Sunday Reads

Posted: November 28, 2010 | Author: | Filed under: Breaking News, Democratic Politics, Diplomacy Nightmares, Elections, Global Financial Crisis, Gulf Oil Spill, morning reads, The Great Recession, The Media SUCKS, U.S. Economy | Tags: , , , , , , , , , , , | 59 Comments
good morning!!!

Here’s an interesting piece in the Christian Science Monitor about an attempt to knock Rahm Emanuel off the ballot for the Chicago Mayoral election.  Emanuel’s eligibility is in question because of his residency in the District as Obama’s Chief of Staff.  Does that duty deserve similar treatment to active duty soldiers?

Chicago area election lawyer Burt Odelson filed his challenge to the Chicago Board of Elections, saying that Emanuel does not meet a state law that requires all candidates to be residents of the municipality in which they seek office for at least one year. He filed on behalf of two Chicago residents; on Wednesday, five other challenges were filed separately. Tuesday is the last day objections can be filed to the election board.

Central to Mr. Odelson’s argument is that Emanuel was removed from voter rolls twice during his two-year tenure in Washington, when he served as White House chief of staff to President Obama. During that time, Emanuel rented out his home. His campaign says he maintained ties to the city by paying property taxes, maintaining a driver’s license, and voting in the February primary.

Economists Olivier Jeanne and Anton Korinek  at VOX are suggesting Pigou taxes  (i.e. sin taxes) on financial corporations that would vary with credit booms and busts.    Rules would change depending on the state of the economy.  Suggestions include requiring higher capital levels or placing some kind of penalty on an organization when they take on large amounts of credit during an asset price boom.  The purpose is to impose the social cost of bailing the organization out on them to prevent from doing so and causing havoc in the financial markets. The idea is that they’d be less able to profit from the leverage so they’d be less likely to  go for the risk.  Suggestions specifically target mortgages with balloons or “teaser rates” since they are more risky and more likely to blow up in the face of market troubles.  The tax would then be used to fund any required bailout.

The optimal tax should also be adapted to the maturity of debt. Long-term debt makes the economy less vulnerable to busts than short-term debt, because lenders cannot immediately recall their loans when the value of collateral assets declines. For example, 30-year mortgages make the economy less prone to busts than mortgages with teaser rates that are meant to be refinanced after a short period of time.

An important benefit of ex-ante prudential taxation during booms is that it avoids the moral hazard problems associated with bailouts. When borrowers expect to receive bailouts in the event of systemic crises, they have additional incentives to take on debt. If the financial regulators accumulate a bailout fund, borrowers may increase their indebtedness in equal measure, leading to a form of “bailout neutrality”

Real Time Economics over at the WSJ has some interesting numbers up on Mortgage defaults.  The ever increasing backlog of defaults is worrisome.

492: The number of days since the average borrower in foreclosure last made a mortgage payment.

Banks can’t foreclose fast enough to keep up with all the people defaulting on their mortgage loans. That’s a problem, because it could make stiffing the bank even more attractive to struggling borrowers.

In recent months, the number of borrowers entering severe delinquency — meaning they missed their third monthly mortgage payment — has been on the decline, falling to about 700,000 in October, according to mortgage-data provider LPS Applied Analytics. But it’s still more than double the number of foreclosure processes started.

I personally enjoyed reading this Michelle Goldberg take-down on the Daily Beast of certain right wing women politicians who are trying to campaign as the ‘real’ feminists while throwing out their rewrites of herstory.  The Right Wing always rewrites history with the worst revisions.  I’m calling what they adhere to feminotexactlyism.  Here’s a few tidbits.

The historical revisionism here recalls that of Christian conservatives who try to paint our deistic Founding Fathers as devout evangelicals. At one point, Palin refers to Elizabeth Cady Stanton’s “Declaration of Sentiments,” which came out of the historic 1848 women’s rights convention at Seneca Falls, New York. Stanton deliberately echoed the language of the Declaration of Independence, referring to the rights that women are entitled to “by the laws of nature and of nature’s God.” To Palin, this mention of God proves that Stanton shared her faith: “Can you imagine a contemporary feminist invoking ‘the laws of nature and of nature’s God?’ These courageous women spoke of our God-given rights because they believed they were given equally, by God, to men and women.”

Not really. Stanton was a famous freethinker, eventually shunned by more conservative elements of the women’s movement for her attacks on religion. In one 1885 speech, she declared, “You may go over the world and you will find that every form of religion which has breathed upon this earth has degraded women.” Ten years later, she published the first volume of The Woman’s Bible, her mammoth dissection of biblical misogyny. Stanton was particularly scathing on the notion of the virgin birth: “Out of this doctrine, and that which is akin to it, have sprung all the monasteries and nunneries of the world, which have disgraced and distorted and demoralized manhood and womanhood for a thousand years.”

