It seems that the efforts of the austerians to cow the public into cutting Social Security and Medicare are not getting traction. And Tea Party adherents are breaking with the Republican party line on this issue.
From the Wall Street Journal:
Read more...They must put something in the water at the Fed, certainly the Board of Governors and the New York Fed. Everyone there, or at least pretty much everyone who gets presented to the media, seems to have an advanced form of mental illness, namely, an pronounced inability to admit error. While many in public life suffer from this particular affliction, it appears pervasive at the Fed. Examples abound including an overt ones like an article attempting to bolster the party line that no one, and hence certainly not the central bank, could have seen the housing bubble coming, or subtler ones, like a long paper on the shadow banking system that I did not bother to shred because doing it right would have tried reader patience Among other things, it endeavored to present the shadow banking system as virtuous (a necessary position since the Fed bailed it out) because it was all tied to securtization and hence credit intermediation. That framing conveniently omits the role of credit default swaps and how they multiplied the worst credit risks well beyond real economy exposure levels and concentrated them in highly geared financial firms.
Another example of the “it is never the Fed’s fault” disease reared its ugly head in the context of the G20 meetings.
Read more...Even if you don’t get all the political and business references, I suspect you’ll appreciate this video. Hat tip readers hum and Hubert:
Read more...In another manifestation of Obama’s continuing move to the right, his latest stunt has been to out-Republican the Republicans as a defender of the Pentagon. The GOP, which is out to cut $100 billion more from Obama’s version, has targeted the Department of Defense for $15 billion from an initial request of over $500 billion. From a statement released by the Administration:
The bill proposes cuts that would sharply undermine core government functions and investments key to economic growth and job creation and would reduce funding for the Department of Defense to a level that would leave the department without the resources and flexibility needed to meet vital military requirements….If the president is presented with a bill that undermines critical priorities or national security through funding levels or restrictions, contains earmarks or curtails the drivers of long-term economic growth and job creation while continuing to burden future generations with deficits, the president will veto the bill.
Contrast this stand-fast position on the military budget with Obama’s willingness to throw pretty much anyone else under the bus. John Walker provided a pithy illustration of the guns v. everything else tradeoff in a mock letter to low income Americans. Key section:
Read more...By James K. Galbraith, a Vice President of Americans for Democratic Action who teaches at the University of Texas at Austin. Cross posted from New Deal 2.0.
Economist James K. Galbraith goes behind the scenes at a Pete Peterson gathering of deficit hawks to see what they have to say.
The Fiscal Solutions Tour is the latest Peter G. Peterson Foundation effort to rouse the public against deficits and the national debt — and in particular (though they manage to avoid saying so) to win support for measures that would impose drastic cuts on Social Security and Medicare. It features Robert Bixby of the Concord Coalition, former Comptroller General David Walker and the veteran economist Alice Rivlin, whose recent distinctions include serving on the Bowles-Simpson commission. They came to Austin on February 9 and (partly because Rivlin is an old friend) I went.
Mr. Bixby began by describing the public debt as “the defining issue of our time.” It is, he said, a question of “how big a debt we can have and what can we afford?” He did not explain why this is so. He did not, for instance, attempt to compare the debt to the financial crisis, to joblessness or foreclosures, nor to energy or climate change. Oddly none of those issues were actually mentioned by anyone, all evening long.
Read more...A solid paper by Cristobal Young and Charles Varner, “Millionaire Migration and State Taxation of Top Incomes” (hat tip Matt) helps debunk the idea that high income individuals will pull up stakes if their taxes go up. The case study is an interesting one: New Jersey’s tax increases on top earners. New Jersey made the biggest increase of all US states, and also has the distinction of having a low income tax state (Connecticut) nearby, meaning that tax-sensitive residents had an option of moving not all that far to escape the increase, which presumably would allow them to maintain family ties.
The study results might be labeled “Millionaires are People Too.”
Read more...It’s not a pretty spectacle when a very rich man tells little people they ought to get by with less, particularly when his firm benefitted handsomely from the pump and dump operation that led to the financial crisis.
Pete Peterson, one of the two founders of the Blackstone Group, has had a longstanding campaign against Social Security and Medicare. He’s sufficiently aggressive that to combat consistent poll ratings that show that both programs enjoy substantial support, his foundation set out to generate different survey results by stacking the deck heavily in its favor. As we recounted last July:
Read more...For those who did not catch wind of it, the Peterson Foundation, which has long had Social Security and Medicare in its crosshairs, held a bizarre set of 19 faux town hall meetings over the previous weekend to scare participants into compliance and then collect the resulting distorted survey data, presumably to use in a wider PR campaign.
Portfolio strategist, hedge fund manager, and sometime Naked Capitalism guest blogger Marshall Auerback spoke on BNN about the implications of unrest in the Middle East for the economy and investors. Enjoy!
