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Financial Skeptic Bulletin, December 2010

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[Dec 26, 2010] Floyd Norris On The End Of The American Love Affair With Stocks

zero hedge

Three weeks ago when we noted the 30th consecutive outflow from US-based equity mutual funds (now at 33 straight weeks), we said: "America's love affair with stocks is over, has bypassed the marriage stage and gone straight to the bitter divorce." Today, we are happy to see that the the NYT's Floyd Norris for repackaging our metaphor in a slightly more palatable fashion: "The love affair of American investors with the stock market appears to have ended." His piece in today's NYT "For U.S. investors, the glow is off domestic stocks" will not be news to anyone who follows our weekly report on ICI data:

"The year now ending will be the fourth consecutive year in which mutual funds that invest primarily in American stocks experienced net outflows of funds, meaning that investors as a group withdrew more money than they put in."

And yet stocks continue to ramp higher, in big part due to the rapid increase in NYSE margin interest which means the bulk of investors are buying stock increasingly on leverage, but still the question to just who continues to do the actual holding remains unanswered. Indeed, only a few people, Charles Biderman among them, have answered with the response that everyone knows is true, yet most are afraid to utter.

As for Norris' observations, which finally bring broad popular attention to this key topic which we have been hammering on for about 33 weeks in a row, here is the gist:

The accompanying charts show that investors took out $81 billion from such funds so far this year, significantly more than they took out in 2009 but well below the withdrawals of more than $150 billion in 2008, the year that Lehman Brothers failed and the credit crisis blossomed.

The withdrawals this year were partly offset by money flowing into foreign stock funds and hybrid funds, which invest in both stocks and bonds. Investors seem willing to trust in overseas markets more than in the American one, and a growing number are choosing so-called target-date funds, in which fund companies promise to choose the right mix of stocks and bonds depending upon when an investor expects to retire.

The figures come from the Investment Company Institute, a trade group of mutual funds that has been compiling the totals since 1984. They include estimates of trades through mid-December.

Before 2007, there had been net withdrawals from domestic stock funds in only two years, 1988 and 2002.

The first of those years came after the 1987 crash, which scared many investors as the market fell more than 20 percent in one day. But it recovered all of that loss and more in 1988, and many investors learned from that experience that market declines presented buying opportunities, not reasons to sell. The assumption that stocks were sure to rise, at least in the long run, became widely accepted.

... ... ...

For the 10 years through 2010, figures for the final two weeks of the year will determine whether there was any net investment in domestic stock funds. (The estimate for the decade so far is that $4 billion flowed out.) By contrast, in the 10 years before that, Americans put $1.3 trillion into such funds.

In some ways, the current mood is reminiscent of the one that prevailed then. In 1979, Business Week published a cover article on the “Death of Equities,” which it attributed in large part to rising inflation. By 1982, inflation had begun to fall, but the country was in a deep recession. That is when the great bull market of the 1980s began. Few investors seem confident that such a renewal of optimism is likely this time.

But if the bolded sentence is true, it means that everything we hear on CNBC is a lie... After all, if the surge in the market is not sufficient to inspire confidence that the economy is improving, and that in turn is not sufficient to get people to start investing in stocks again, then isn't the whole premise of restarting the virtuous cycle via QE X also fatally flawed? "Give it time" the optimists will say. Any week now there will be an investment in stocks. Fair enough, but that means rates will start to trickle ever higher, and every 1% rise in rates is equivalent to a 10% drop in home prices... Not to mention that the accompanying rise in commodity prices, most notably oil, will wipe out every last fiscal stimulus implemented in the past year and result in a crunch in profit and net income margins, once prices are unable to be passed through, destroying all hopes of an S&P 2011 EPS in the mid 90s. In retrospect we feel bad for Bernanke: at this point even the blind can see just how massive of a catch 22 the Chairman has boxed himself into, whereby every incremental dollar of monetary "stimulus" just raises the sword of Damocles a few inches higher.

Oh regional Indian:

people who are not earning need to pay their bills. Often, for the fear of the IRS, they even have to pay their taxes. All this in the face of food/gas and general living inflation and asset deflation.

So darn self-evident, seems strange that it is news. News is something someone reports to you.

This reality, meanwhile, is right there, just outside the glare of the MSM.

Shall we make this an easy prediction for 2011?

The current trend in cash withdrawals in increasing quantity from investment funds shall accelerate through-out the year 2011 and into the coming bust.


[Dec 23, 2010] After Nearly Two Years Of Searching, TrimTabs Still Can't Figure Out Who Is Buying Stocks

Update: Charles Biderman sends us an addendum to his earlier CNBC appearance...

A year after Charles Biderman's provocative post first appeared on Zero Hedge, in which he asked just who is doing all the buying of stocks as the money was obviously not coming from retail investors (and came up with one very notable suggestion), today Maria Bartiromo invited the TrimTabs head once again (conveniently in CNBC's lowest rated show, during Christmas Eve eve, at a time when perhaps 5 people would be watching) in an interview which disclosed that after more than a year of searching, Biderman still has no idea who actually buying. In response to Bartiromo's question if the retail investor, who left after the flash crash (thank you SEC), Biderman responds what every Zero Hedger has known for 33 weeks: "Retail investors are not coming back to the US. Those investors that are investing are buying global equities and are buying commodities. We are seeing lots money going into commodity ETF funds: gold, silver..." and the even more unpleasant summation: "individuals have been selling, companies are net selling, insider selling and new offerings are swamping any  buyback and any cash M&A activity since QE 2 was announced. Pension funds and hedge funds don't really have that much cash to invest. So what nobody's asking is what happens when QE 2 stops: if the only buyer is the Fed, and the Fed stops buying, I don't know what is going to happen...When I was on your show a year ago I was saying the same thing: we can't figure out who is doing the buying it has to be the government, and people said I was nuts. Now the government is admitting it is rigging the market." Cue Bartiromo jaw dropping.

[Dec 22, 2010] George H. W. Bush and Voodoo Economics Capital Gains and Games

Hell's Kitchen: who cares ?

"supply side economics" is the most successful con job to ever hit this country.

Just look at any economic indicator and what do you see ? you see a turn for the
worse in the early eighties. What did the great communicator tell us ? he told us
that it was time to reawaken the industrial giant and proceeded to start nailing
the coffin of our manufacturing sector while the credulous public clapped.

goodrich4bk: We'll Never Know

We'll never know if supply-side would have worked better for Americans had the productive capacity of the Russian and Chinese populations remained bottled up behind the Iron Curtain. But the evidence is clear that freeing both capital and labor from previously arbitrary national boundaries created enormous wealth for the financiers of wage arbitrage. Today we call it "globalism" as if it some sort of ideology or belief system. It is not. It is simply the logical result of very specific and intentional changes in the regulation of western capital, tariffs and foreign policy by those who understood the tremendous profits to be "earned" from such changes.

[Dec 21, 2010] Fed’s Bullard Full of Self-Contradictions

zero hedge

So, basically Bullard touts QE2 as building up inflation expectations, driving up treasury yields (thus averting a potential deflationary cycle), which was the goal of the Fed QE2 initiative.  Furthermore, Bullard contends that global demand and supply factors are behind the record high prices across almost all commodities, which he believes is unrelated to QE2.

Higher Treasury Yields– Kills Housing et al

First of all, the ultimate goal of the Fed’s securities purchases (QE2), as outlined by Chairman Bernanke in his speech at Frankfurt, Germany on Nov. 19, is to “lower interest rates on securities of longer maturities” to support household and business spending.

On that measure, QE2 has failed miserably. Interest rates, instead of declining, are rising rapidly driven by the bond markets and the bond vigilantes. The 10-year yield was at a low for the year of 2.4% in early October, and has shot up to a seven-month high of 3.56% the week of Dec. 12, before easing back to around 3.34% on Monday Dec. 20. (Fig. 1)

The yield on the U.S. Treasury is used as a benchmark to set interest rates on many kinds of loans including mortgages, and business borrowing rates in the capital market. So, the sharp rise in yields on Treasurys since the QE2 announcement in early November not only kills any flickering recovery sparks in the housing and other related sectors, but also raises the borrowing costs and interest payments of Uncle Sam.

So, for Bullard to “take credit” for driving up inflation expectations, but ignore its inflationary effect on commodity prices is illogical as well as self-contradictory.


QEs = Wealth Redistribution

The concern of deflation is entirely overblown (thanks to Bullard’s research paper warning of a Japanese-style deflation in the U.S.) and the Fed jumped the gun. In a way, the Fed’s QEs are a form of wealth redistribution from taxpayers to banks, institutions and corporations.

The liquidity has created an artificial financial market where a disproportionate minority is benefitting through higher stock and commodity prices (without producing much output and benefit to the real economy); while the majority suffers higher input costs for essential items like food and energy. 

Food and energy are some of the things that affect every consumer's daily life and pocket book, but are excluded from the core inflation calculation, a key measure on Fed's watch list.  This bias would only further misrepresen true inflation pressures misguiding Fed's future policies, and result in a net loss for the economy over the long haul.


Drag Racer
on Tue, 12/21/2010 - 22:21

people who see the rise in treasury yields as a sign the Fed's purchases were not having the desired effect should look at other measures...

WTF, translated: we blatently fucked up so don't look

on Tue, 12/21/2010 - 22:10

Food and energy are some of the things that affect every consumer's daily life and pocket book, but are excluded from the core inflation calculation, a key measure on Fed's watch list.

Since this so-called "Core Inflation" number disseminated by the hedonic propagandists at the BLS is already wildly unrepresentative of the cost of living reality of every American, why bother stopping there?  Why not exclude EVERYTHING from the "core inflation" rate reported by the government, and just substitute some randomly low number pulled from Bernanke's ass instead?  We are already essentially 80-90% of the way toward doing that today.

Every time one hears some lame mainstream pundit or establishment apologist start quoting the "Core CPI" numbers, that person can immediately be dismissed as an honest or intelligent analyst of the true state of our current currency depreciation.

[Dec 20, 2010] Ten Economic Questions for 2011


Just some questions looking forward to next year:

1) House Prices: How much further will house prices fall on the national repeat sales indexes (Case-Shiller, CoreLogic)? Will house prices bottom in 2011?

2) Residential Investment: It appears residential investment (RI) bottomed in 2010, and will probably make a positive contribution to GDP growth in 2011 for the first time since 2005. RI is mostly investment in new single family structures, multifamily structures, home improvement and commissions on existing home sales. Historically RI has been the best leading indicator for the economy, but the growth in RI will probably be modest because of the large overhang of excess housing units. How much will RI grow in 2011?

3) Distressed house sales: Foreclosure activity is very high, although activity has slowed recently - probably because of "foreclosure gate" issues. The number of REOs (Real Estate Owned by lenders) is increasing again, although still below the levels of late 2008. How much will foreclosure activity pick up in 2011? Will the number of REOs peak in 2011 and start to decline?

4) Economic growth: After I took the "over" for 2011 back in November, a number of analysts have upgraded their forecasts. As an example, Goldman Sachs noted Friday:

The US economic outlook for 2011 has improved further with enactment of the fiscal compromise, as well as a stronger trend in recent data. As we forewarned, we are revising up our forecasts to incorporate this news and now expect real GDP to rise 3.4% in 2011 and 3.8% in 2012 (up from 2.7% and 3.6%) ...
It does appear GDP growth will increase in 2011, although GDP growth will probably still be sluggish relative to the slack in the system. How much will the economy grow in 2011?

5) Employment: The U.S. economy added about 87 thousands payroll jobs per month in 2010 through November. This was extremely weak payroll growth for a recovery. How many payroll jobs will be added in 2011?

6) Unemployment Rate: The post-Depression record for consecutive months with the unemployment rate above 9% was 19 months in the early '80s. That record will be broken this month, and it is very possible that the unemployment rate will still be above 9% in December 2011. This high level of unemployment - and the number of long term unemployed - is an economic tragedy. The economy probably needs to add around 125 thousand payroll jobs per month just to keep the unemployment rate from rising (payroll jobs and unemployment rate come from two different surveys, so there is no perfect relationship, and the rate also depends on the participation rate). What will the unemployment rate be in December 2011?

7) State and Local Governments: How much of a drag will state and local budget problems have on economic growth and employment? Will there be any significant muni defaults?

8) Europe and the Euro: What will happen in Europe? When will the next blowup happen? How much of a drag will the problems in Europe have on U.S. growth?

9) Inflation: With all the slack in the system, will the U.S. inflation rate stay below target? Will there be any spillover from rising inflation rates in China and elsewhere?

10) Monetary Policy: Will the Fed expand QE2 (probably not)? Will the Fed reverse any of the Large Scale Asset Purchases? Probably not. Will the Fed raise the Fed Funds rate? Very unlikely.

OK, some of the questions were really multiple questions - and I ventured a guess on the last one.

Comrade Kristina:

Well, this is certainly shocking...

The tax deal negotiated by President Barack Obama and Senate Republican leader Mitch McConnell of Kentucky is just the first part of a multistage drama that is likely to further divide and weaken Democrats.

The second part, now being teed up by the White House and key Senate Democrats, is a scheme for the president to embrace much of the Bowles-Simpson plan — including cuts in Social Security. This is to be unveiled, according to well-placed sources, in the president’s State of the Union address.