For more debunking, including that silly one about Susan B Anthony being some how against abortion, go read the article.  Facts are  such tractable things to Republicans that I wonder why any sane person would quote one without fact checking them first.  I just can’t take any more presidential candidates needing basic re-education; let alone presidents that require it.

Speaking of another one in that category, the national spotlight isn’t doing much good for my governor either.  I’ve got two sources I’ll quote here.  The first one is The American Thinker which you may recall is conservative.  They’ve even got his number.  It seems that just writing books about yourself is not going to be the path to Presidency any more.

Louisiana Governor Bobby Jindal is busy promoting his new tome Leadership and Crisis with book tour stops all over the country. This latest tour comes on top of his previous speaking tours to raise campaign cash for himself and various Republican candidates around the country. The only place Governor Jindal has trouble visiting is his home state of Louisiana. The joke in Louisiana is that Bobby is known as a governor in 49 states.


Louisiana blogger Lamar White, Jr. takes it even farther.  Yup, Jindal’s our ROAD Scholar. We can’t keep professors on university payrolls but we can sure pay for him to promote his self-serving book.

The oil spill was a huge scare, but instead of being honest about it, Jindal used it as an opportunity to advance his own political celebrity and perpetuate ridiculously disconcerting and almost masochistic myths about the effects of a deepwater drilling moratorium, none of which turned out to be true. He spent more time posing for the cameras and tagging along with CNN than practically anyone else, yet, in his “memoir,” it’s the Obama Administration who cared about media perception, not him. As an example, he cites a letter he delivered requesting an increase for federally-subsidized food stamps, suggesting that the Obama Administration delayed on their response. According to White House officials, Jindal’s formal request was delivered on the same day that Jindal called a press conference decrying the delays. Pure political theater.

But most importantly, when Jindal says Congressmen should spend more time at home, he should probably listen to his own advice. During the last couple of years, Jindal’s become more known for the things he has done outside of Louisiana than for anything he has done here in Louisiana. Before the November elections, he spent weeks touring the country to support fellow Republican candidates, and only two weeks after the election, he embarked on yet another nationwide tour, this time promoting his memoir.

I have to admit that this next Republican presidential primary is going to have me chewing my finger nails off.  If this is the best they have to offer, we are SO sunk.

Both the Koreas are upping the stakes in the Yellow Sea.  North Korea is sending veiled threats to the U.S about sending its air carrier–USS George Washington–into the area for joint ‘war games’.  SOS Clinton is in talks with the Chinese.  This is from The Guardian.

The world’s diplomatic corps is working feverishly to contain the crisis and make sure there is no further conflict. China, which is widely seen as having influence over the North, has held talks with the US between its foreign minister, Yang Jiechi, and the secretary of state, Hillary Clinton. “The pressing task now is to put the situation under control,” the Chinese foreign ministry quoted Yang as telling Clinton.

Meanwhile the US stressed that its military operation with the South – which includes deployment of a nuclear-armed aircraft carrier – was not intended to provoke the North. Yet the North’s news agency addressed that issue: “If the US brings its carrier to the West Sea of Korea [Yellow Sea] at last, no one can predict the ensuing consequences.”

The the joint US-South Korea exercises started late last night.  Here’s the report on them from English Al Jazeera.

South Korea’s military later said that explosions – possibly the sound of artillery fire – were heard on Yeonpyeong Island.

South Korea’s Joint Chiefs of Staff said that what is believed to have been a round of artillery was heard on Sunday from a North Korean military base north of the sea border dividing the two Koreas. It was not immediately clear where the round landed.

Residents of the island were ordered to take shelter in underground bunkers, but that order was later withdrawn, according to Yonhap.

Dozens of reporters, along with soldiers and police and a few residents, headed for the bunkers, where they remained for 40 minutes.

I’ve been watching the euro crisis again as the problems with Ireland seem to be creating problems with Spain now.  My print copy of The Economist didn’t come this morning so I’ve been having to read the cyber ink here.  My Saturday night soak in a hot bath was just not the same without it.  So,here’s my idea of a chiller thriller.

Europe’s rescue plan is based on the idea that Ireland and the rest just need to borrow a bit of cash to tide them over while they sort out their difficulties. But investors increasingly worry that such places cannot, in fact, afford to service their debts—each in a slightly different way. In Ireland the problem is dodgy banks and the government’s hasty decision in September 2008 to guarantee all their liabilities. Some investors think this may end up costing even more than the promised EU/IMF loans of some €85 billion ($115 billion)—especially if bank deposits continue to flee the country (see Buttonwood). Ireland’s failing government adds to the doubt, because it could find it hard to push through an austerity budget before a new election (see article). In Greece the fear is that the government cannot raise enough in taxes or grow fast enough to finance its vast borrowing. Likewise in Portugal, which though less severely troubled than Greece nevertheless seems likely to follow Ireland to the bail-out window.

If the panic were confined to these three, the euro zone could cope. But Europe’s bail-out fund is not big enough to handle the country next in line: Spain, the euro’s fourth-biggest economy, with a GDP bigger than Greece, Ireland and Portugal combined.