Read more...One of the striking features of China’s continuing growth as an economic power is its extreme (as in unprecedented in the modern era) dependence on exports and investments as drivers of growth. Even more troubling is that as expansion continues, consumption keeps falling as a percentage of GDP.
As countries become more affluent, consumption tends to rise in relationship to GDP. And the ample evidence of colossally unproductive infrastructure projects in China (grossly underoccupied malls, office and residential buildings, even cities) raises further doubts about the sustainability of the Chinese economic model.
The post crisis loan growth in China, in tandem with visible signs that a meaningful proportion of it has little future economic value, has stoked worries that Chinese banks will soon be struggling with non-performing loans. China bulls scoff at this view, contending that China’s 2002-2004 episode of non-performing loans was cleaned up with little fuss (I never bought that story and recall how Ernst and Young was basically bullied by the Chinese government into withdrawing a 2006 report that NPLs at Chinese banks were a stunning 46% of total assets of its four largest banks. Note estimates of the NPLs as a percent of total loans from that crisis vary widely, even excluding Ernst, from 20% to 40%).
The latest post by Michael Pettis links the two phenomena, the fall in Chinese consumption and the cleanup of its last banking crisis. If his analysis is correct, this bodes ill for any correction in global imbalances.
Read more...Last week, I caught some very good commentary by a number of well-known financial industry experts. I wanted to share my own thoughts with you on their commentary, especially in light of my posts at Credit Writedowns on Eisenhower’s Farewell Address and The New Monetary Consensus. I had featured two of the commentaries at CW, from Roach and Faber. I will add a bit from Gross and Grantham and try to unify them into a single theme regarding corporatism and the sustainability of this upturn.
Read more...By Marshall Auerback, a portfolio strategist and hedge fund manager; first posted at New Deal 2.0
Focusing on currency isn’t going to cut it for America’s workers.
You have to have a sense of irony to watch the latest maneuvers on trade with China. Obama continues to turn his administration into “Clinton Mark III”. (Enter Gene Sperling and Jacob Lew, following the revolving door departures of Peter Orszag and Larry Summers). The president continues to turn to many of the very folks who paved the way for China’s eclipse of the US economy. Granting China normal trade status under the World Trade Organization, as President Clinton did during his presidency, facilitated the expansion of China’s external sector, which coincided with a big step-up in the ratio of fixed capital formation to GDP. The WTO entry is how China managed to increase its growth rate from 2002 to 2007, using an undervalued currency to cannibalize the tradeables sector of its main Asian competitors and increasingly hollowing out US manufacturing in the process. At this stage, however, despite the ongoing requests by Treasury Secretary Geithner that “China needs to do more” on its currency, a simple revaluation of the yuan won’t cut it.
Read more...By Satyajit Das, the author of “Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives”
Communicable Diseases
European politicians and central bankers have provided useful geographical clarifications. Prior to succumbing to the inevitable, the Ireland told everyone that they were not Greece. Portugal is now telling everyone that it is not Greece or Ireland. Spain insists that it is not Greece, Ireland or Portugal. Italy says it is not in the “PIGS”. Belgium insists it was no “B” in “PIGS” or “PIIGS”.
EU pressure on Ireland to accept external “help” was to safeguard financial stability in the Euro area, as much as rescue Ireland. However, contagion is proving difficult to prevent.
Read more...By Marshall Auerback, a portfolio strategist and hedge fund manager; cross posted from New Deal 2.0
What’s coming in 2011? We asked thought leaders to share their perspectives on the biggest challenges for the year ahead, along with the changes they’d like to see and the hopes they cherish. Marshall Auerback explains how misguided attempts to reduce the deficit kill jobs, squeeze the working and middle classes, and inflate crude oil prices. And a corrupt political system doesn’t help.
The beginning of the year always seems a good time to lay out some broader themes which could develop throughout the year, good and bad, so here goes:
Read more...Yves here. The alternative title for this post could be “No ‘whocouldanode’ excuses for the Eurozone crisis.”
By Geoffrey R D Underhill, Professor of International Governance, University of Amsterdam. Cross posted from VoxEU
Many policymakers have reacted to both the financial crisis and the recent Eurozone sovereign debt problems as though they were unexpected. This column argues that we knew more than enough to anticipate both problems, that the evidence was easily accessible, and that the institutional and political weaknesses of the Eurozone were hardly a mystery either.
Read more...Dylan Ratigan is leading town hall events in various cities to help spur the establishment of a job creation movement. The goal is to push for policies that foster higher employment than the ones we’ve seen over the last thirty years, which instead promoted financialization, the use of consumer debt to paper over lack of wage growth, asset inflation and speculation, and increasing income and wealth disparity.
Ratigan wants to create a dialogue among key political groups, including ordinary citizens, investors, small business operators, and corporate leaders. His sessions will focus on four issues, as he outlined in in the Huffington Post:
Read more...