The idea is to pre-empt an even more draconian set of budget cuts likely to be proposed by the incoming House Budget Committee chairman, Rep. Paul Ryan (R-Wis.), as a condition of extending the debt ceiling. This is expected to hit in April.

Obama to blink first on Social Security - Print View

Maybe not food riots...maybe hoveround riots .


Comrade Kristina wrote:

The idea is to pre-empt an even more draconian set of budget cuts likely to be proposed by the incoming House Budget Committee chairman, Rep. Paul Ryan (R-Wis.), as a condition of extending the debt ceiling. This is expected to hit in April.

Said budget cuts will, of course, exclude cuts to the "defense" military budget, except for cuts to funding for health care benefits for the military (although not for the highest ranks, of course) and for VA funding.

In addition, earmarks which include continued funding for pointless & already obsolete weapons systems, jets, ships, etc., will not be cut.

Every "social" program will be, since after all, the market and the wealthy will undoubtedly use their tax cuts & money derived from other direct & indirect subsidies to create well-paying jobs for all of the unemployed.


pavel.chichikov wrote:

Election Former SU style. Don't knock what you see here in the US: December 19, 2010 Belarusian presidential candidate Nikolai Statkevich on Dec. 19 said he was beaten by special forces officers as he was heading for an unsanctioned rally in downtown Minsk, RIA Novosti reported.

We are better than that. We have less violence. The Party here has perfected the two-brand approach to marketing politics. It simulates real substantive choice, so people don't feel the need to riot, and the police don't often need to club the people. .

Comrade Gibbon:

lawyerliz wrote:

And GDP does not count unless it is shared.

That's an interesting point. You get the feeling watching all this that there is a paper economy that's being counted along side the real economy. The other thing that's driving me batty is how much technological innovation seems to be centered around rent seeking as opposed to real products and productively improvements. .


Comrade Gibbon wrote:

The other thing that's driving me batty is how much technological innovation seems to be centered around rent seeking as opposed to real products and productively improvements.

Because we need more stuff. A plague on both their houses. .


Comrade Kristina wrote:

It's only called class warfare when the peons fight back...funny that.

Perspective is a funny thing, in't it?

I live in an affluent neighborhood, and am quite "comfortable" financially. But I spend enough time on the other side of the freeway to know that to the majority of my neighbors, those people are "the others." I feel more comfortable communicating on HCN than with my physical neighbors. Fancy that. .

Comrade Gibbon:

patientrenter wrote:

I know. We could make dramatic improvements in our economy over time. We know how to do it. But we don't, because of our political system. Sometimes it makes me want to go China, or Singapore, with a couple of very smart engineers and other technicians devoted to economic optimization running our economy.

For long time I've thought that eventually one could build an automated strawberry picker. (Picking strawberries is perhaps the worst farm labor job out there). Use an machine vision system to identify ripe fruit, and then gently grab it with a gripper and harvest it. Recently someones actually done that, still a prototype but it works. They're a group working at a Japanese Uni.

Meanwhile back in the states vast amounts of work being done on technological solutions to military and security theater non problems.

burnside wrote:

Because we need more stuff. A plague on both their houses.

Or better stuff, or stuff that has a smaller environmental impact than the previous stuff. Or the nerds working on technologies to give the 2 billion unwashed something akin to a middle class lifestyle without the impact or cost. .


But if Stiglitz’ plan is a fantasy, it should show us just how much it costs us to cater to the interests of big corporations and the very rich.

FACT: Small businesses create more than 50% of US GDP and create more than 75% of net new jobs each year.

Yet next to nothing is done by corrupt to the core GOP and Dems to help or promote because they are too busy sucking the teet of big corporations and the very rich.

And this is big reason why Merica is likely to become biggest banana republic.


Basel Too wrote:

we could have created millions of 30K jobs doing whatever for the price of the tax cuts...

Move along, now. Nothing was said here. Move along.


picosec wrote:

I feel more comfortable communicating on HCN than with my physical neighbors. Fancy that.

I suspect HCN'ers are drawn here by similar need, and are much more alike than not. It is the hubris of small differences that leads to the occasional tension and ugliness.

Your neighbors are but an accident of geography and social mobility in time. Not much more than that.

Kinda like high school and college. That is probably why class reunions feel so empty and anticlimactic.

:: Romy and Michelle :: .

Sunshine at the IMF, of all Places

December 19, 2010 | Economist's View

Sunshine: at the IMF, of all places, by Alex Harrowell, A Fist Full of Euros: So, here we are, after a 2010 of economic horrors. There is extensive debate as to whether the standard tools of economics are even valid... But is anyone at least trying to do something original with the standard toolkit? The DSGE model may be one of John Quiggin’s zombies..., but zombies are notoriously resilient. ...

The answer on this occasion is yes, at least as far as Michael Kumhof and Romain Ranciére, go. In a new paper, they present a DSGE model... Then, they run a simulation of the macro-economy assuming that there is a negative shock to the bargaining power of labor resulting in a shift in the income distribution.

The simulation results were that the financial sector balloons in size, that total private debt in the economy expands hugely, and that credit acts as a substitute for rising average wages in the short run. Eventually, the model produced a massive financial crisis and a brutal recession, followed by a blow-out of the government budget.

Your keen and agile minds will not have missed that flat real wages, an increased share of national income going to the top 5%, enormous growth in the financial sector, and a credit-financed consumer boom are exactly what happened to the macroeconomy in the last 30 years. ...

So, what should we do about it? Kumhof and Ranciére have something to say about that as well. ... They considered a scenario in which the government took the pain, accepting a large government deficit in order to minimize the impact of the crisis on the real economy. This had the advantage of reducing the fall in GDP, and therefore allowing growth to reduce households’ leverage. They also considered the option of just suffering, which actually increased leverage as incomes fell and the stock of debt remained.

Then they considered two more positive responses to the crisis. One was a debt restructuring, or to be brutal about it, widespread default and bankruptcy. This had the advantage that it does, indeed, reduce the leverage burden and does so cheaply. It also implies the end of the big banks...

The other was to increase labor's share of income. They found that this achieved a faster, bigger, and more lasting reduction in leverage and a reduced probability of crises. In their own words:

...For long-run sustainability a permanent flow adjustment, giving workers the means to repay their obligations over time, is therefore much more successful... But without the prospect of a recovery in the incomes of poor and middle income households over a reasonable time horizon, the inevitable result is that loans keep growing, and therefore so does leverage and the probability of a major crisis that, in the real world, typically also has severe implications for the real economy.

They also argue that the inequality-finance-lending transmission mechanism might also explain the global imbalances... However, they haven’t extended the model to include the international dimension yet, although it’s on their agenda for further research.

I’ve waited for this moment, 752 words on, to mention the key detail: this cell of dangerous subversive Bolsheviks is embedded in the International Monetary Fund, and their poisonous hate-writings were published as an IMF Working Paper. Perhaps DSK really has had an influence on the institution? ...

Posted by Mark Thoma on Sunday, December 19, 2010 at 09:54 AM in Academic Papers, Economics, Fiscal Policy, Income Distribution | Stumble, Digg,, Reddit, Tweet, Share, Like | Permalink Comments (19)


I've thought this the case throughout, without a model to back up the notion.

Wages have not kept pace with asset inflation for going on 30 years, and can no longer sustain either housing prices, or indeed other asset prices. We keep pumping money through the system in the only way we allow - through the banking system , which funnels it through financial markets in the only way it works - and these days, without profitable ways to borrow money, that means essentially into financial asset and commodity price inflation; but I assume the model will show that simply widens the gap between wages and asset prices.

I don't have a clue how to induce a larger portion of income going to wages ... moratorimum on wage outsourcing notwithstanding, and given the potential size of the Chinese labor force, and the differential between Chinese wages and most of the rest of the world, that's a huge pool if wage outsourcing we'll have to wait to reach equilibrium before we could expect that source of drag to otherwise subside. A more progressive tax code is an improvement, and in particular the tradeoff of the social security trust fund and income for formerly typical working seniors is one piece of income equalization for which the typical working person has already paid in, and the tax breaks since 1982 for upper income brackets have been financed in large part by those SS trust fund bonds.

More generally, I wonder how to achieve wage growth in a world where production potential greatly exceeds demand, and where productivity gains (combined with large pools of lower wage earners) keep reducing the need for labor. With the rules of the game as they stand, capital make choices about deployment , employment, and wages, and the natural choice is to optimize return on capital isolated from the small impact on global demand from the few people you under-employ and under-pay relative to an optimal solution. But I like the quota based political redistribution of various things less than the capitalist model, unless someone comes up with a better way to keep the redistribution from mucking up efficiency and freedom.


Agree. The cure has three legs: Progressively tilted income taxes; Full employment policies that include encouraging labor unions; Balanced trade.

None of these can occur if you have a plutocracy instead of a democracy. And that's what we have. A plutocracy.


in reply to Charlie...

Excellent comment -- except for a small flaw in the last sentence. Efficiency is always and everywhere a subordinate measure. We must do the right thing before doing things right. At the risk of invoking Godwin's law, prioritising efficiency over ethics leads by degrees to Auschwitz.

I would just add to your comment that it's not (only) China. China's working-age population is going to peak in 2015 and the peak in migration from rural subsistence to industrial wage-slavery can be expected soon after.

There are also the 660 million young, poor rural Indians to come; and assorted Bangladeshis, Pakistanis, and other central and west Asians; and following them, up to a billion Africans. (Leaving aside, of course, the Latin Americans, Indonesians and a hundred million other south-east Asians who are slightly further along than the Chinese.) We shall be waiting a long time for equilibrium in the global labour market.

I too have no clue about how to ensure everyone has an income (relatively) as high as their parents'. Possibly Friedman's "basic income/negative income tax" idea is worth a close look. It might restore a measure of bargaining power in the labour market to employees.

Macroeconomically, doctrine has it that entrepreneurs invent new products and services, and the production of these absorbs the 'released' labour. OK, fine, where are these labour-hungry products and services? The new products and services that I see are either highly automated, or need a great deal of tertiary training, or innate talent, to produce, and are niche products anyway. We'll need hundreds of thousands of such services and products, and much cheaper education, for this to be the answer.

urban legend:

 in reply to Greg...

How can the Germans keep their manufacturing employment generally stable for the last 10 years -- in contrast to plummeting employment in manufacturing in the U.S -- even though their wage costs in the manufacturing sector are now 50% higher than in the U.S. They compete with the same low-wage global suppliers, and they are unionized, too!

urban legend:

in reply to Charlie...

Since when do (1) allowing labor unions to form and bargain with management without threats of retaliation, along with (2) a livable minimum wage below which no employer is allowed to exploit its power to obtain because it is simply unconscionable, (3) direct job creation through commissioning work on major national-impact projects that should have been completed or started up to 30 years ago as other advanced countries have been doing, and (4) a fair allocation of responsibility for the costs of government constitute a "redistribution"? Redistribution from what? Why do we unconsciously accept such loaded terminology designed by toady economists to create a wealthy-friendly frame of discussion?


in reply to Charlie...

"I don't have a clue how to induce a larger portion of income going to wages..."

checkout this:

[Dec 20, 2010] Greed Is Not Good

19 December 2010  | Jesse's Café Américain

With regards to the global financial crisis, imposing austerity is not the answer. That is like starving the slaves to improve their condition by making the plantation more profitable.   Looting the 'great house' and the barns to feed the slaves, at least temporarily, is not the answer either. The problem is obviously in the system itself.

But either expedient solution suits the external monied interests promoting the system who seek only to plunder and drain the assets and labor of others who are all their common prey, whether they feel their kinship or not. An unjust and unsustainable system tarnishes all participants and leaves them vulnerable to exploitation and decay.

It is the root causes of the debt and the imbalances in the system that must be addressed to make any reform sustainable. And this obviously includes addressing abuses such as the promotion of a global trade regime that is inherently unjust and imbalanced to the favor of the oligarchs of whatever political wrappings around the world who hold the greater profit to themselves and leave their people relatively impoverished and exploited.    And it also includes the waging of unfunded wars to protect and promote privileged commerical interests, and a political funding system that is little more than soft graft and an open invitation to corruption by special interests.

It begins with a debilitating system of taxation by the monied interests on every commercial transaction in the form of fees and commissions, and the abuse of a money system that is little more than a fraud perpetrated by private interests for the benefit of a few at the expense of the many. If you wish a simple measure of this, then look to the median wage.

Greed is not good. Greed is a disease, an abberation of simple honest ambition and necessary provision taken to excess. This simple distinction may be lost on a people no longer able to distinguish between virtue and sin, honor and expediency, appetite and gluttony, the means and the ends.  Every great religion, every school of philosophy has cautioned throughout history on the perils of unbridled and unregulated greed.  And yet this generation would make a god of it, although in fairness most really do not understand what it is that they do and how and whom they serve.

Greed, often in company with hubris, is a handmaiden of the corrupting influence of power and triumph of the will. Greed is contagious, and attacks the very contentment of society at its heart, turning it towards anarchy and oppression.