One has to ask how much the Germans are going to pony up the cross country fiscal policy this will take.   I’m still not ready to call the eminent demise of the EURO since every study that I’ve read–and I’ve read lots over the last three years–points to how much trade and foreign direct investment has come from integration.  This will test a lot of wills; good an otherwise. Meanwhile, the Irish are rebelling over their deal. They don’t want austerity measures any more than the Greeks do or we do for that matter.

The Economist also weighed in on  the “Republican Backlash” to the QE2 calling it perplexing which I believe is equal to me being baffled by the whole thing.  It’s still either they don’t know a damn thing (e.g. Republican presidential wannabe candidate number 1 on the link up top) or they just want the power so they don’t really care (e.g Republican presidential wannabe candidate number 2 on the link up top there).  Has to be.  What is still the weirdest thing to me is how many of them seem to hate Bernanke who is–afterall–a fellow Republican and a Dubya appointee.  What a strange, strange world this has turn out to be.  I mean Ron Paul is going to be in charge of the House subcommittee on Monetary Policy next year.  That’s like putting a representative of Astronauts for a flat earth society in charge of NASA.

Yet the fight is not ultimately over numbers, but ideology. To be sure, the Fed’s reputation has suffered among Americans of all political stripes over its failure to prevent the crisis and its bail-outs of banks. But the tea-party movement holds it in particularly low regard, seeing it as the monetary bedfellow of the hated stimulus and bail-outs. Some 60% of tea-party activists want the Fed abolished or overhauled, according to a Bloomberg poll. One of the movement’s heroes is Ron Paul, a congressman from Texas who wants to scrap the Fed outright and bring back the gold standard. His son Rand, newly elected as a senator from Kentucky, has also been stridently critical. QE can be made to seem sinister: an animated video on YouTube that portrays it as a conspiracy between Goldman Sachs and the Fed to fleece the taxpayer has been viewed over 2m times.

The ideological content of the backlash should not be overestimated. In 1892 William Jennings Bryan, later the Democratic presidential candidate, declared: “The people of Nebraska are for free silver and I am for free silver. I will look up the arguments later.” Liberals accuse the Republican leadership of likewise concocting an excuse to rally their base against Barack Obama. Indeed, the letter to Mr Bernanke criticises QE2 in much the same language used to oppose fiscal stimulus: as a dampener of business confidence and stability.

Well, I’ve just about had it with the print news today.  Do you suppose the Sunday News Programs will have anything on more meaningful?

Ah, probably not.

What’s on your reading and blogging list today?

If the Turkey didn’t put you to sleep …

Posted: November 26, 2010 | Author: | Filed under: The Great Recession, U.S. Economy | Tags: , , , , , , , , | 9 Comments

Economics doesn’t take holidays.  It’s probably why we economists are so grim.  Just in case you need a good nap, here’s some of my pointy head friends with bow ties discussing things economic.  I was going to try to spare you out of holiday cheer, but Mark Thoma reeled me in and now I must share.

I’ve mentioned recently how absolutely baffled I am by the number of “conservative”  (i.e. radical) Republicans who keep buying into economic fallacies that even conservative (i.e. authentically conservative) economists can’t support.  I mentioned Nobel Prize winning and father of the Monetarists Milton Friedman’s huge study on the Great Depression.  His thesis was that very poor Fed policy made the Great Depression.  In 2002, Bernake even agreed and apologized to him for the FED’s errant ways. Friedman was a consummate free marketer and wrote pop books and pop Newsweek columns during his heyday as a conservative icon. I’m sure he would not be suffering these fools were he alive today.

Thoma points to two recent columns by two former Reagan Team economists.  One article is from Martin Feldstein who is probably the closest thing remaining to Milton Friedman in terms of conservative, free market, economic thought.  The other is from Bruce Bartlett who was one of the fathers of Supply Side economics during the Reagan years but has since repented.  He’s really adapted the Friedman statement “We’re all Keynesians now”.  Both economists are intent on stopping this current batch of policy nincompoops from recreating The Great Depression.

The first Thoma thread references Feldstein who writes on the QE2 at Project Syndicate.  Feldstein was Chair of Reagan’s Council of Economic Advisors and was President of the NBER.  You  may recall that NBER dates business cycles for the country.  I want to hit his bottom line first so those of you that are using this for nap material can see that it’s ludicrous to think the QE2 is wild-eyed and out-there policy experimentation.

In short, the Fed’s policy of quantitative easing is likely to accelerate the rise of the renminbi – an outcome that is in China’s interest no less than it is in America’s. But don’t expect US officials to proclaim that goal openly, or Chinese officials to express their gratitude.

China is experiencing inflation.  We are experiencing deflation.  The reason this is good for both countries is that it will offset each of these pressures.  Feldstein explains the goal of the QE2 in terms of US policy first.  I’ll cover that quote.  You’ll need to go read the explanation for the China side of the equation too.

