for each incremental $1 of growth.

We’ve often recapped Pettis here and are glad to see Wolf take up his analysis.

Wolf does recite the optimist case on China, with the biggest factor being that China has a long way to go in improving the incomes of its citizens, and that alone can give it a very long lasting growth trajectory.

On the risks, Wolf sets aside commodities scarcity and environmental issues to focus solely on the economics case.

Inept Obama “Anybody but Warren” Stance Reveals Fundamental Bank v. Middle Class Fault Line

It is obvious that Elizabeth Warren should head the Consumer Financial Protection Bureau. No less than our favorite NC nemesis, the staunch Administration defender Economics of Contempt, has said she is “tailor made” for the job. In the face of increasingly vocal bank opposition to the notion of an effective bank watchdog for consumers, she’s done better than anyone anticipated. And despite the Republican bluster about using a pro forma session to keep the Senate in business to block a recess appointment, the Democrats could break that maneuver if they wanted to.

So why does Team Obama try to hide its choice not to appoint her behind silly “compromises” like its trial balloon of serving up the CFPB’s number two, Raj Date, as a candidate to lead the agency? The Republicans have already said they will approve no one unless they can cut off CFPB’s air supply by controlling its budget. You can’t negotiate with someone who won’t negotiate. Your options are to defy them or capitulate.

So this “compromise” is an inept sleigh of hand to shift responsibility for the Adminsitration’s refusal to appoint Warren on the Republicans.

The failure of the Team Obama to move beyond this impasse is revealing. It isn’t merely, as we have repeatedly mentioned, a sign that the Administration is in bed with the banksters. That’s a given. We predicted that Warren would not get the job.

But what is astonishing is how she has managed to out maneuver them and how Team Obama has failed for months to come up with responses. It isn’t as if this crowd feels any compunction to hide the contempt it has for the idea of keeping prior promises; just look for some of many examples, at this video Lifting the Veil, from 7:00 to 13:00, or at Glenn Greenwald’s discussion of how in mere weeks what was promised to be a mere fly over exercise in Libya is now turning into another nation-building exercise.

The Warren fiasco reveals deeper layers of the Administration’s character defects: its indifference to the plight of the middle class and its tactical incompetence

Michael Hudson: The Financial Road to Serfdom – How Bankers are Using the Debt Crisis to Roll Back the Progressive Era

By Michael Hudson, a research professor of Economics at University of Missouri, Kansas City and a research associate at the Levy Economics Institute of Bard College. Cross posted from CounterPunch.

Financial strategists do not intend to let today’s debt crisis go to waste. Foreclosure time has arrived. That means revolution – or more accurately, a counter-revolution to roll back the 20th century’s gains made by social democracy: pensions and social security, public health care and other infrastructure providing essential services at subsidized prices or for free. The basic model follows the former Soviet Union’s post-1991 neoliberal reforms: privatization of public enterprises, a high flat tax on labor but only nominal taxes on real estate and finance, and deregulation of the economy’s prices, working conditions and credit terms.