"Greed is a bottomless pit which exhausts the person in an endless effort to satisfy the need without ever reaching satisfaction." Erich Fromm
Any system that promotes greed, gluttony, and insatiability as its highest goods and fundamental ideals is a cult of perversion and addiction on a scale with ancient Rome, an imbalanced insult to the natural law, with a fatal attraction to overreach, failure and self-destruction. What the US has today is not market capitalism that rewards the merits and work of individuals, but rather is the product of dishonest and disordered minds, a system of fraud and plunder by privileged oligarchs masquerading as fair and honest markets of legitimate valuation and price discovery.
"Because the free market system is so weak politically, the forms of capitalism that are experienced in many countries are very far from the ideal. They are a corrupted version, in which powerful interests prevent competition from playing its natural, healthy role." Raghuram G. Rajan
The Banks must be restrained, and the financial system reformed, with balance restored to the economy, before there can be any sustained recovery.
Financial Interests Dictate Sovereign Policy
By Michael Hudson
December 18, 2010

"...The economic problem is not caused by sovereign debt but by bad bank loans, deceptive financial practice and neoliberal bank deregulation. Iceland’s Viking raiders, Ireland’s Anglo-Irish bank and other foreign banks are trying to avoid taking losses on financial claims that are largely fictitious, inasmuch as they exceed the ability of indebted economies to pay. The ‘crisis’ can be solved by making the banks write down their debt claims to realistic ‘junk’ valuations. There is no need to wreck economies by subjecting them to financial asset-stripping.

In such cases there’s a basic principle at work: Debts that can’t be paid, won’t be. The question is, just how won’t they be paid? As matters stand, countries are being told to subject themselves to massive foreclosure – not only a forfeiture of homes, but of national policy.

In this respect the sovereign crisis is a crisis of sovereignty itself: Who shall be in charge of the economy, its tax philosophy and public spending: elected officials acting in the public interest, or an intrusive financial oligarchy? The EU was wrong to tell governments to pay for following its advice – and pressure – to trust financial crooks and deregulate bank oversight. The European Central Bank should reimburse victimized governments for the bailouts that have been paid. This reimbursement can be done by levying a progressive tax policy and creating a central bank to help finance governments.

The proper aim of a national economy is to promote capital formation and rising living standards for the population as a whole. not a narrowing financial class at the top of the pyramid. So I see two major policies to lead the way out of this mess:

First, shift taxes back onto land and resource rent, and onto financial and capital gains. This will prevent another real estate bubble from being inflated by debt leveraging. By holding down housing prices, it will save labor from having to pay an equivalent amount in income tax. Low real estate taxes (under 1% until just recently) have not saved homeowners money in Latvia. Low property taxes merely have left more rental income to be pledged to banks, to capitalize into large mortgage loans.

Second, de-privatize basic utilities and natural monopolies to save Europe from rentiers turning it into a tollbooth economy. Europe needs a central bank that can do what central banks are supposed to do: create money to finance government deficits. But the European Central Bank and article 123 of the European Constitution as amended by the Lisbon Treaty prevents the central bank from lending to governments. This forces governments to levy taxes to pay interest to banks – for creating electronic credit that a real central bank could just as well create on its own computer keyboards.

Government banking is not necessarily inflationary. It finances what is necessary for economies to grow: investment in infrastructure and capital formation to raise productivity and minimize the cost of doing business.

What turns out to be inflationary is commercial bank lending. It inflates asset prices – unproductively. Banks lend mainly against real estate and other assets already in place, and stocks and bonds already issued. This is unproductive credit, not real wealth creation. The only way to keep this unproductive debt overhead solvent is to inflate asset prices more – by untaxing assets to leave more revenue to pay bankers on exponentially growing debts.

It doesn’t have to be this way. The recent 30 years of financial polarization is reversible. The alternative is to succumb to neoliberal austerity."

I think that most people know what needs to be done in their conscience, but their hearts have become so hardened over the past twenty years that the message will be ignored until after they undergo a period of suffering on the scale of the worst of the twentieth century. May God have mercy on us all.


Unless the Lord builds the house, the builders labor in vain.
Unless the Lord watches over the city, the guards stand watch in vain.
In vain you rise early and stay up late,
toiling for food to eat—
for he grants sleep only to those he loves.

Psalm 127

[Dec 19, 2010] The Next Stop In Obama's Political Suicide Tour Announcing Social Security Cuts During State Of The Union Address

zero hedge


The premis of the article is that Democrats are incompetent - or borderline negligent - and being run out of town on a rail with the help of the party's leader.

I don't buy it. The Democrats cannot possibly be that incompetent and the President that bumbling.

The real truth is that the Republicans and Democrats are 2 branches of the party of 1, to use the language of Gore Vidal.

And if so, and why not, then politics is nothing more than scripted theatre and real democracy has faded into the illusion of a memory past.

It's very simple really, and once the reality is grasped there is no longer a need for disappointment.

Call it an inside the beltway power sharing arrnangement that circumvents the voter, but maintains the facade, institutions and the impression of the democracy.......for now.

indio007 :

Obama is the most gutless politician I have ever seen. And I mean jaw dropping gutless. Just goes to show you that he was under qualified for the presidency.

He's an amateur politician trying to compete with professionals.


no argument.... but you have to understand all's he was doin' was adding a spot to his resume for his interview with GS.....


This is probably what Rahm Emanuel planned all along: disenfranchisement of the liberal wing of the Democratic Party. Rahm calls "liberalism" as a mental disease as in being retarded. This is probably a result of disillusionment of Jewish ex-liberals who found themselves circled by progressives enamored with Palestinians rights.


Tax cut extensions for the horders, social security cuts for the elderly. Great. Now that obama has broken the trust of the social security fund, we can cut it. What a fascist fuck he is. Social security, a great deal for the american public, is on its way to history. Good luck having this in 'money' instead of 'trust'. I'm sure they won't steal it 1/1000th as fast as everything else.

Barack 'the limp chicken cock' NerObummer, a fascist fuck, who will bow to the fascist tea party and republicans. Fascism isn't just on the march, it's in power on both sides, completely and utterly. Which shouldn't be anything new, but now it's just going to be all out in front of us from this point onward.

Rand Paul and Barack Obama, two fascist fucks who will continue to piss America away. One's an austrian, the other's a Keynes/austrian flip flopper depending on which BANKSTER MONETARIST FASICST side gets him to blink first. But both are bankster whores willing to sell you out. Both spout nothing but anti-american ideals, just guise them to their bases. Both sides bases, are dumbfuck to believe they are patriots, instead of just selling out their country to the lowest fiat dollar bidder.

Pucker up, it's the fascist austrians turn now. Watch how clueless takes on a whole new level now. Austerity, cuts to the public, all under the guise of bullshit right wing ideals that are a fantasy in insane minds, that in practice reveal their evil foisted upon everyone.

But the austrians want their chance at destroying the monetary system, now's their chance. It won't be long before people think austrian is even stupider the keynes. Not that it matters. Both are bullshit, and now the president has joined the other side. Fascism, enjoy the republican ideal, as if the prior 40 years hadn't swayed you it was bullshit, here comes the most left-leaning liberal senator in the senate, being a right fascist winger.

I seriously don't know why a republican wants to get rid of the guy, he's behaving almost perfectly fascist for them. Are queers really that important? It wasn't the right wing fascist think tank version of healthcare was it?

The idiots still haven't figure out that Nero hasn't governed anything BUT right wing fascist whore. Put Nero up to Reagan and he makes Reagan look like Bernie Sanders. But what's reality in today's anything but the company line out of the banksters is 'liberal'. Bankster tax cuts, Bankster social security cuts, and no TRUE patriot, supports either. But those that do are in retarded monetary world, and think in terms of a monetarist about all spending and tax issues. Which means they are a fool. Enjoy your fascists. At least Nero was a liar, the right is openly fascist. But the right has a mandate now to be fascist, and they will be fascist. Idiot public.

If he does this, he won't be the dems nomination in 2012. 0 percent chance. See ya later Nero, have a good retirement. When this finally implodes on the idiot fascist tea party, and they are exposed for the idiots they are, it will be quite a day of reckoning. Small business is screwed for good now. Only MNC's now. Bankster and tea party approved. They got a friend in the white house. People better believed that the 'change that happened'. The left never took back shit, only the idiots think otherwise. Which happens to be most of the left, since most believed they had taken back power. Nope. Just fascist dems, replaced because of acting fascist, by more fascist people. Do the people really think anything other than fascism will happen with fascist tea party and republicans in charge? More of what you voted against, brought to YOU by the tea and republican partieslk, with a little nero help.

I can't wait for the nero/center/republican/tea party sham to unravel and show you that the above are all being controlled by the same fascist monetarist side.

Patriots they are not.

Fascists they are.

Idiots about the constitution (yes Ron Paul is....again anyone viewing the consitution from a monetarist viewpoint, is and idiot and uncapable of understanding the spirit of it. Austrians do that EVERYTIME.)

The Hapsburg way of thing, is antithetical to the U.S. Constitution. Yet now we have the austerity kings for bogus debt brigade in charge. Forget party lines. They don't matter, especially when both parties are fascist right wingers. All monetarist schools of thought, are just that, monetarist schools of thought. The Constitution was all about anti-monetarism. So trust the fascist Pauls as far as you can throw them. Them & Obama, the enablers of our destruction, and only the idiots don't clearly, VERY CLEARLY, see it.


Wow. The whole thing is just outrageous.....the typical social security recipient has paid into it for most of their working years & now in a time of rising food & energy costs, real estate losses, stock market losses, no interest to be earned on their savings accounts, no jobs for the average 50 - 70 year old & the government wants to do what !!?? Target the most vulnerable & innocent among us........ the older / the elderly.

... ... ...

Waterfallsparkles :

On the backs of those that already paid their dues. 50 years of Taxes and Contributions to SS and Medicare. Now they do not have as strong of a voice Obama wants to cut what they paid into for 50 years. As they already distributed the Money to the Bankers for their 2 year of record Bonuses. This year alone $144,000. Billion. No increase in SS for the last 2 years. But, an increase in the Bankers Bonses.


[Dec 18, 2010] "Why Aren't More Bankers Going To Jail?"

"The administration could not have been realistically expected to prosecute and jail the most generous contributors to it's victorious campaign."
David Zaring has a question:

Why Aren't More Bankers Going To Jail?, by David Zaring: Jesse Eisenger and Andrew Ross Sorkin have both written about the surprising lack of convictions in the wake of the financial crisis.

... ... ...

So maybe this kind of judicial reception, and the jury in Bear Stearns test case that failed, has made the government gun shy. Maybe New York defense lawyers are worth every penny, or maybe DC government types can't imagine throwing a wide swath of the financial community in jail. Maybe Madoff and Galleon distracted everyone. But I remain surprised. There's the flexible statutes available to the government, surely one could stop at AIG, Lehman, and Bear and satisfy the public ... My own tentative view is that it could be that for really high-ranking people to go to jail, someone has to have done something obviously criminal. So Lay and Skilling had Andy Fastow, Michael Milken had Ivan Boesky. But the out and out crook, for whatever reason has not turned up yet, which means that all the captains who went down with their Titanics can breath a bit more easily.

But that's speculation in the service of being as surprised as Sorkin et al, without necessarily wanting a parade of handcuffs.

rps said...

Why Aren't More Bankers Going To Jail?"

To quote Janet Tavakoli, SEC:Failed and Captured. Mary Shapiro as the head of the SEC: Appalling track record at FINRA (FINRA: Wall Street‟s enabler).

The current Feudal System has replaced Kings with Bankers. In this "feudal" system, the Board of Directors (kings) awards campaign contributions and/or post public servant careers as lobbyists/consultants (fiefs) to his most important congressmen (nobles), justices/presidents/treasury secretaries/secretary of states (barons), and fed chairmen (bishops), in return for their trusted public servant contributions to tax-cuts/ havens, dismantling of entitlement programs, captured de-regulation of monetary systems; banks/investment, and taxpayer punchbowl replenishment of incentivized Bank failures.

Solution - Nail the revolving door shut.


The feds missed their opportunity to lop off the heads of the banks - and the top 5 levels of management, while prohibiting them from participating in the finance industry -when it was doling out TARP funds. There should have been conditions on receiving that money, such as disgorgement of past bonuses, being barred from making a lot of money (that's how you hurt someone for whom money is everything), etc.

I didn't need to see anyone go to jail; I needed to see bankers humiliated, their homes vacated, their families reduced to no more than the average income, their wrongly paid bonuses paid back. That would have been enough.


Agree. The problem is not putting miscreants in jail - lawbreaking was a small part of what happened (and of the continuing problem of overpaid financial sector executives). We need a way of discouraging things like the Goldman bonuses. I'm afraid, though, that past bonuses for behavior that helped create our current malaise (such as the half billion 'earned' by Hank Paulson) will never be recovered.


I think the jail thing is mostly a metaphor for what djt described, or maybe not even as much. The problem maybe that our brand of society is centered so much around money that the concept of good standing has been diluted to a point where only formal convictions and possibly prison or equivalent sentences will make a strong impression.

On a related point, Stewart's Daily Show recently aired the censure of congressperson what's-his-name, pretty much proclaiming it a proceedings of no consequence on par with a joke. And the evidence seemed to bear it out. The whole thing had an air of "yeah, whatever" (let's get this over with).


William K. Black and Jamie Galbraith have been pounding this drum for over two years. Fraud was at the center of the bubble. My own view is that Team Obama (particularly Geithner) thought that fraud prosecutions would promote systemic risk, and we have seen how risk-averse this team is.