The United States Federal Reserve’s policy of “quantitative easing” is reducing the value of the dollar relative to other currencies that have floating exchange rates. But what does the new Fed policy mean for one of the most important exchange rates of all – that of the renminbi relative to the dollar and to other currencies?

The effect of quantitative easing on exchange rates between the dollar and the floating-rate currencies is a predictable result of the Fed’s plan to increase the supply of dollars. The rise in the volume of dollars is causing the value of each dollar to fall relative to these currencies, whose volume has remained constant or risen more slowly.

The Fed’s goal may be to stimulate domestic activity in the US and to reduce the risk of deflation. But, intended or not, the increased supply of dollars also affects the international value of the dollar. American investors who sell bonds to the Fed will want to diversify the dollars that they receive from it. One form of that diversification is to buy foreign bonds and stocks, driving up the value of those currencies.

The result of this move will be to make our exports more competitive abroad and to make every one else’s exports–including those countries that have pegged their currencies to the dollar in an unfair manner–less competitive. We are simply turning the tables on the beggar-thy-neighbor growth policy China and others have adopted. The Fed is doing this because there is no will on the part of domestic policy makers to stimulate the demand in our country for consumers or government.  There are 4 major parts of GDP.  If fiscal policy doesn’t stimulate Consumption or Government demand, then there remain Investment and Exports.  Investment is the least reliable form of demand and is rather small compared to the rest of the economy.  The Fed is trying to tackle the  aggregate demand shortage as best it can in response to the laws that compel it to act when unemployment is high.

Which brings me to the Bruce Bartlett thread.  Bartlett has a piece today up at The Fiscal Times called ‘Starve the Beast: Just Bull, not Good Economics’.  As some one who is currently suffering from a governor who has selectively adopted the policy as a path to the White House, I personally can tell you that it is very much Bull and causes a lot of undue suffering.  It is ideology chosen over fact, logic, and above all, compassion.  Bartlett goes straight to the heart of Voodoo Economics by using data to show that Dubya  Bush’s embrace of  of tax cuts in his first term as president did nothing to further economic growth and did everything to drive us in to unnecessary deficit spending.

It ought to be obvious from the experience of the George W. Bush administration that cutting taxes has no effect whatsoever even on restraining spending, let alone actually bringing it down. Just to remind people, Bush inherited a budget surplus of 1.3 percent of the gross domestic product from Bill Clinton in fiscal year 2001. The previous year, revenues had been 20.6 percent of GDP, spending had been 18.2 percent, and there had been a budget surplus of 2.4 percent.

When Bush took office in January 2001, we were already well into fiscal year 2001, which began on Oct. 1, 2000. He immediately pushed for a huge tax cut, which Congress enacted. In 2002 and 2003, Bush demanded still more tax cuts, even as the economy showed no signs of having been stimulated by his previous tax cuts. The tax cuts and the slow economy caused revenues to evaporate. By 2004, they were down to 16.1 percent of GDP. The postwar average is about 18.5 percent of GDP.

Spending did not fall in response to the STB decimation of federal revenues; in fact, spending rose from 18.2 percent of GDP in 2001 to 19.6 percent in 2004, and would continue to rise to 20.7 percent of GDP in 2008. Insofar as the Bush administration was a test of STB, the evidence clearly shows not only that the theory doesn’t work at all, but is in fact perverse.

There is nothing better than an addict who has fought their demons and comes out the other side to explain exactly why the demon should die.  Bartlett succinctly explains why the Republicans continue to support the ideology and the drivel despite evidence that everything they believe is quite false.

Nor was Bush’s budgetary profligacy limited to programs that could be justified, however loosely, on national security grounds. As I detailed last week, he and a Republican Congress created a massive new entitlement program, Medicare Part D, to buy the votes of seniors and buy themselves reelection in 2004. Among those voting for this monstrosity were many Republicans still in Congress today who are unjustly considered to be staunch fiscal conservatives, including incoming Speaker of the House John Boehner, House Majority Leader Eric Cantor, and House Budget Committee chairman Paul Ryan.

Because of its obvious ridiculousness, one seldom hears conservatives say openly that tax cuts automatically reduce spending. But it still underpins the entire Republican budget strategy — tax cuts never have to be paid for, no meaningful spending cuts are ever put forward, earmarks and foreign aid are said to be the primary sources of budget deficits, and similar absurdities.

Both of these men have written tractable–albeit, tough–reads on policy decisions that people really need to understand.  I know there is a tendency this time of year to wallow in football games, shopping binges, and short term feel good embrace of childhood memories, but really, there is a lame duck congress in session and an incoming group of Congressional morons with a President in office who wants to play Let’s Make a Deal with them.

If you can awake from tryptophan dreams long enough to read these two articles thoroughly, please do so.  We can’t afford any more Voodoo policy mistakes.

