Tag: Panic of 2008

Summers: Economic Inequality a Problem, but not the Fed Chair’s Responsibility

Well, OK, I’m summarizing. I was startled to read at Agent Orange that Summers was a progressive thinker because Summers recognizes the massive increase in economic inequality that has taken place over the past three or four decades:

It would be, however, a serious mistake to suppose that our only problems are cyclical or amenable to macroeconomic solutions. Just as evolution from an agricultural to an industrial economy had far reaching implications for society, so too will the evolution from an industrial to a knowledge economy. Witness structural trends that predate the Great Recession and will be with us long after recovery is achieved: The most important of these is the strong shift in the market reward for a small minority of persons, relative to the rewards available to everyone else. In the United States, according to a recent CBO study, the incomes of the top 1 percent of the population have, after adjusting for inflation, risen by 275 percent from 1979 to 2007. At the same time, incomes for the middle class (in the study, the middle 60 percent of the income scale) grew by only 40 percent. Even this dismal figure overstates the fortunes of typical Americans; the number unable to find work or who have abandoned the job search has risen. In 1965, only 1 in 20 men between ages 25 and 54 was not working. By the end of this decade it will likely be 1 in 6-even if a full cyclical recovery is achieved.


There is no issue that will be more important to the politics of the industrialized world over the next generation than its response to a market system that distributes rewards increasingly inequitably and generates growing disaffection in the middle class. …

LQD: The AA+ rating is valid, but the S&P case is intellectually dishonest ~ Mosler

Burning the Midnight Oil for a Brawny Recovery

“LQD” is an abbreviation I first encountered at EuroTrib: it means “Lazy Quote Diary”.

The quote from Warren Mosler:

Credit ratings are based on ability to pay and willingness to pay.

David Beers of S&P knows this and has discussed this in the past.

So why then did David T. Beers decide to downgrade the US on ability to pay, and not explicitly on willingness to pay?

Sure looks like a case of intellectual dishonesty.

And I have no idea why.

So much for his legacy.

Well, its a very short post, so fair use restricts it to an even shorter quote.

But this is the gist of it: no issuer of its own currency is ever forced to default on debt issued in its own currency.

Think about it: if your family’s IOU’s were accepted by the bank to repay debts … could you ever run short of the means to pay your debts?

What would an honest downgrade have said? Below the fold.

Republicans run public deficits because that increases private wealth.

Burning the Midnight Oil for Progressive Populism

Suppose that you were a political party devoted to the interests of the top 1% wealthiest in the country. And suppose that either you or your puppeteers knew that public debt is private wealth. And suppose that it was politically convenient to attack programs that provide no benefit to the top 1% as generating public debt. What would you do?

(1) Pretend that you are opposed to generating public debt whenever there is a risk that government money will get spent on the 99ers ~ that is, the bottom 99%, though the 99ers in terms of running out of unemployment benefits are obviously one part of the broader 99ers.

(2) Take actions to run deficits whenever you have the opportunity to set fiscal policy.

(3) Take action to get the 99ers into debt to your paymasters, so get all of the private wealth created into your paymaster’s hands.

(4) Collect your 5% tip from your paymasters, and live high off the hog.

Oh, for Criminy’s Sake, Vote

I’m not going to tell you who to vote for. Its a fraught political calculus, whether to vote for a wing of an establishment that is committed to the slow destruction of the US national economy and the slow onset of catastrophic climate chaos simply because the other wing of the establishment is committed to the rapid destruction of the US national economy and the rapid onset of catastrophic climate chaos.

But for Criminy Sake Vote. Not voting is not protest, because the power that be want you to not vote. Not voting is, indeed, compliance with our corporate feudal overlords, or corporate feudal overlords in waiting if I am in an optimistic mood.

Not voting is compliance. Not voting makes you a full fledged member of the Suck-Up Society which our corporate feudal overlords (possibly in waiting) is eager to expand and perpetuate.

I am just an economist of small political brain, so I am not going to tell you whether to vote Democratic or Communist Party or Green Party or Progressive Party or WAS(fr)P {White Anglo Saxon (former republican) Party, eg, Chaffee & Crist} or whatever fringe or protest party you can find. If you’ve got a Clown Party to vote for, vote for them.