Obama still has two years to hire William K. Black. Looking back over the period since the crash, perhaps the biggest tell of the whole episode was Obama saying most of the banker's actions were all "perfectly legal." I'm surprised the GOP hasn't made an attack ad out of the sound bite.


The administration could not have been realistically expected to prosecute and jail the most generous contributors to it's victorious campaign. Nor will it, as it must run for re-election and so will reasonably expect further bankster support in recognition of it's forbearance.


As the nation turns from democracy to plutocracy - we are surprised that the wealthiest people aren't going to jail?

This is a bit like being surprised that Bank of America and their ilk are protected by the Obama administration from the consequences of their use of fraudulent documents in court. We have the mushmouth party, the Dems, yammering like this:

U.S. Housing and Urban Development Secretary Shaun Donovan said Wednesday that the Obama administration will attempt to protect homeowners and police the kind of paperwork fraud that led the nation's largest banks to temporarily halt foreclosures this month, but added that the administration had yet to find anything fundamentally flawed in how large banks securitized home loans or how they foreclosed on them.

"Where any homeowner has been defrauded or denied the basic protections or rights they have under law, we will take actions to make sure the banks make them whole, and their rights will be protected and defended," Donovan said at a Washington press briefing. "First and foremost, we are committed to accountability, so that everyone in the mortgage process -- banks, mortgage servicers and other institutions -- is following the law. If they have not followed the law, it's our responsibility to make sure they're held accountable."

First, airy but serious sounding abstraction about committment - second, a noseeum attitude that comes from the top down in Treasury. And this is the far left mushmouthers - the far right - or right - is clear that the law should distinguish between the wealthy, who get a pass on all offenses except if they are Hollywood stars saying nice things about Chavez or Soros, and the rest of the unwashed, who should go to jail on general principles first.

Was there some thought on the part of the technocrats that after making government a quick loan shop for the wealthiest for the past three years, this was going to have no consequence for democratic governance and things would get back to 'normal'? Are the techies that stupid?

The damage done over the past decade to democracy in the U.S. is going to take decades to recover from.

[Dec 14, 2010] "Peak Oil is Stupid"

Tim Haab at Environmental Economics:

'Peak Coaler' just doesn't have the same ring, but I bet it raises the same vitriol for stupid economists: Time for some snark:

When will production of oil and coal peak?

Better question: Who cares?

Better question:  When will oil and coal run out?

Even betterer question: When will oil and coal reserves be depleted to the point that prices adjust to make investments in renewables make economic sense without the need for goofy (laymen speak for inefficient) government policies?

After the peak, production will decline because supplies are being depleted and no new sources are to be found. ...

Peak oil is the point in time when the maximum rate of global petroleum extraction is reached, after which the rate of production enters terminal decline.

Terminal Decline? A sequel to a 1990's Charlie Sheen movie?

Optimistic estimations of peak production forecast the global decline will begin by 2020 or later, and assume major investments

we run out, which we won't because, as production declines, prices WILL rise. As prices rise, people WILL figure out alternatives. They might not be happy alternatives. They might not be as productive alternatives. They might not support the same lifestyle to which we are accustomed. But there WILL be alternatives, forced by higher prices--and no other mechanism is that powerful.

See, I'm an optimist.

It's the end of the world as we know it...

And I feel fine.

[Dec 13, 2010] Satyajit Das- The Past, The Present and an “Unusually Uncertain” Future

Mr. Taibbi marries Thomas More’s “Utopia” and the idea of the “Grift” (deception) into a phrase that is meant to describe all that is wrong with America. Mt. Taibbi sees a vast conspiracy by bankers, especially by Goldman Sachs, to take over the running of the state, enslaving and robbing its citizens. Mr. Taibbi clearly does not share philosopher Alasdair MacIntyre’s view: “One key reason why the presidents of large corporations do not, as some radical critics believe, control the US is that they do not even succeed controlling their own corporations.”

The argument has some validity, but the truth is far subtler than “Griftopia” would like to make out. The argument has also been made far more subtly with better supporting documentation in Simon Johnson and James Kwak’s “13 Bankers“.

Mr. Taibbi confesses to not knowing much about economics. The admission on a reading of the book seems largely correct. The use of numbers owes much to Mark Twain’s advice: “Get your facts first, and then you can distort them as much as you please.” It is difficult to know whether the first part of the injunction was complied with, as there is little detail or evidence of the basis of the numbers cited.

The book asserts that the American government’s total commitment to rescue the economy, estimated at US$ [insert a number a number of your choice] trillion, sufficient to pay off all US mortgages. The author misunderstands, at least, the support offered and its rationale. If the government had not guaranteed financial institutions then bank collapses would have destroyed the savings of the millions of Americans for whom Mr. Taibbi is the self appointed champion.

The guarantees and capital injections were backed by assets, some even had some value. Many of the loans or capital commitment have to and have been repaid. Many programs, like extended unemployment benefits, staved off penury for the people affected. All these facts are inconvenient to the narrative and therefore ignored.

In his analysis of infrastructure, Mr. Taibbi argues that American states sold their infrastructure to private investors too cheaply. They did. But American ideological reluctance to raise taxes to finance essential public services and assets forced governments to resort to these forms of financing. Investors were frequently pension funds who reaped the benefit of the reduced prices and high resulting returns on behalf of their investors – often teachers and other citizens.

Griftopia” begins with the story of the rise of the Republican Tea Party movement. Mr. Taibbi sees the rise as a diversionary tactic, focusing the attention of the populace away from the real issues – the grifters, bankers and people that the author dislikes – towards tangential issues – immigration, foreigners and the role of government. But the book itself is diversionary. In resorting to crude “blaming” and “flaming” even the correct targets without a thorough and accurate understanding of the true issues, “Griftopia” cheapens its case and ultimately allows the hated “system” to continue unhindered.

Griftopia” may fall into its own trap. Its rage and blame perpetuates a lack of understanding of the real causes of the problem. The Roman Caesars understood that the crowd needed bread and games. They also knew that when things went wrong, an occasional sacrifice and crucifixion was the key to maintaining power. The clever vampire squid may have suborned Mr. Taibbi into its service.

The present is also “All the Devils Are Here“, written by acclaimed journalists Joe Nocera and Bethany McLean (co-author of the definitive history of Enron “The Smartest Guys in the Room“). “All the Devils Are Here” is a well written, solid history of the crisis. Its strength is that it tries to cover several aspects of the crisis, which in part makes the history and theory superficial. As its central focus is the crisis, the book does not examine deeper social aspects of the events and essential drivers of the age of capital. The text is character driven making for a narrative, focusing firmly on the “devils”, which turns out to be the “usual suspects”.

The subtitle “The Hidden History of the Financial Crisis” is misleading as there is little new here. The root causes identified are unsurprising – political pressure to increase homeownership, the GSE’s, political and business failures, the process of securitisation, mathematical models and the familiar evil of “greed”.

Griftopia” and “All the Devils Are Here” do not acknowledge the complicity of everyone in the body politic in the essential financialisation of modern life and the reliance on economic growth. They do not acknowledge the fact that while the grift worked and everyone got richer, everyone remained sanguine about the “system”. No one cared as long as his or her stock portfolios and houses rose in value. No one cared as his or her living standards improved or there was the possibility of improvement

Griftopia” and “All the Devils Are Here” also never recognise that normal people abnegated all responsibility, both political and economic, to the financial superclass. The low voter turnout in American elections is ample testament to that problem. The book does not recognise the lack of financial literacy and the naïve belief in the ability of policymaker’s to control and engineer the economy. In this regard, neither title matches Joe Baegeant’s poignant portrait of American life and its problems in “Deer Hunting for Jesus“.

Both books are also silent on the role of the media which has fervently embraces a message that financialisation of economic life is an unqualified good. It is also silent on how the media itself fosters ignorance, through its treatment of issues in narrow and simplistic political terms. Laudatory biographies of business leaders helped create the all-knowing financial elite. The message of “stocks for the long run” and “increasing wealth” bears some responsibility for the global financial crisis.

Mr. Nocera and Ms. McLean draw the title of their book from the line in Shakespeare’s “The Tempest”: “Hell is empty, and all the devils are here.” The implication is that all would be well if the devils were rounded up and consigned back to the nether regions. Unfortunately, reality is more complex. Other observations from the Bard might be apposite. In “Julius Caesar”, Cassius tells Brutus: “The fault, dear Brutus, is not in our stars, But in ourselves, that we are underlings.” In “Othello”, the real “devil” Iago tells Roderigo: “Tis in ourselves that we are this and thus.”

If we live presently in “Griftopia” and amongst “All the Devils“, then the future, we are told, belongs to the emerging markets. Australian journalist Hamish MacDonald’s wonderfully titled “Mahabarata in Polyester” provides a tantalising insight into this future through the recent history of the Ambani business family and its rise in India.

The book details the progress of entrepreneur Dhirubhai Ambani, as he rises to dominate the market in polyester in India, eventually evolved into the Reliance empire, which has more facets than many Indian Gods have limbs. Rather than a hagiographic Bollywood narrative of a gifted and determined individual battling the odds and emerging triumphant, Mr. MacDonald undertakes a forensic and critical analysis of the growth of the Ambani business interests. In the process, he provides clinical and compelling insights into the nature of Indian economic and business life.

“Mahabarata in Polyester” documents rampant corruption, stock market manipulation, trading of political influence as well as the exploitation of the media to further business ends. It provides perhaps the most compelling documentation of the evolution of India’s business environment from the era of the “license raj” where favoured Marwari and the Parsi businessmen dominated to the current regime of entrepreneurial oligarchs.

Recent revelations of “anomalies” in the auction of mobile phone spectrum and construction projects associated with the New Delhi Commonwealth Games highlights the deeply embedded corruption of the system. As Mr. McDonald concludes: “One legacy of Dhirubhai Ambani is a dangerously suborned state.” However, in a world with “a shrinking moral universe” where business is concerned, India is the future. If Mr. Taibbi’s thesis is correct, then American business, especially Goldman Sachs, should be well placed to succeed in India.

An earlier edition of the “Mahabarata in Polyester” was not released in India after the Ambanis stopped its publication. Indian businessmen and leaders are generally delusional as to their methods and standing, with anything less than veneration, adulation and comparison to Mahatma Ghandi being unacceptable.

This new edition, which was released uneventfully in India, continues the story describing the split between the two scions, Mukesh and Anil, after the death of their father. It documents their continued accumulation of wealth, which embraces most aspects of the Indian economy. It also documents the continuation of their father’s business practices.

Mahabarata in Polyester” provides readers with a glimpse of the “real” India and Indian business, in the unlikely event that they want to know the truth.

Japanese scholar Jeff Kingston’s “Contemporary Japan” provides an alternative view of the future, at least for the beleaguered developed economies of the world. Documenting the history of Japan from 1989 when the “bubble” economy collapsed, Mr. Kingston provides an insightful portrait of the evolution of society during the lost decades. Along the way, it challenges many conceptions about Japan, especially its

industrial acumen, labor relations and social cohesion.

“Contemporary Japan” does not focus on the economic history, although it is the essential backdrop against which the changes that are explored take place. During the last decade, Japan lost approximately 3 times its annual GDP, equivalent to around $16 trillion. The economic collapse affected Japan’s middle class profoundly, destroying its egalitarian society ushering in the “kakusa shakai” (society of disparities).

Its once copied labour system of lifetime employment became unsustainable. Today, temporary and part-time workers total up to one-third of the labour force. Lacking training, career prospects and with low, uncertain income, the “preca-tariat” (a combination of “precarious” and “proletariat”) are disaffected and also disengaged from the political and economic system.

Mr. Kingston argues convincingly that the crisis exposed and exacerbated hidden social problem, such as high rates of suicides and domestic violence. It also exposed bureaucratic incompetence and dishonesty that the years of strong growth and prosperity had disguised. The resulting loss of faith in authority has created near paralysis.

Mr. Kingston argues that Japan’s problems cannot be addressed by resorting to the past and existing systems. Puzzlingly, in the light of his own analysis and the facts he musters in support of his thesis, the author remains optimistic that Japan will overcome its problems, eventually.

Throughout the global financial crisis, politicians, business and economic leaders have steadfastly refused to contemplate a Japanese future for the global economy, at least for the developed economies. As the problems remain unresolved and policy options dwindle, the prospect of “turning Japanese” is now openly debated. “Contemporary Japan” provides a detailed and important perspective on what the future may look like and prospects that await the underclass that “Griftopia” portrays.

Human history is the stuff of myth. Adam Smith, Goldman Sachs, Alan Greenspan, the Ambanis and Japan are icons that mask elusive truths. As with any myth, the real importance is in what it reveals about those who hold them important and self evident.


Mt. Taibbi sees a vast conspiracy by bankers, especially by Goldman Sachs, to take over the running of the state, enslaving and robbing its citizens…..The argument has some validity, but the truth is far subtler than “Griftopia” would like to make out. The argument has also been made far more subtly with better supporting documentation in Simon Johnson and James Kwak’s “13 Bankers“.

Why is it that nobody calls commentary on Al Capone or the Columbian cartels “conspiracy” writing, but where it comes to corporate organized crime that’s suddenly the buzzword?

Just because this organized crime was legalized doesn’t change its obvious character. (Although, to be fair, it’s also less common to see even the Nazis referred to as a typical organized crime syndicate, as opposed to anomalously, metaphysically “evil” or whatever. The notion that once a government legalizes crime it becomes morally improved is all too common.)