Wednesday Morning Reads

Posted: November 24, 2010 | Author: | Filed under: morning reads | Tags: , , , , , , , | 65 Comments
Good Morning!!!

I thought I’d give you reason to be glad that Bobby Jindal the Terrible isn’t your governor.  He’s tearing around the country trying to start up his presidential wannabe campaign and we’ve just about had it with him.  This is from Baton Rouge’s The Advocate.  He singled out some woman professor as the poster child for unnecessary research in his new book.  He’s been out pimping for the book ala other Republican Governor Presidential Idiot Wannabes that want to be independently wealthy before they take the plunge to New Hampshire.  The poor anthropology professor was doing a longitudinal story on Russian Mail Order Brides and their U.S. husbands.  It turns out the research was funded by a grant and not tax payers too.  That didn’t stop Jindal from tearing into the article in his book or fact-checking his words or reading the article for that matter.

Read the entire Op-Ed piece and be appalled that some one with so many educational opportunities in his life wants to deny so many others that opportunity and force them into oil rig serfdom.  Baton Rouge is not exactly a bastion of liberalism so this piece may be a good sign that he’s wearing out his welcome here.   The article even sneakily mentions the one university that should be shut down and a trio of universities that should be merged because they are all in the middle of nowhere and have fewer students than most high schools. Jindal would never man up and do that. Instead he’s just draining ever useful and viable university by 1/3 of their budget a year. He’s sucking the life out of LSU, the med centers, and the law school.  LSU has consistently rated among the top public universities in the country.  Jindal obviously prefers we all go to community colleges instead.

Stop this man before he can do more damage any where else!!

Gov. Bobby Jindal’s machine of aides, bloggers, talk radio hosts and boutique publishers has turned its focus on college professors and what they do.

They attacked sabbatical study last week as a waste of money that takes teachers out of the classroom. The governor criticized scholarly study as unworthy of taxpayer dollars because such research fails to “create better lives and more job opportunities.”

At the base of this hubbub is Jindal’s apparent desire that higher education’s top officials just shut up and accept deep cuts he has planned for public college and university budgets
It all has the absurdity of season ticket holders dictating that the LSU Tigers no longer hold huddles because the quarterback’s primary job is to throw touchdowns.

If you haven’t ventured into Jindal’s ‘scholarly work’ at the New Oxford Review, please do so!!!   It’s called BEATING A DEMON ; Physical Dimensions of Spiritual Warfare. It’s all about participating in an exorcism.

”The crucifix had a calming effect on Susan, and her sister was soon brave enough to bring a Bible to her face. At first, Susan responded to biblical pas­sages with curses and profanities. Mixed in with her vile attacks were short and desperate pleas for help. In the same breath that she attacked Christ, the Bible’s authenticity, and everyone assembled in prayer, Susan would suddenly urge us to rescue her. It appeared as if we were observing a tremendous battle between the Susan we knew and loved and some strange evil force. But the momentum had shifted and we now sensed that victory was at hand.”

Maybe Jindal the Terrible should consider signing up for the new recruiting effort by the Catholic Church for exorcists and leave those of us that prefer science, rational thought, and education alone.  This is what you get when you vote for people without researching them carefully.

So, just when you think politicians couldn’t get any more elitist and just plain whacked, this brings me to something BostonBoomer, Pilgrim and I have been discussing.  The book is called ‘C Street: The Fundamentalist Threat to American Democracy’ by Jeff Sharlet.  It’s the follow-up to a book called ‘The Family’. Both let you know how many of our country’s most important institutions–like Congress and the military–have been invaded by crazy people.  Bart Stupak, John Ensign, Tom Coburn, and Jim Inhofe are among the resident nutjobs of this frat boyz for jeezus club.  This group of good ol’ boys supports some of the most villainous, heinous murders in the world you could imagine because they believe being rich is a sign that you are chosen by god.  They helped Papa Doc. They helped Suharto.  Here’s a bit from the author about David Coe, one of the C Street Family.

What was the concept? “Men who are picked by God!” Not the many, but the few. Under Coe’s guidance, Family politicians embraced the idea that God prefers the services of a dedicated elite to the devotion of the masses. “I have had a great and thrilling experience reading the condensed version of The Rise and Fall of the Third Reich, ” one of Coe’s lieutenants wrote him after Coe had given him a reading list for “the Work,” as their mission was often called. “Doug, what a lesson in vision and perspective! Nazism started with seven guys around a table in the back of an old German Beer Hall. The world has been shaped so drastically by a few men who really want it such and so. How we need this same kind of stuff as a Hitler or a Lenin.” That is, for Jesus, of course

You don’t get to call it a Godwin when a group does it to itself on its own, do you?

Okay, so those poor little put out TSA staff are now speaking out about all the trauma that they have to endure.  People actually yell at them!!!  Poor babies!!!   This is from the Daily Mail.

‘It is not comfortable to come to work knowing full well that my hands will be feeling another man’s private parts, their butt, their inner thigh,’ one told the BoardingArea blog.