But freaking vote. You can vote against the Replicants, You can vote against the Democ-Rats. You can vote against the Constitution Party if you care too. Whatever.

Just vote. Install you and your finicky, dogged, whimsical, bitter, jovial, and/or whatever else or whatever mix of the above that you care to name self into the equation.

Rescuing the Constitutional Framework from the Senate

Rachel Maddow tells us that “filibuster” is a boring word, even if it originally meant private adventurers going off risking life and limb trying to make themselves President of some Central American country.

So I will use the other common English language phrase for it, “Talking a Bill to Death”.

The ability to Talk a Bill to Death was introduced by mistake when Aaron Burr in 1806 argued for removal of the motion to “move the previous question”. This is a motion that can be used to postpone debate, when a measure does not yet have a majority, and can of course also be used to bring a measure to a vote, if it has a majority. Aaron Burr appealed to the fact that it had only passed once in the previous four years – but then again, the Senate did not at that time have a filibuster tradition.

So, restoration of the original rule is one fix to the filibuster problem. However, that is not what I am focusing on today. Rather, I am focusing on the Unconstitutionality of filibustering one type of bill, which was the real flaw in Aaron Burr’s Blunder.

Waddya know … some people saw the meltdown coming. UPDATED

(h/t ChrisCook)

Click for full size table image

So that we won’t need a Memorial Day for the US economy

… or perhaps that should be, so we no longer need a memorial day for the US economy.

In It need not be a calamity, I wrote:

But … well, we know this. We have known since the 1970’s that we would become increasingly dependent under the Old Energy Economy. We have known since the 1970’s that our four centuries of energy self-sufficiency since European Settlement of the eastern seaboard of North America would be coming to an end unless we made substantial changes.

And then our ruling elites collectively decided to pretend that social division of national product is a more fundamental question than the ability to continue producing it, and we descended into the last thirty years of the wealthy focusing in grabbing a bigger share of the pie, while assuming that the baking of the pie would magically take care of itself.

Crossposted from Burning the Midnight Oil for a Brawny Recovery and The Economic Populist

It Need Not Be a Calamity

Betwixt and Between, I find myself. I observe the validity of D00m.P0rn shrill warnings about the future … when seen as possible outcomes rather than when seen as certainties. Yet I also see the potential for better outcomes.

And with respect to the strategy of sitting on the sidelines, weighing the likelihood of one versus the other … I’m against it. Simply the decision to sit on the sidelines makes the calamity more likely as a result. So I am for getting into the fray and trying to make the calamity less likely and the hopeful outcome more likely.

The Calamity Cavalcade

As far as potential calamities, we do not have to look far for those.

We are on track to have a higher concentration of CO2 in the atmosphere than at any other time in the Holocene. We are engaged in this experiments with absolutely no serious evidence to suggest that it is known to be safe. Indeed, those benefiting in the short term from the reckless experiment will even try to reverse the sane burden of proof and place it on those who do not approve of undertaking the reckless experiment.

The argument being, in essence, that if you are driving through a thick fog, then as long as you don’t see any cars coming, its OK to speed.

And of course, before the peril of climate chaos came to our attention, there was already the risk of ecosystem collapse hanging over our head, as more and more populations on the planet rely on an industrial technology that is quite clearly ecologically unsustainable and therefore certain to collapse sooner or later, unless we restructure our technological base to approach sustainability faster than we approach ecosystem collapse.

And then of course, even before the risk of ecosystem collapse was widely understood, the threat of nuclear holocaust.

Flood, Nuclear fire followed by Nuclear Winter, Famine and Plague … and all three involved in or certainly leading to War … surely rather than Four Horsemen of the Apocalypse, there is a whole Cavalry Unit.

Against that backdrop, it may seem provincial to worry about a mere collapse of a single national economy from first world to banana republic status, but that is the specific calamity that I am focusing on here.

The Bad News and the Worse News on Unemployment.

The April employment numbers are out. The Broad Based (U6) unemployment figures … the best measure of the “total people available to take on more work” … give, on the one hand, bad news, and on the other hand, worse news. This is, of course, treated as “good news”, because the expectation was that it would be on the one hand worse news and on the other hand catastrophic news.