Mr. Taibbi confesses to not knowing much about economics.

I suppose Taibbi means the lack of formal “education” is in itself a credential, not a demerit, and he’s right. This review is only the latest pebble to go on the Everest of evidence for that.

The book asserts that the American government’s total commitment to rescue the economy, estimated at US$ [insert a number a number of your choice] trillion, sufficient to pay off all US mortgages. The author misunderstands, at least, the support offered and its rationale.

Taibbi understands the Bailout, including its lying rationales, perfectly well. As does anyone who looks at the unemployment figures, the hoarding figures, the lending figures (this was indeed the promised rationale: “get the banks lending again to Main Street”; an unworthy goal, since the government should do that directly, but still better than what has actually happened, what the Bailout really intended, which was nothing more or less than histiry’s worst robbery), the “bonus” figures.

If the government had not guaranteed financial institutions then bank collapses would have destroyed the savings of the millions of Americans for whom Mr. Taibbi is the self appointed champion.

That’s a flat out lie. Ever heard of a thing called FDIC insurance? The pro-Bailout author hopes we haven’t.

The guarantees and capital injections were backed by assets, some even had some value. Many of the loans or capital commitment have to and have been repaid. Many programs, like extended unemployment benefits, staved off penury for the people affected. All these facts are inconvenient to the narrative and therefore ignored.

That’s because these “facts” are all lies. Even before Foreclosuregate we knew these “assets” had no value. That’s why prior to the Bailout they couldn’t be used as collateral. That’s why ever since summer of 07 Wall Street has been desperate to stave off the apocalypse (for them) which would transpire if the market were ever allowed to discover the real price of these things.

The loans which were “repaid” were repaid with our own money. And WTF do these grossly inadequate unemployment benefits (also our own money; under assault by the bank-owned government; unnecessary if the banksters themselves hadn’t destroyed our jobs) have to do with these crimes or this Depression? We are sinking into penury. It’s simply astounding how out of touch these ivory tower and Wall Street functionaries are. To paraphrase Homer Simpson: “Matt, you think too much. We heard there was a problem with some unemployment, and we fixed it.”

roger spalding

“normal people abnegated all responsibility, both political and economic, to the financial superclass…… … lack of financial literacy and the naïve belief in the ability of policymaker’s to control and engineer the economy.” excellent- wish the Australian electorate and politicians recognise their somewhat similar behaviour.

A Japanese future is something that has already slipped from the grasp of the UK (riots) and the USA (Hoovervilles). Japan has a current account surplus and has control over its borders in terms of immigration, and is a creditor nation. It is losing competitive advantage to Korea and China and has no oil and little food- however it has at least not aggravated these factors largely beyond its control by boosting population.


Does indeed spends a lot of words denouncing Taibbi, especially for “not denouncing the complicity of the media”. What a shame it is that this just about is Taibbi’s favorite pastime on his blog, as it would seem to somewhat invalidate his ‘argument’. I wonder how much else he slants in order to get his message across.
Anyway, I’m not really sure why it is relevant to the premise of griftopia that “the public” “accepted” the prosperity brought by the boom during the boom, as it was Greenspan’s duty to ensure no bubbles happened (who is discussed in this book). What should “the public” have done to force Greenspan to raise interest rates? Implicit in Das’s argument seems to be the thought that democracy cannot work because politicians will never try to protect the public interest.
So rather than to acknowledge that a book such as Griftopia might wake up some of the public to the idea that policy makers are indeed hacks, as he seems to think is so important, Das decides to conclude that “blaming and flaming” are just not the done thing. It seems inconsistent somehow.


Das’ unfavorable assessment of Taibbi reminds one of the quote from Eric Hoffer:

To know a person’s religion we need not listen to his profession of faith but must find his brand of intolerance.

If we turn the clock back 80 years, I put Das in the same category with FDR and Keynes: They came to save (reform) capitalism, not to destroy it.

If we turn the clock back 500 years, I put them in the same category with Erasmus: He came to save (reform) Medieval Christianity, not destroy it.

And while I find Das’ posts intellectually satisfying, they are certainly not emotionally satisfying.

Das closes by saying “Human history is the stuff of myth.” That is certainly true. But I think Das fails to recognize how captive he is to his own myth. Like Erasmus, his “brand of intolerance” is exposed when confronted with the visceral appeals of a Luther or Torquemada, Taibbi or Palin,


Given his treatment of “contemporary japan” I have to say I am somewhat puzzled to see that Das is now suddenly talking about how “eternal growth might not be possible”, when he said almost nothing (that went beyond his very general “the early chapters are insightful”) about Harvey’s work in his review of The Enigma of Capital.

However, I am not really convinced that Das actually believes what he is attacking here, considering how strongly he links the belief in the eternal growth model to his (rather bland/broad) criticism of “the media”. Das’s criticism seems to mostly be leveled at the belief that ‘growth is possible in the USA’ rather than the belief that ‘we should organize society in such a way that we are always trying to create economic growth’, which is the bigger problem.

That aside, while I agree the the US is headed for stagnation (especially when you stop counting “US” companies who don’t have US workers), I’m not sure that the comparison of Japan to the US works, as pretty much everything that Das mentions as “having disappeared” has already disappeared in the US as well, or never existed in the US in the first place. Also, the Japanese have savings, and a much larger industrial sector, while the US don’t, and I doubt its political class will be willing to squander their savings on saving the country.

highly intellectual and reasoned appeals of a Das, Auerback or Erasmus. To put it in Hoffer’s words again: “Far more crucial than what we know or do not know is what we do not want to know.”

[Dec 13, 2010] Jeremy Grantham's 3Q 2010 letter - NIGHT OF THE LIVING FED

By the 21st century, the pernicious practice of asset price manipulation had become baked into the pie. It guaranteed that stocks would be overpriced most of the time and that the persistent overpricing would move the average higher, while not, of course, changing fair value – replacement cost – at all. Investors would receive lowered dividends and a lower compound return. This distorted high average has been like the deliberately misplaced signal lanterns, which the Cornish, in the stormy west of England, used to lure ships onto the rocks for plunder. Individuals, as well as institutions, were fooled into believing that the market signals were real, that they truly were rich. They acted accordingly, spending too much or saving too little, all the while receiving less than usual from their overpriced holdings .Especially in the boom periods, capital was substantially misallocated, with billions being raised for worthless dotcom companies and massive over commitment to fiber optic cable. Even worse was the excessive percentage of GDP spent on the overbuilding of homes – basically, a nonproductive asset. Apparently, much of our leadership believed in the permanence of those higher asset prices (either believed or cynically played the game and miscalculated). Regrettably, the perpetrators, in this case the Fed, did not get any plunder, but ended up with a ruined balance sheet. Any plunder to be had from the booms and busts went, of course, to the more nimble members of the financial community!

This most unfortunate matter of asset price manipulation does not merely change politics and economics. It is also desperately important to those of us in the stock market, and we must make sense of it. We have mentioned lower returns and scrambled budgeting. More disturbingly for investment professionals, it changes the normal workings of capitalism and the market.

Weaker companies need more debt. Artificially low rates that are engineered by the Fed mean that leverage is less of a burden and survival is easier. Similarly, the Great Bailout allowed many companies that normally would have failed and been absorbed by the stronger or more prudent ones to survive. If we look at the timeframe since 2001, it is composed of two periods of negative interest rates with a bailout in between. This whole era has been artificially favorable to marginal companies and leveraged companies, partly at the expense of conservative, unleveraged blue chips. The great companies look less excellent on a relative basis, and they have missed opportunities for picking up failing companies that they would normally have acquired at attractive prices. To see how sensitive more marginal companies are to this effect, we took a look at the effect of negative real short-term rates on the performance of the small stocks (as representatives of more marginal companies) relative to the S&P 500. Exhibit 6 shows the results in an emphatic way: 100% of those four major and several minor periods of negative real rates show outperformance for the small stock group. With the Fed begging speculators to borrow at negative rates, it should not be surprising that they do, and that these speculative investments are not typically the Coca-Colas of the world. Because of this effect, it is also probable that the regression rate of profitability, particularly for weaker companies, has slowed. This change, in turn, seems to have caused value models to work less effectively since 2001 than was the case for the prior 50 years.

The Stimulus of the Fed Manipulation Must Always Be Repaid, Sometimes with Interest

The saddest truth about the Fed’s system is that there can be, almost by definition, no long-term advantage from hiking the stock market, for, as we have always known and were so brutally reminded recently, bubbles break and the market snaps back to true value or replacement cost. Given the mysteries of momentum and professional investing, when coming down from a great height, markets are likely to develop such force that they overcorrect. Thus, all of the beneficial effects to the real economy caused by rising stock or house prices will be repaid with interest. And this will happen at a time of maximum vulnerability, like some version of Murphy’s Law. What a pact with the devil! (Or is it between devils?)

The net effect of deliberately encouraging the start of asset bubbles – particularly in the case of housing – and then neglecting them and leaving them to burst, created the worst domestic and global recession since 1932. It exposed intractable, structural unemployment that had been building up. With a Congress totally at stalemate, this is a nearly impossible situation but one which, as usual, will be associated with the current Administration and therefore will cost dearly in votes.

[Dec 12, 2010] The Dumb Money Is The Most Confident It Has Been In 5 Years

Can it be that "smart money" are dumb and "dumb money" (aka reatial investor) are smart ?

Implicit simplicit:

Here are some fundamental reasons for a downturn. I think it will be a bottom -up squeeze dowturn from:

Eventually unemployment increases because growth below 3% GDP will not allow the unemployment rate to drop. In addition, lower house prices feed the spiral down in job related housing employment. Also, the productivity gains through robotics, outsourcing etc… that has allowed large international companies to show increased earnings has not resulted in increased wages for the workforce where productive gains have been realized, only for the workforce where productive gains have not ramped-i.e....-banks, healthcare, finance, government bureaucrats etc…(See Baumol’s Cost Disease)

Thus, the contagion will spread, even to many of the wealthy. The interconnectivity of overleveraged capitalism plays out by the top feeders of the income pyramid at each successive level being unable to squeeze additional income out of the level just below them. The lower levels get hit first but it eventually it spreads to the top as it must. The top feeders eventually need the bottom feeders at each successive below them.

This doesn't mean stock prices must move down initially, as has been proven by a relentless Ponzi. However, you can't get vampire squid blood from a rock.

Bill Lumbergh:

The market is very overvalued by most common measures:

In a 0% interest environment these measures are meaningless until of course regression to the mean which always occurs at some point.

Implicit simplicit :

Science calls it equilibrium. Philosophy might call it justice. Economists might call it reversion to the mean.

Regardless, for its survival, capitalistic USA needs to reboot and cleanse. The disparity in pay where the elites and those paid from taxes make an inordinate percentage of the income is unsustainable.

The system will find equilibrium, and payback to the banks will probably be a harsh through equalizing debt reduction by the masses. The over-creation of dollars will insure it doesn't happen without tremendous volatility and destruction.

Charles Mackay:

In a rather unscientific survey of people I know, many of which are well educated in finance and accounting but not involved with Wall Street, there is not a great amount of optimism about the market. I believe many have missed an opportunity to make about 10% in the market this year by hiding out in nw losing bond investments, or low yielding short term money market funds.

Where exactly is all this confidence coming from?

[Dec 12, 2010] Former Goldman Programmer Guilty Of Code Theft, Levin Still Probes -

The programmer, who allegedly was to use the code to develop a trading platform at Teza, claimed he made a mistake as he was trying to download open source code. Aleynikov, who holds dual Russian-U.S. citizenship, was placed under home confinement and electronic monitoring, after he posted bail.

It wasn't time to uncork champagne bottles at Goldman Sachs. The firm headed by Lloyd Blankfeinwas being investigated by Senator Carl Levin for its credit default swap trading activities during the run-up to the market free-fall caused by Lehman Brothers ( LEHMQ - news - people )' collapse.

Emails from the head of Goldman Sachs' asset-backed securities trading desk, Michael Swenson, during the subprime mortgage crisis show that he urged his traders to "start killing the shorts in the street" and "cause maximum pain." Levin accused the investment bank of engaging in a so-called short-squeeze strategy, which would drive the markets in favor of Goldman.

[Dec 11, 2010] Update Distribution Day Culprit Behind Pimco Fund’s 5% Drop - Focus on Funds -

As Brian and Peter pointed out in a sister post, the Bill Gross-led Pimco Total Return Fund (PTTAX) seemingly took a fall Wednesday of 5.26%, or 60 cents, to $10.80 a share.

But, alas, as readers correctly concluded (see comments below) — it was just a distribution day.

According to the Pimco site, Total Return Fund had a short-term distribution of 44 cents and long-term cap gains distribution of 9 cents for a total of 53 cents. But those are just estimates.  Adding a 2-cent dividend to the distribution list would put the fund’s loss on the day closer to 5 cents a share.

An obvious clue was that rival bond funds Wednesday barely skinned their knees.

[Dec 08, 2010] Government's Economic Recovery Efforts Are Strengthening The Already Strong And Ignoring The Weak Markets By Peter Atwater

A few minutes ago, the flight attendant completed her pre-flight monologue, including the federally mandated, albeit frequently ignored phrase, “In case of a sudden change in cabin pressure, oxygen masks will fall from the bins above your head. Put your mask on first and then put the masks on children traveling with you.”