‘Even worse is having to try and feel inside the flab rolls of obese passengers and we seem to get a lot of obese passengers!’

Another said he had a huge problem dealing with a ‘large number of passengers… daily that have a problem understanding what personal hygiene is.’

Well, that’s a thought.  If you’re going to travel, don’t shower for days and that will certainly raise a stink for them!  What, they thought  they were only going to get to feel up super models?  Was that in the recruiting ads some where?  Maybe they should consider quitting or complaining to their boss, John Pistole.

Just a quick heads up. Wikileaks tweeted that Wikileaks said, “Next release is 7x the size of the Iraq War Logs. Intense pressure over it for months,” and asked supporters to continue donating to the cause.  We need to start up an Ellsberg Prize for Truth.

The always outspoken Congressman Barny Frank defended Ben Bernanke and the QE2. Additionally he called Republican detractors to be more in line with China than U.S. interests.

Frank said that in the absence of additional fiscal measures, the Fed’s asset purchases are an appropriate response.

“I wish we had some more fiscal stimulus,” said Frank, a Massachusetts Democrat. “In the absence of that, given unemployment, given the complete absence of inflation, he is doing a very reasonable thing.”

The Fed has been making speeches before congress and exercising monetary policy in concern of both inflation and unemployment since the Humphrey-Hawkins Full Employment Law was passed in 1978.  I wasn’t really aware that there was anything questionable about that goal until Bostonboomer called my attention to this over at the NYT.
It seems that some Republicans want to limit the Fed’s policy scope to inflation fighting only.  This further convinces me that they have no interest in putting Americans back to work.  I’ve pretty much decided that most of the hoopla over QE2 is from financial interests who really don’t want to lend money at reasonable rates any more.  This also brings me in mind of that thought.

The Fed’s being using a modified Taylor rule for some time and has very much taken a stand in keeping with Anna Schwartz and  Milton Friedman’s seminal work on the Great Depression.  That’s the CONSERVATIVE economist Milton Friedman, remember him?  He basically said that the FED botched monetary policy and let deflation ruin the economy. What most conservatives don’t get these days–probably because they never actually both to read anything factual–is that Friedman’s analysis owes a lot to Keynes.

Read this and see if you see any similarities.

FDR was inaugurated on March 4, 1933, and two days later he declared a “bank holiday,” allowing banks legally to refuse withdrawals by depositors; it lasted ten days. With his famous phrase, “The only thing we have to fear is fear itself,” he intended to dissuade depositors from running on their banks, but by then it was far too late. In 1929 there were a total of 25,000 banks in the United States. As the bank holiday ended, only 12,000 banks were operating (though another 3,000 were to reopen eventually). The effect on the money supply was equally dramatic. From 1929 to 1933 it fell by 27 percent—for every $3 in circulation in 1929 (whether in currency or deposits), only $2 was left in 1933. Such a drastic fall in the money supply inevitably led to a massive decrease in aggregate demand. People’s savings were wiped out so their natural response was to save more to compensate, leading to plummeting consumption spending. Naturally, total economic output also fell dramatically: GDP was 29 percent lower in 1933 than in 1929. And the unemployment rate hit its historic high of 25 percent in 1933.

Friedman and Schwartz argued that all this was due to the Fed’s failure to carry out its assigned role as the lender of last resort. Rather than providing liquidity through loans, the Fed just watched as banks dropped like flies, seemingly oblivious to the effect this would have on the money supply. The Fed could have offset the decrease created by bank failures by engaging in bond purchases, but it did not. As Milton and Rose Friedman wrote in Free to Choose:

The [Federal Reserve] System could have provided a far better solution by engaging in large-scale open market purchases of government bonds. That would have provided banks with additional cash to meet the demands of their depositors. That would have ended—or at least sharply reduced—the stream of bank failures and have prevented the public’s attempted conversion of deposits into currency from reducing the quantity of money. Unfortunately, the Fed’s actions were hesitant and small. In the main, it stood idly by and let the crisis take its course—a pattern of behavior that was to be repeated again and again during the next two years.

According to Friedman and Schwartz, this was a complete abdication of the Fed’s core responsibilities—responsibilities it had taken away from the commercial bank clearinghouses that had acted to mitigate panics before 1914—and was the primary cause of the Great Depression.

Okay, what exactly is the QE2 then?  It’s large scale buying of treasury bonds.  Why are they doing it?  Because the Federal Government is not doing it’s job with the fiscal policy end.  We had a stimulus that was way too weak and way too loaded with stuff that doesn’t stimulate very well and now we’ve got these idiots around talking about deficits and inflation.  It’s like their trying to actively sabotage the economy!

Alright, well, I think I’m hitting MABLUE’s limit for being long winded so I’ll stop now. I need to go to the grocery store and see a man about some trade statistics.

What’s on your blogging and reading list today?