2008 9.0% 8.9% 9.1% 9.2% 9.7% 9.9% 10.3% 10.9% 11.2% 12.0% 12.6% 13.5%
2009 13.9% 14.8% 15.6% 15.8%

This is not the “headline” rate, or U3, which takes everyone working any hours at all as “employed”, even if they want more work, and anyone who has not actively sought work in the last four weeks is dropped out altogether.

Instead, its the “broad” or “U6” rate, where those who express an interest in working who have looked for work in the past year are included, as well as those who are “involuntary part-time” employees. So the U6 series is the best measure of the “total people available to take on more work”.

Also note that BLS unemployment statistics are not determined by the numbers of people drawing unemployment … it includes a broad range of data sources, including an ongoing telephone survey.

In terms of changes in the “U6” unemployment rate, this is:

2008 -0.1% +0.2% +0.1% +0.5% +0.2% +0.4% +0.6% +0.3% +0.8% +0.6% +0.9%
2009 +0.4% +0.9% +0.8% +0.2%

The bad news is, of course broad based unemployment is still rising. The worse news is that it is more than halfway to the “depths of the Great Depression” benchmark of around 1 in 4 out of work.

Even more, the populace has been trained to accept as “normal” unemployment rates what would have been considered an economic emergency back in the 1960’s.

For lack of a better term, call it Capitalism

Burning the Midnight Oil for the Beauty Platform

Johnny Venom, in an extended comment on a Robert Oak post at The Economic Populist, says (note … much good stuff snipped, so click through):

My take on all this madness

What’s happening here is the collision of several realities:

1. You had institutions, who years if not decades, believing the hype they built themselves to sell to their clients.  …

2. That you can’t simply create your own damn financial instrument to meet a client’s needs. …

3. Derivatives products work when they are designed well and implemented on a regulated environment. …

4. Many of these items will never be liquid.  This brings us to today.  The reality of the situation is that we now have to be discriminating between those derivatives that are somewhat liquid and those that aren’t.  The former can have mark to market, but there needs to be a proper exchange for these things.  Both the CME and ICE are going to have such a thing, and these banks should be made to trade them on it to get these things off their books.  As for the iliquid ones, well unless our goal is to bankrupt these banks in some attempt to punish them, we will have to facilitate either a suspension of FASB 157 for these or some hybrid.

5. Banks holding on to these illiquid derivative step children, that must be re-engineered, will have to realize they won’t get all their money back. …

6. Lastly, new accounting rules and financial regulations must be in place to keep in check the establishment of new positions. …

My response and thoughts after the fold.

Turning Good Bank / Bad Bank on its head (UPDATE)

Burning the Midnight Oil for the Beauty Platform and Economic Populism

The problem with the “Good Bank / Bad Bank” (see also Dr. Seuss version) plan is, of course, … {drum roll}

… in order to “rescue” banks that distributed a massive amount of contingency reserves as if it was income … by pretending that massive downsides did not exist …

… we “have to” reward the people who proved to be grossly incompetent in the core competency for senior executive management of a bank.

Except, as Joe Stiglitz points out, we don’t have to at all.

In other words, there is good and bad in the Good Bank / Bad Bank plan. And if we reverse who ends up with the Good Assets and who ends up with the Bad Assets, we can have all of the Good, and avoid most of the Bad.


Keith Olbermann cites “my” plan on the Tonight show … posted at the Big Orange

You’re From Ohio, You Idiot, Don’t Screw With Our Train

Burning the Midnight Oil for a Brawny Recovery

“Tell me how spending $8 billion,”

asked House Minority Leader John Boehner (R-OH) on the floor,

“in this bill to have a high-speed rail line between Los Angeles and Las Vegas is going to help the construction worker in my district.”

(h/t Matthew Yglesias)

Now, lets look at the Federally Designated Corridors — and you have to have a designated corridor to get any of the $8b.

Yup, no corridor to Vegas. Oh, and what’s that we see … two, count ’em TWO corridors through Ohio … Cleveland to Chicago and Cleveland / Columbus / Dayton / Cincinnati.

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