While I'm sure the line was clearly intended for the mother of twins sitting in front of me, it struck me as the perfect analogy for the government response to the 2008 banking crisis. Monetary and fiscal policy would target the biggest banks and corporations along with the wealthiest in America, with the hope that once safe, they in turn would quickly breathe life into middle market and small businesses, as well as middle- and lower-class Americans.

... ... ...

Unfortunately, as I look at the other end of the economic spectrum, it appears that most are still waiting for the oxygen mask to be passed to them.

So why hasn’t the well-oxygenated “wealth effect” translated into a stronger virtuous economic cycle?

As I look at the data, there appear to be several reasons.

At the consumer level, the wealthy seem to be using the benefits of lower mortgage rates to accelerate both revolving and non-revolving debt repayment. Thirty-year mortgages, for example, are being converted to 15 years while keeping monthly debt service flat and mortgage lenders are seeing “cash in” not “cash out” refis. And for savers (arguably the group perceived to be the most resilient going into the crisis), they have found themselves having to restructure their daily lives to reflect the impact of quantitative easing on their monthly incomes. As they will attest, living off of 1% interest is considerably more difficult than living off of 5%.

At a corporate level, the benefits of lower US interest rates appear to have been transformed into a multinational carry trade, where cheap dollars have been translated into capital expenditures and jobs in higher-growth countries abroad. And as we saw last week, what little job growth we've seen stateside has been restricted largely to temporary/part-time positions as any number of uncertainties linger. Finally, given the experience of 2008, where both the bank and money markets froze up, corporations are today taking a much more conservative approach to cash management, choosing to bring on board their previously off-balance/contingent liquidity.

And then there are the small community and regional banks, whose small business customers continue to struggle while their deposit costs continue to widen versus the Treasury curve. For them, QE2 is not an oxygen mask, but rather a pillow being placed over their mouths.

The net result of it all is that, despite the abundant oxygen, the masks aren’t getting to where they were supposed to. And to these eyes, rather than creating a virtuous economic cycle, I am increasingly afraid that all the Federal Reserve and other global policymakers have accomplished is to create a potentially dangerous asymmetric recovery, in which “the haves” now have even much more and the "have nots" are slowly suffocating to death.

Or, as cartoonist Adam Zyglis put it recently in The Buffalo News:

... ... ...

As we witnessed with the introduction of “fat cat bankers,” politically charged rhetoric is highly explosive when laid on an asymmetric economy. Worse, I'm afraid that it may be lethal to the still very-necessary transfer of the oxygen masks to those who need them most if we are to see any kind of virtuous cycle develop from here.

As I look ahead, the greatest challenge policymakers face both here and in Europe is closing the widening divide and reducing the economic asymmetry without alienating either side in the process, particularly as both sides believe the other must blink first.

But if we have any chance of righting our asymmetric economy, we have to move the mask, and sooner rather than later. And, candidly, as I survey the world, I am increasingly afraid that if that doesn’t start to happen voluntarily pretty soon, someone without a mask is just going to reach over and rip it off the face of someone who has it.

[Dec 07, 2010] Report: General Agreement on Taxes for next two years

Rants below are good and insightful, but change nothing. We have what we have. Of course, no matter how you look at this this is a selloff...  But its' not the first and not the last from this man...
12/06/2010 | CalculatedRisk

The NY Times has the details: Pact on Bush Tax Cuts Trims Payroll Levy

A few points:

For a family earning $50,000, the two percentage point cut would mean a savings of $1,000.
For workers paying the maximum, the two percentage point cut would mean a savings of $2,136.
Estate tax exemption of $5 million per person and a maximum rate of 35 percent.

This is expected to increase the budget deficit by $900 billion over two years.

Selected Comments

Yancey Ward

The fault for the deal today lies at the feet of the Democratic leadership in Congress. At any point before this past Summer, the Democrats could have passed the extension, or made permanent, the Bush tax cuts for those under 200K, and would have been in a position, today, to tell the Republicans to go pound sand on the tax rates for those above 200K or on the estate tax.

Instead, they foolishly tried to keep the issue on hand for an election, an election in which they got their collective asses handed to them, then tried a bluff with a hand of crap in the lame duck session. To his credit, Obama realized just how damned badly the Democrats had miscalculated and found a way out without losing all face, and he actually got a deal on a second stimulus that runs through the end of next year. .


        TagsGDD9000 wrote:

OMG - just read the 200 plus first comments on this. Obama has just become pink vapor. He was already dead to me, but its astonishing how many people are abandoning him on this. Wow...

yes. he forgot the THROW the grenade.

i think he gave up.


 Tagsmp wrote:

CR wrote: This is expected to increase the budget deficit by $900 billion over two years. Is that all?

It's all they'll admit to at the moment. Expect it to be adjusted upward. .


Outsider wrote:

Interesting. So a family earning $50k gets a whopping $1k savings a year. How much proportionately do high income earners save on their taxes?

At first glance, I see this as a furthering of the disparity gap. I'm anxious to hear some responses.

you are not factoring in the various budget cuts that are going to start flowing like trickle onto the heads of the other 98%.

the Federal pay freeze was the beginning.....only the beginning.

$1,000 extra for that family making $50,000 . . . and then everything else gets cut: wages, aid to education, Medicaid, school lunch programs, public health, public safety, parks and libraries, and the people who try to keep melamine out of the milk supply....all gone, but the family will save $1000 off their taxes due.


Hoopajoops LTD wrote:

I'd lambaste the Democrats as utter failures, but that implies they're failing at what they're really trying to do.

Hey.. Dems are now just the Republican Lite party, new package, lower calories but the same filling.


Don't forget about the continuation of the massive tax break given to wealthy asset owners - the low capital gains tax. It's now going to just 20% versus 15%. A 20% tax on the biggest source of income for the wealthiest Americans. Whilst most middle-income workers fork out 28% plus social security and medicare of over 5%, or 33%.

Hoopajoops LTD :

Hey.. Dems are now just the Republican Lite party, new package, lower calories but the same filling.

God damnit, no. Get that fucking two party nonsense out of your head. The Republicans are as much of a sham as the Democrats are. The Democrats aren't "republican lite," they're both the same god damned thing, tools of the oligarchy.


barfly wrote:

my real ire is directed at the blue-dog fucking Democrats

You are a true believer, barfly. Our President may be many things, but he is not a blue dog Dem. Blankfein and Dimon don't rely solely on blue dogs when they want a result. Even favorites of the left, like Barney and Chris, are on their speed-dials, and are trusted allies on the big Wall Street issues.


scone wrote:

2 years is a long time in politics. If this thing gets better by 2012, Obama will get credit for "statesmanship." And the Repubs still can't field a winning team. Palin has no shot. If I'm wrong, I promise to beat myself over the head with fake stainless steel.

here are the problems with that:

1) this deal makes a recovery less likely by funneling more money to the rich, ballooning the deficit, undercutting everything else for the next two years as unpaid,

2) it gives the Republicans two nuclear weapons to use against Obama, the deficit keeps getting bigger under his presidency and if re-elected in 2012 he will raise your taxes.

3) the republicans will likely filed Chris Christie or another governor for their candidate in 2012, and Christie (if he has no skeletons in his closet) will eat Obama alive under these circumstances

4) Obama has so alienated his base that even a mediocre candidate stands a chance of beating him.


longtimelurker wrote:

Obama has so alienated his base that even a mediocre candidate stands a chance of beating him.

You almost wonder if Jamie and Lloyd have already figured out that they've squeezed Obama completely dry, and they will need a replacement in 2012. Why not set it up for Hillary or the Republican version? All the loyalists on both sides will cheer lustily again, blissfully unaware that the next candidates are just as paid for and captive as Obama and Bush were.

Outsider :

it looks like $120 billion mostly for the less well-off, in the form of a reduced Social Security tax, plus $60 billion for UE benefits. Most of the rest of the $900 billion goes to the well-off.

That sums it up for me pretty well then, assuming the #s are fairly accurate.

As I suspected. Class disparity on steroids.

Anonymous Bosch:

Outsider wrote:

This is a cheap shot, but has Obama bothered to change his party affiliation yet?

Why? There is only The Party. .

Comrade Elmer Fudd:

no drama obama is turning out to be anything but, he's the wallflower at every prom .


Outsider wrote:

As I suspected. Class disparity on steroids.

For now, anyway. When the chickens come home to roost, it will be military spending or old age bennies-- pick one. And the population will be a lot older by then. In the near term, if the cuts don't ignite the economy, which they won't, the Repubs will get much of the blame, because of the blackmail angle. So basically all we have here is a bigger screaming match in a couple of years.

[Dec 07, 2010] Remarks by the President on the Economy in Winston-Salem, North Carolina The White House

This is just a sound waves: no real plan, no real understanding of the situation. Banana republic mentality... 
Just like past generations did, we must be prepared to answer these questions in our time.  And over the next several weeks, I'm going to be meeting with my economic team, with business leaders and others to develop specific policies and budget recommendations for the coming year.  Today I want to outline the broader vision that I believe should guide these policies -– and it’s a vision that will keep our economy strong and growing and competitive in the 21st century.

And that vision begins with a recognition of how our economy has changed over time.  When Forsyth Technical opened 50 years ago, it was known as Forsyth County “Industrial Education Center.”  Right?  That's a mouthful.  (Laughter.)  Machine shops and automotive mechanics were some of the first classes you could take.  Of course, back then you didn’t even need a degree to earn a decent living.  You could get a job at the local tobacco or textile plant and still be able to provide for yourself and your family.

That world has changed.  In the last few decades, revolutions in communications, revolutions in technology have made businesses mobile and has made commerce global.  So today, a company can set up shop, hire workers, and sell their products wherever there’s an Internet connection.  That's a transformation that’s touched off a fierce competition among nations for the jobs and industries of the future.

Some of you know I traveled through Asia several weeks ago. You’ve got a billion people in India who are suddenly plugged into the world economy.  You’ve got over a billion people in China who are suddenly plugged into the global economy.  And that means competition is going to be much more fierce and the winners of this competition will be the countries that have the most educated workers, a serious commitment to research and technology, and access to quality infrastructure like roads and airports and high-speed rail and high-speed Internet.  Those are the seeds of economic growth in the 21st century.  Where they are planted, the most jobs and businesses will take root.   

Now, in the last century, America was that place where innovation happened and jobs and industry always took root.  The business of America was business.  Our economic leadership in the world went unmatched.  Now it’s up to us to make sure that we maintain that leadership in this century.  And at this moment, the most important contest we face is not between Democrats and Republicans.  It’s between America and our economic competitors all around the world.  That's the competition we've got to spend time thinking about.  (Applause.)  

Now, I have no doubt we can win this competition.  We are the home of the world’s best universities, the best research facilities, the most brilliant scientists, the brightest minds, some of the hardest-working, most entrepreneurial people on Earth -- right here in America.  It’s in our DNA.  Think about it.  People came from all over the world to live here in the United States.  That's been our history.  And those were the go-getters, the risk-takers who came here.  The folks who didn’t want to take risks, they stayed back home.  (Laughter.)  Right?  So there’s no doubt that we are well equipped to win.

But as it stands right now, the hard truth is this:  In the race for the future, America is in danger of falling behind.  That's just the truth.  And when -- if you hear a politician say it’s not, they’re not paying attention.  In a generation we have fallen from 1st place to 9th place in the proportion of young people with college degrees.  When it comes to high school graduation rates, we’re ranked 18th out of 24 industrialized nations -- 18th.  We’re 27th in the proportion of science and engineering degrees we hand out.  We lag behind other nations in the quality of our math and science education.

When global firms were asked a few years back where they planned on building new research and development facilities, nearly 80 percent said either China or India -- because those countries are focused on math and science, and they’re focused on training and educatt facility in the world wnew and stronger foundation for economic growth.

We need to do what America has always been known for:  building, innovating, educating, making things.  We don’t want to be a nation that simply buys and consumes products from other countries.  We want to create and sell products all over the world that are stamped with three simple words:  “Made In America.”  That's our goal.  (Applause.)  

So I came to Forsyth today because you’ve shown what this future can look like.  Half a century later, you’re still giving students the skills and training they need to get good jobs, but of course -- but courses in machine shop and car mechanics have now broadened to degrees in mechanical engineering technology and nanotechnology and biotechnology.  And meanwhile, your unique partnerships that you’re building with advanced manufacturing and biotechnology firms will ensure that the businesses of the future locate here, they come here, they stay here, they hire right here in Winston-Salem.  (Applause.)  

As a national leader in bioscience and innovation, North Carolina is now the country’s third largest employer in biotechnology.  (Applause.)  And when Caterpillar recently decided to build a plant in this community, they told President Green one of the main reasons was “…they were convinced that Forsyth Tech had the capability of providing them with the technical workforce that they need.”  (Applause.)

That’s something everybody in this room should be very proud of.  And I know that business leaders from throughout the community have worked intensively with President Green and others to help make this happen.  And I know that your congressional delegation, as well as your governor, have worked hard to make this happen.    

Now, none of this progress happened by itself.  It happened thanks to the hard work of students here at Forsyth, the commitment of local leaders, foresight of local business leaders -- most importantly, it happened because there was a decision made to invest in the collective future of this community.  It happened because there was a decision to invest in this college, and there were loans and scholarships that made it affordable to go here.