Wednesday Reads

Posted: November 17, 2010 | Author: | Filed under: morning reads | Tags: , , , , , , | 59 Comments
Good Morning!!!

So we finally have the triangulation word and President Obama used in the same sentence by liberal groups. Ya think ? This is the Headline from The Hill: ‘Angry left to Obama: Stop caving on agenda’.

Adam Green, co-founder of the Progressive Change Campaign Committee (PCCC) and an outspoken critic of the White House, said liberal anger has less to do with fears of a Clintonian move to the middle by Obama and more with a misreading of the election results by the administration.

The White House “fundamentally” doesn’t get that “the only way to get Republicans to deal in good faith is to fight them, crush them and teach a lesson that if Republicans are on the wrong side of an issue there will be consequences … so it makes sense to negotiate,” Green said.

“Right now, every time Republicans are on the opposite side of an issue from the public, it’s the Democrats who cave and talk about ‘compromise.’ It’s ridiculous.”

While the White House declined to comment for this story, Obama’s remarks since the election indicate that pursuing compromise with Republicans, including on the tax issue, will be one of his top priorities moving forward.

So, they couldn’t make a point without a little dash of CDS thrown in for good measure.  Could they?

Here’s an interesting commentary on the economy by UCLA economist Roger Farmer at the FT. The economist forum there is a notorious hang out for all bow tie and spectacles set.  He’s got an interesting suggestion here.  Rather than buy Treasury bonds for QE2, the Fed should consider buying stocks.

US consumers and business investors reduced spending in 2008 because the value of houses, factories and machines plummeted. The housing bubble burst and the stock market fell at the same time. Currently, investors hold more than a trillion dollars in excess reserves at the Fed because they are afraid of a repeat performance.

QE is widely perceived to be the same thing as increasing the money supply. But it is not. Mr Bernanke has argued that the first round of QE was effective because it increased stock market wealth. That is an argument I have made in previous opinion pieces in the FT and two recent books. When people feel richer, they spend more. That creates jobs.

But the current problem is not that the stock market is undervalued. The Dow is now back at the level it attained immediately before the 2008 crisis. The problem is that investors are fleeing from risk and are demanding safe assets. The Fed is uniquely positioned to provide a safe haven for investors by buying risky securities from the public and replacing them with interest bearing deposits at the Fed.

What kind of risky assets should the Fed buy? Mr Bernanke plans to purchase treasury bonds. The Bernanke plan could prove costly when inflation reappears because the price of treasury bonds will fall when interest rates rise. And when the Fed loses money, its political independence will be compromised. That is why a better plan would be to buy stocks. This policy would provide a more effective exit strategy, since, when inflation reappears, dividends and stock prices will rise and rather than lose money, the Fed will stand to make substantial gains.

Notice that he says that QE2 is not the same as printing money.  It’s not because the FED’s trying to prime the credit/investment channel, not the real sector directly. It can’t do that.  Another interesting thing in the works is the GM IPO.  It seems strange to call GM stock an initial public offering, but post bankruptcy it is what it is.  The New GM is not the Old GM legally, but has it changed all of its old GM ways? The U.S. Treasury Department and the United Auto Workers’ retiree health-care trust  want to sell more of their stock so this IPO looks to be huge.  It would be interesting to see the FED mop up some of these, wouldn’t it?

The IPO, scheduled for tomorrow, will help Chief Executive Officer Dan Akerson return some of the $49.5 billion GM received in a taxpayer bailout last year. The Treasury, which is taking a loss on its portion of the sale, will break even only if the shares climb at least 50 percent, Bloomberg data shows.

“Treasury is confident demand is there for these shares to get soaked up,” said Michael Yoshikami, who oversees $1 billion at YCMNet Advisors in Walnut Creek, California. “It makes a lot of sense for them to do this because we’re already talking about shares going out at a price that is far above what everybody thought would be in demand.”

The IPO would be the second-largest in U.S. history, after Visa Inc.’s $19.7 billion sale in March 2008, and comes 16 months after GM emerged from bankruptcy. The biggest U.S. automaker also increased a preferred stock offering to $4 billion today, $1 billion more than it had planned.

Let’s see what the market does with these things today and see if our dollars were wisely invested in Detroit.

Here’s some interesting Republican infighting between Lisa Murkowski and Jim Demint via Politico. She’s got some fighting words for him.

“I think some of the Republicans in the Congress feel pretty strongly that he and his actions potentially cost us the majority by encouraging candidates that ended up not being electable,” Murkowski told POLITICO outside her Senate office. “And I think Delaware is a pretty good example of that, and I think there’re some folks that feel that DeMint’s actions didn’t necessarily help the Republican majority.”

Murkowski suggested the South Carolina conservative and favorite of the tea party seemed more interested in bolstering his own political standing rather than that of the Republican Party.

“So the real question is, what’s his desire?” she said. “Does he want to help the Republican majority, or is he on his own agenda, his own initiative?”

Asked what she believed the answer was, Murkowksi said: “I think he’s out for his own initiative.”