To invest in the basic research and development that helped jumpstart North Carolina’s biotech industry; to invest in new buildings and laboratories and research facilities that make your work possible -- these are the kinds of investments we need to keep making in communities across America -– investments that will grow our economy and help us to stay competitive in the 21st century.

Now, I want to emphasize I say this knowing full well we face a very difficult fiscal situation.  I’m looking at the books back in Washington, and folks weren’t doing a real good job with their math for the last decade.  (Applause.)  So now that the threat of a depression has passed, and a recovery is beginning to take hold, reducing our long-term deficit has to be a priority.  And in the long run, we won’t be able to compete with countries like China if we keep borrowing from countries like China.  (Applause.)  We won’t be able to do it.  (Applause.)

So we’ve already started making some tough decisions.  And they’re unpopular and people get mad, but we’ve got to make some decisions.  I’ve proposed a three-year freeze in all spending that doesn’t have to do with national security.  And I proposed a two-year freeze in the pay for federal workers.  That’s why we’re currently studying recommendations of the bipartisan deficit reduction panel that I commissioned.  We’re going to have to be bold and courageous in eliminating spending and programs that we don’t need and we can’t afford.

But here’s where there's going to be a debate in Washington over the next year and over the next couple of years and maybe over the next five years, because I will argue and insist that we cannot cut back on those investments that have the biggest impact on our economic growth because -- (applause.)

I was talking with President Green, and he said much of the equipment here would not be here if it hadn’t been for the assistance of the Recovery Act, the assistance of the Department of Labor.  (Applause.)  All this stuff that we’ve done over the last couple of years that people were questioning, you can see it translated in the classrooms right here.  The work that we’re doing on student loans and Pell Grants, you can see it in the students who are able to finance their retraining right here.  (Applause.)

So we can’t stop making those investments.  The best antidote to a growing deficit, by the way, is a growing economy. To borrow an analogy, cutting the deficit by cutting investments in areas like education, areas like innovation -- that's like trying to reduce the weight of an overloaded aircraft by removing its engine.  It’s not a good idea.  (Applause.)  There may be some things you need to get rid of, but you got to keep the engine.  (Laughter.)

That’s why even as we scour the budget for cuts and savings in the months ahead, I will continue to fight for those investments that will help America win the race for the jobs and industries of the future -– and that means investments in education and innovation and infrastructure.  I will be fighting for that.  (Applause.)   

In an era where most new jobs will require some kind of higher education, we have to keep investing in the skills and education of our workers.  And that’s why we are going -- we are well on our way to meeting the goal I set when I took office two years ago:  By 2020, America will once again have the highest proportion of college graduates in the world.  That's a commitment that we’re making.  (Applause.)

So to get there, we’re making college more affordable for millions of students.  We’ve made an unprecedented investment in community colleges just like this one.  And just like Forsyth, we’ve launched a nationwide initiative to connect graduates that need a job with businesses that need their skills.

We’re reforming K-12 education –- not from the top down, but from the bottom up.  Instead of indiscriminately pouring money into a system that’s not working, we’re challenging schools and states to compete with each other –- to see who can come up with reforms that raise standards, and recruit and retain good teachers, raise student achievement, especially in math and science.  We call it Race to the Top -- (applause) -- where you get more funding if you show more results -- because part of the argument here is, is that if we’re going to have a government that's smart and helping people compete in this new global economy, then we’ve got to spend our money wisely.  And that means we want to invest in things that are working, not in things that aren’t working just because that's how things have always been done.

Now, once our students graduate with the skills they need for the jobs of the future, we’ve also got to make sure those jobs end up right here in America.  We’ve got to make sure that the United States is the best place to do business and the best place to innovate.  (Applause.)  So it’s time, for example, that we have a tax code that encourages job creation here in America. (Applause.)

And to boost our recovery, I’ve already proposed that all American businesses should be allowed to write off all the investments they do in 2011.  We want to jumpstart, starting next year, plants and equipment investment right here in Winston-Salem and all across North Carolina, and all across the United States of America.  (Applause.)

To encourage homegrown American innovation we should make it easier to patent a new idea or a new invention.  And if you want to know one reason why more companies are choosing to do their research and development in places like China and India, it’s because the United States now ranks 24th out of 38 countries in the generosity of the tax incentives we provide for research and development.  So that’s why I’ve proposed a bigger, permanent tax credit for companies for all the research and innovation they do right here in America.  All of it.  (Applause.)

     Now, what’s also true is a lot of companies don’t invest in basic research because it doesn’t pay off right away.  But that doesn’t mean it’s not essential to our economic future.  Forty years ago, it probably didn’t seem useful or profitable for scientists and engineers to figure out how to increase the capacity of integrated circuits.  Forty years later, I’m still not sure what that means.  (Laughter.)  What I do know is that discoveries in integrated circuits made back then led to the iPod and cell phones and GPS and CT scans -– products that have led to new companies and countless new jobs in manufacturing and retail, and other sectors.

That’s why I’ve set a goal of investing a full 3 percent -- not 2 percent, not 2.5 percent -- a full 3 percent of our Gross Domestic Product into research and development.  That has to be a priority.  (Applause.)

If this is truly going to be our Sputnik moment, we need a commitment to innovation that we haven’t seen since President Kennedy challenged us to go to the moon.  And we’re directing a lot of that research into one of the most promising areas for economic growth and job creation –- and that's clean energy technology.  (Applause.)  I don’t want to see new solar panels or electric cars or advanced batteries manufactured in Europe or in Asia.  I want to see them made right here in America, by American businesses and American workers.  (Applause.)

I also want to make it easier for our businesses and workers to sell their products all over the world.  The more we export abroad, the more jobs we support at home.  We’ve got to change the formula.  We’ve got to flip the script, because what’s been happening is, is that we’ve been doing all the buying; somebody else has been doing all the selling.  (Applause.)  We’ve got to start selling and have them do some buying.  (Applause.)  And that's why we’ve set a goal of doubling U.S. exports in five years.  (Applause.)  And that’s why I’m pleased that last week, we came closer to meeting that goal by finalizing a trade agreement with our ally, South Korea.  This is a nation that offers one of the fastest-growing markets for American goods.

Now, here in North Carolina and all across the country, there are a lot of people that say, trade, we’re not sure that that helps us.  It seems like maybe it’s hurt us in areas like furniture.  Look, right now the status quo -- South Korea is selling a whole bunch of stuff here and we’re not selling it there.  The current deal is not a good one for us.

Think about -- there are a lot of Hyundais on the road.  (Laughter.)  But there aren’t a lot of Fords in Seoul, because the formula has been:  Let’s sign any trade agreement, let’s cut any deal, without thinking ahead about how this is going to impact America.  What this deal does is boost our annual exports to South Korea by $11 billion.  That means it will support at least 70,000 American jobs -- 70,000 American jobs.  (Applause.)

Now, the final area where greater investment will lead to more jobs and economic growth is in America’s infrastructure -– our roads, our railways, our runways, our information superhighways.  Over the last two years, our investment in infrastructure projects -- yes, through the Recovery Act -- have led to thousands of good private sector jobs and improved infrastructure here in North Carolina and all across the country.

But we’ve got a long way to go.  There is no reason that over 90 percent of the homes in South Korea have broadband Internet access, and only 65 percent of American households do.  Think about that.  There’s no reason why China should have nearly 10,000 miles of high-speed rail by 2020, and America has 400.  Think about that number.  They’ve got 10,000; we’ve got 400.  They’ve got trains that operate at speeds of over 200 mph -- and I don't know how fast our trains are going.  (Laughter.)

We’re the nation that built the Transcontinental Railroad.  We’re the nation that took the first airplane into flight.  We constructed a massive Interstate Highway System.  We introduced the world to the Internet.  America has always been built to compete.  And if we want to attract the best jobs and businesses to our shores, we’ve got to be that nation again.

And throughout history, the investments I’ve talked about –- in education and innovation and infrastructure -– have historically commanded the support from both Democrats and Republicans.  It was Abraham Lincoln who launched the Transcontinental Railroad and opened the National Academy of Sciences.  He did it in the middle of a war, by the way.  But he knew this was so important we had to make these investments for future generations.  Dwight Eisenhower helped build our highways. Republican members of Congress worked with FDR to pass the G.I. Bill.

More recently, infrastructure bills have found support on both sides of the congressional aisle.  The permanent extension of research and development tax credits was proposed by both Bill Clinton and George W. Bush.  Our education reforms have been praised by both Democratic and Republican governors.

So the point is there should not be any inherent ideological differences that prevent Democrats and Republicans from making our economy more competitive with the rest of the world.  If we’re willing to put aside short-term politics, if our objective is not simply winning elections but winning the future -- (applause) -- then we should be able to get our act together here, because we are all Americans and we are in this race together.  (Applause.)

So those of us who work in Washington have a choice to make in the coming weeks and months.  We can focus on what’s necessary for each party to win the news cycle or the next election.  We can do what we’ve been doing.  Or we can do what this moment demands, and focus on what’s necessary for America to win the future.

For as difficult as the times may be, the good news is that we know what the future could look like for the United States.  We can see it in the classrooms that are experimenting with groundbreaking reforms, and giving children new math and science skills at an early age.  We can see it in the wind farms and solar plants and advanced battery plants that are opening all across America.  We can see it here at Forsyth -– in your laboratories and your research facilities -- and over at the biotechnology firms that are churning out jobs and businesses and life-saving discoveries.

You see it in the faces of the young people who we just visited to -- visited with, Dr. Green and myself -- some not-so-young faces, but people who, despite layoffs, despite hardships, felt confident in their future.

Just the other month, I saw part of America’s future during a science fair we held at the White House.  It was the first science fair we’ve ever held.  And we talked to some of these amazing young people.  It was probably as much fun as I’ve had in several months.  Now, that's a low bar, given -- (laughter.)  But there was a team from Tennessee that had designed a self-powered water filtration plant so that homes in Appalachia could have access to clean water.  And then there were these young people -- these are all high school, some younger than high school -- there were young people who had designed a way to make an entire town more energy-efficient.

And there were young people who had entered into rocket contests, and they were showing me all the rockets that they had been shooting up, and they had won an international contest, and explained to me the designs of these things -- and robots that were running around in the State Dining Room and bumping into things.  (Laughter.) 

And then the last person I spoke to was a young woman from Dallas, Texas, and her name was Amy Chyao.  She’s 16 years old.  She’s a child of immigrants.  Her parents came to the United States from China, but Amy was born here.  And when she was a freshman in high school, she got interested in cancer research.  She had studied biology and she got interested in cancer research.  So she decided -- get this -- she decided to teach herself chemistry over the summer.  And then she designed a device that uses light to kill hard-to-reach cancer cells while leaving the healthy ones untouched.  This is her summer science project -- (laughter) -- 16 years old. 

She goes on to win the international science competition.  All these kids from all around the world -- she wins the competition.  So now she’s being approached by laboratories all across the country who want to work with her on developing this potential breakthrough cancer drug that she’s designed.  Sixteen years old.
And I’m talking to Amy and pretending like I understand what she is explaining.  (Laughter.)  And as I’m listening to her, I’m looking at the portrait of Abraham Lincoln that hangs over her head in the State Dining Room.  And I remembered all that we’ve been through and all that we’ve overcome.  And I thought to myself, you know what, the idea of America is alive and well.  We are going to be just fine.  (Applause.)

We are going to be just fine as long as there are people like Amy and her parents, who still want to come to this country and add to our story; as long as there are people like the men and women here at Forsyth Technical, who are keeping us at the top of our game; as long as we are willing to look past the disagreements of the moment and focus on the future that we share -- we will be fine. 

If we can do that, I have no doubt that this will be remembered as another American century.  We will meet that Sputnik moment, but we’re going to all have to do it together.

[Dec 06, 2010] Newsroom - Video-Audio U.S. Senator Bernie Sanders (Vermont)

Full version of his speech is available at  Floor Statement on the Economy
December 2, 2010
Senator Bernie Sanders from Vermont delivered an amazing speech in the Senate on December 2nd that was right on the money in regards to the problems America (and by extension, the world) faces.

To quote:

[Dec 04, 2010] David Callahan Why the Rich Cheat A Primer on Upper Class Criminality

Well, as I argued in my book The Cheating Culture, a number of converging factors are usually at work when otherwise law-abiding people with lots of money turn into criminals.

One is a persistent focus among those who are wealthy and competitive on their relative, rather than their absolute, well-being. A 6,000-square-foot house may sound pretty big to most of us, but it may not feel that way if those in your peer group own 10,000-square-foot homes and vacation places in Hawaii to boot. Likewise, a hedge fund guy who makes $10 million a year would seem to be doing amazingly well -- except when he compares himself to the trader down the street in Greenwich who is making $100 million. Raj Rajaratnam was worth $1.5 billion in 2009 -- big money, but not compared to George Soros who was worth $13 billion.

As the economist Robert Frank points out in his book, Luxury Fever, the push to improve one's relative position is actually quite rational and may be hardwired in us. If you're the person with the smallest house in the neighborhood, even though you live in a big house, you may look less like you're going places and get fewer opportunities thrown your way. If you're the person wearing the $500 suit, you may lose out to the guy wearing the $1,000 suit, all other things being equal.