Fight on little wingnuts, fight on!!  It can only help the things we care about.  Now if only Obama would just take advantage of the infighting and not cave in to their demands before they have shown they are able to deliver anything but sloppy nasty verbiage.

The Plum line at WAPO is going over Richard Wolffe’s book Revival and reporting on all the juicy bits including this on Rahmbo. Rahm didn’t want any thing to do with bi-partanship and he warned that Health Care Reform would be Waterloo. This is an excerpt from the book quoted by Greg Sargent.

From page 102:

Unlike his boss, Emanuel wasn’t interested in looking reasonable with Republicans; he wanted to look victorious. He didn’t care much for uniting red and blue America; he wanted blue America to beat its red rival…

Obama was prepared to sacrifice time and political capital to make his policy bipartisan and more ambitious; Emanuel believed Obama did not have that luxury. “Time is your commodity. That answers everything,” Emanuel said. “But a lot of us thought we didn’t have the amount of time that was being dedicated. If you abandon the bipartisan talks you get blamed. He still wanted to try to achieve it that way. But that’s one of a series of things you can look back on and be a genius about.

“My job as chief of staff is to give him 180-degree advice. He hired me, as he asked, to learn from the past, or to use my knowledge from my time in Congress and in the Clinton administration. Watching ’94, watching ’97 when we did kids’ health care, and then studying Medicare, what were the lessons? The lesson about time as a commodity is not mine, it’s Lyndon Johnson’s. You got X amount of time; you gotta use it.”

There’s more in an another thread on an exchange between Grassley and Obama on removing the public option from the bill.  I guess I may have to buy this book.  I know Bostonboomer’s been looking for it to add to her Kindle.

Wolffe reports that Obama got into a testy exchange with Senator Chuck Grassley, in which the President flatly asked Grassley if he could support health reform if the public option were dropped and he got everything he wanted. Grassley, in effect, said: Nope. And he told a top Obama adviser the same.

The key is that this exchange occurred early on in the process, and the quest for bipartisan support for health reform continued anyway. The tale begins on page 70, when top Obama adviser Nancy DeParle met with Grassley to ask for his support amid the health care wars in the summer of 2009:

Just before [Grassley] returned to Iowa, he met with DeParle for another strategy session.

“If we do everything and resolve all the policy issues the way you want, with no public plan, do you think you’ll be able to support the bill?”

Grassley looked away. “I don’t know.”

Grassley went to the Oval Office for a similar conversation with the president and his fellow Republican and Democratic negotiators. He asked Obama to say publicly that he would sign a bill without a public option of a government-run plan. Grassley believed this would be a reasonable, minimal demonstration of Obama’s desire for a bipartisan deal. But the president declined to confront his own party base so explicitly. Obama asked Grassley the same question DeParle had posed: With every concession he wanted, could he support the bill?

“Probably not.”

“Why not?” asked an exasperated Obama.

“Because I’d have to have a number of Republicans,” said Grassley. “I’m not going to be the third of three Republicans. I’ve defined a bipartisan bill as broad-based support.”

Cheney and Dubya think the tide is turning in their favor.  This is from CBS and it’s about the ground breaking for the Dubya Library in Dallas.  I still wonder what’s going in there and now I’m going to wonder if it wasn’t all lifted from other places.  I can’t believe we’ll all have memories that are that short no matter how much they want Jeb as their next president.

Cheney said that Mr. Bush, whose approval rating upon leaving office was just 22 percent, always understood that “judgments are a little more measured” with the passage of time. He added that Americans “can tell a decent, goodhearted stand up guy when they see him.”

Cheney lauded Mr. Bush as a president who refused “to put on airs,” stating that he was thrilled to find that the most powerful person he knew was “among the least pretentious.” He said Mr. Bush was someone who could “walk with kings, yet keep the common touch,” added that “there were no affectations about him at all – he treats everyone as an equal.”

He spoke admiringly of Mr. Bush’s actions in the wake of the Sept. 11th attacks, telling the former president that “because you were determined to throw back the enemy, we did not suffer another 9/11 or something even worse.”

Okay, now I feel like we should donate copies of “The Pet Goat” when the thing opens just as a reminder.

So, I’m a Nielson family this week and I haven’t turned on the TV once.   Some big contributor to pop culture I’ve turned out to be.  Actually, I think there’s some pretty good reasons that I avoid the thing.  I’m linking you to one PSA that I’d rather not see.  It’s a train wreck.  I’m not going to  put the Youtube up here because I have bodhisattva vows that include being compassionate to sentient being.  It’s Bristol Palin and The Situation discussing abstinence and safe sex. Neither can act.  Neither are  attractive in my book.  Warning.  You will need eyeball bleach and ear wash if you go over there. There’s gratuitous use of the word situation and icky nick names.  Please put all sharp items in a safe place before venturing over there.  Do not have any liquid in your mouth.

What’s on your reading and blogging list today?