Of course, various Wall Steeters have put the point about relative position in simpler terms over the decades: Money is how people keep score on Wall Street. If you want to be a winner, you need to make more than the next person -- regardless of how much you make already. That imperative can lead people to do some pretty stupid, and illegal, things. Even small amounts of money, such as in Martha Stewart's case, can seem significant because highly successful people often believe that they are winners because they fight relentlessly to score each and every point.

Second, criminal behavior can be rooted in the ever rising bar of material expectations and the financial pressures that result. If you travel in circles where it is normal to have a spacious apartment on the Upper East Side and a place in the Hamptons, you're facing a heavy lift to achieve and sustain that standard of living yourself. In this situation, it does make a difference whether you make $5 million a year or $15 million. Throw in a private jet and a place in Aspen as part of the norm, as well as philanthropic commitments, and you're not going to be in the game without an income that is reliably in the mid-eight figures.

It is easy for anyone to get financially over-extended, and this happens to the rich all the time. There is a long history of wealthy people who have crashed and burned in scandal because they turned to criminal actions to sustain an unaffordable lifestyle. For a particularly egregious case, recall the suicide a few years back of Jeffrey Silverman, the Upper East Side financier -- with homes in Bridgehampton and Palm Beach -- who stole from his own company to make ends meet. He killed himself as the net began to close. New York magazine called him "The Man Who Had Everything." Unfortunately, he couldn't afford everything.

Finally, there is a more pedestrian reason why the rich cheat and break the law. Because they can -- or think they can. When you're part of a winning class which basically owns our political system, it can be easy to think that you're above the rules. Or that you can avoid punishment when you break the rules by pushing the right buttons.

Of course, this belief in impunity is largely correct. Most financial crimes do not result in punishment. The rich know the odds favor them when they cheat and the rewards can be vast. Until that calculus changes, big financial crimes will keep on coming.

[Dec 02, 2010] S&P to Hit 1250 Before 'Big Decline' Pro

“Although the market is a little weak, it's in a bottoming-out process technically,” Rubino told CNBC.

“We’ll get a bounce up to 1,250 [on the S&P 500] before we really have the big decline that we’ve been expecting for some time.”

Rubino said he likes the dollar long-term, and advised equity investors to stay on the sideline.

“There’s going to be a great trade in the long bond if yields get up to 3 percent, because the economy is still weak—we don’t see any positive going long-term at all.”

[Dec 02, 2010] Goldman challenged on trading code By Telis Demos

 November 30 2010 |

Sergey Aleynikov, who is accused of stealing Goldman Sachs’ source code used in high-frequency trading, argued that he was standing up to the investment bank’s proprietary claims on open-source code, not trying to steal private codes to use at a competing trading firm.

Mr Aleynikov, a former computer programmer at the bank, is accused of downloading proprietary code related to high-speed trading systems in June 2009 for use at a new job at a competing firm.

He is charged by the US attorney with one count of theft of trade secrets and one count of transporting those secrets across state lines. The charges carry a typical sentence of four to six years. The trial, which began on Tuesday, is expected to last two weeks.

But his defence attorney, Kevin Marino, in opening arguments, said that the defence intended to show that “Goldman Sachs’s so called top-secret, highly profitable system, is loaded with open source [code]”.

“[Mr Aleynikov] rejected Goldman Sach’s assertion of ownership. That’s a mistake,” said Mr Marino, conceding that Mr Aleynikov probably violated his contract with Goldman. But “I will dispute to my death that violating Goldman Sachs’s confidentiality policy is a crime”.

He said that Mr Aleynikov was “extremely active in the open source community” and was “committed to discovering open code”.

Mr Marino also attempted to argue that Goldman could have pursued a civil suit rather than calling the FBI but the judge granted the prosecutor’s objection to that assertion.

Misha Malyshev, who had intended to hire Mr Aleynikov at Teza Technologies, a Chicago-based trading firm, will testify that he did not want or intend to use any Goldman code, according to Mr Marino.

The prosecutor, Joseph Facciponti, an assistant US attorney for the southern district of New York, described the code as “top secret parts used to make millions of dollars”, and said Mr Aleynikov took steps to steal the code and conceal his actions in order to justify a pay raise from $400,000 a year at Goldman to $1.15m at Teza.

A witness from Goldman Sachs’s IT department testified in court on Tuesday that Goldman takes steps to ensure that employees do not take code, including reviewing server logs when an employee leaves.

The government has also made efforts to close parts of the trial in order to protect Goldman’s secrets. Judge Denise Cote said that while the defence would need to clear any cross-examination questions that might prompt the government to request a hearing on closing the court, she would not grant any blanket closures without a specific discussion.

If successful in proving that he intended to take only open source code, Mr Aleynikov is entering a grey area of law, say legal experts.

“This is a legitimate legal question. Does it hurt the claim of a trade secret if there is open source code involved?” said Brent Cossrow, a partner at Fisher & Phillips. “This is going to be the highest profile case where the open source code defence has been run.”

[Dec 02, 2010] Gold Daily and Silver Weekly Charts

 Jesse's Café Américain

One of the more interesting things that happened recently was the decoupling of gold and silver bullion from the equity market and the US dollar.

This is most likely an example of the primary trend reasserting itself after a short term period of artificial price manipulation for option expiration and the first week of the important December delivery at the Comex.

Another way of saying this is that in the short term markets often trade on 'technical factors,' that is, one group of market players may take an overweight position, as we saw this week in the put-call ratio in stocks. So today we had a sharp short covering rally.

Does that really mean anything fundamentally changed? Well, the spinsters can always find 'a reason' for the short term moves in stocks, but it is hard to imagine that what was a disaster last week suddenly becomes all wine and roses this week. Real economies do not shift gears that quickly, thank God. But the wiseguys will use their market positioning, news sources, and rumours to 'manage perception' as do other powerful groups such as the government.

By the way, I hope you have noticed that much of what you hear on the mainstream and from 'experts and analysts' verges on pure propaganda these days. Bloomberg has gotten so outrageous that I can barely stand to watch their shows during the day.

Today for example a nice young lady came in and explained how Social Security was really broke as of 2015 because 'the money was not really there.' Her point was that the trust fund is in US special obligations and since the government spent the money on general things (like tax cuts for the wealthy) it is gone and so cuts must be made.

Well, the US has also spent all the money it is using to pay the interest and redeem the principal on US Treasuries, and so by the same reasoning it ought to cavalierly default on those obligations as well. In fact it ought to default on those obligations first because a Trust is senior as a pre-allocated fund to a non-specific general obligation. But of course that never came up. But that is in effect what is happening with the Fed's quantitative easing. And this is making those who recently looted the system nervous because they have not yet had the opportunity to transfer their dollars into other hard assets and rents producing property.

The problem is that the system has never been reformed, and the money is not reaching the real economy, but merely being used to bail out the creditors who were principally responsible for the financial fraud and subsequent crisis in the first place.

Let's see how this plays out. But expect things to get more disruptive and blatantly unjust because of a general lack of moral leadership and a deterioration in the concept of honor, duty and obligation to country and the people in our national leaders and the pampered princes of the 'me generation.'

[Dec 01, 2010] Pettis on Europe

Usually Michael Pettis writes about China and economics. Today he wrote about Europe and politics: The rough politics of European adjustment. This is a lengthy piece, and here are a few excerpts:
I am now going to veer off into a very different realm, that of politics. I don’t in any sense pretend to be an expert on the subject, but one of the things that surprises me is that as far as I know (perhaps because I am looking in the wrong places) and in spite of very clear historical precedent, very few analysts, even the greatest euro-skeptics, are wondering about of the changes in electoral politics that are likely to take place in Europe over the next few years as a consequence of the euro adjustment.
Political radicalism in these countries will rise inexorably as a consequence of rising class conflict. As Keynes pointed out as far back as 1922, the process of adjusting the currency and debt will primarily be one of assigning the costs to different economic groups, and this is never an easy or conflict-free exercise. Of course the less stable a government becomes as a consequence of this adjustment, the more likely it is to prefer very short-term solutions.
[T]he distribution of these costs is not determined by economic theory but rather by political interests. That is why I said last week that political radicalism in Europe will almost certainly rise and the process of governing will become increasingly unstable. It is through the political process that the costs of adjustment will be assigned to the different groups, and when the costs are likely to be so high, the squabbling over the assignment of those costs is likely to be quite brutal.
I am not suggesting that politics will get nearly as crazy or as radicalized as they did in the 1930s. There are much more robust mechanisms today for transferring and sharing adjustment costs, and I assume (hope) we learned enough from the 1930s to recognize that asking one side or the other to pay the full cost is not likely to be good for anyone. But it is hard to imagine that the kinds of disruptive political sectarianism that we saw in some European countries as recently as 20 or 30 years ago cannot revive.
P.S. I appreciate the mention, but he meant Naked Capitalism.

Citizen AllenM:

Just and revived as relevant:

So here we sit, watching a slow recovery in places growing food, while the bubble zones move rubble around.

Now, what is the optimal strategy with a fiat currency in at the end of 1930 modernized into 2010?

I would note that Florida took decades to recover from the 1920s boom and subsequent bust, so I figure inland California, Arizona, Nevada, and Florida will have a tough ten years of falling knife catching real estate- with CRE barely begun it seems with only the first round.

It has become quite apparent that the crash in 2008 was an equivalent event to 1929's crash. The only mitigating factor was the Fed saved the banks, delaying a lot of the credit contraction into subsequent years. In some ways this period is moving slower because of the constant impact of quantitative easing providing liquidity, but liquidity doesn't increase wages or make debt repayments easier in the real economy.

I would note that Slumdog's great doubling corresponds roughly with the massive injections of money into the financial markets. It resembles a massive blast of adrenalin jolting a near dead cardiac patient back to life. So we know have circulation restored and the other set of doctors is voting for cutting off fingers and toes in tribute to austerity.

Given this course, I guess the best is to simply destroy one's debt as fast as possible, no matter if employed or not, and begin contemplating buying productive real estate (which is rare as hen's teeth in any affordable form), and steering clear of bonds, which look doomed.

This is Keynes' liquidation of the rentiers, with a fiat currency to hide the destruction.

Someday this war's gonna end... .


I assume (hope) we learned enough from the 1930s to recognize that asking one side or the other to pay the full cost is not likely to be good for anyone.

Perhaps Mr. Pettis doesn't know that some lessons are never learned. What is happening now?


Quite simply, the rich are toast.

That is unclear. Depends on how hard they are willing to come down on the non-rich and how generous they are with their mercenaries doing the dirty work. If sufficiently ruthless with the non-rich & generous with their mercenaries then they can hang on a long time - centuries maybe.

Hard to say.

Remind me to not let my daughter-in-law make/pour me a very large martini before logging on to CR... .


If sufficiently ruthless with the non-rich & generous with their mercenaries then they can hang on a long time - centuries maybe.

Yes. History suggests they'll fail, but they have managed to marshal the collective knowledge as well as intellectual capital as never before has been accomplished in known human history. My conspiracist alter ego can't help but wonder if the Library of Alexandria in Egypt existed for any other purpose than the convenience of its elite and the bands of literate, numerate scribes and clerks who served them. The primitive equivalent of the internet.

The first knowledge workers, you might call them.


the country to keep your eye on is Spain

Unless its the US.


their mercenaries. Like in Mexico, too many folks on the bottom are getting mad and have no where else to go, so then they begin to think of change. The loss of control to the narcos is one big sign that the polity no longer supports the government, at all. The caving of the newspapers means the current political leadership is toast there, and the rich should be leaving if they want to survive. Power in Mexico is now flowing out of the barrel of a gun, and next leaders may very well be Zetas.

How long until they decide to raise the flag of Villa and Zapata with the idea of replacing the rotten edifice with something more to their liking.

Look at the failures of our government. Can't generate employment, while riding herd on a giant ephemeral empire, while the rich keep on looting and thinking they are winners and the rest are just losers to be ripped off at will.

Mercenaries are a sign of failure, big time. If you have to hire mercenaries it means the populace, which is the state, no longer believes in the state, and will fall, when becomes the only question.

Someday this war's gonna end... .


radicalized as they did in the 1930s. There are much more robust mechanisms today for transferring and sharing adjustment costs...

I'd like to think he's right but I think these mechanisms are the very thing allowing ponzi-units to survive much longer than they did in the 1920s.

More specifically, I think using monetary policy to smooth the gap between debtors and lenders has lead to credit abuses vastly worse than anything we saw in the 1920s. .

shill :

but it is hard to imagine that what was a disaster last week suddenly becomes all wine and roses this week. Real economies do not shift gears that quickly, thank God. But the wiseguys will use their market positioning, news sources, and rumors to 'manage perception' as do other powerful groups such as the government."

Jesse Cafe .


It is through the political process that the costs of adjustment will be assigned to the different groups, and when the costs are likely to be so high, the squabbling over the assignment of those costs is likely to be quite brutal.

So we are likely to have the GOP (nearly entirely), Maybe 20% of the Dems., Banksters, Large Holders of Bonds, and assorted on one side wanting no part of a solution that hurts them,

and on the Other Side, we have the plebians who would likely do some shared sacrifice but might rebel at being f%%ked entirely and solely.

This isn't even a close call. Bend over, plebians, here it comes. [it will be easier if you hum 'Love for Sale' while the gangbang from the royalty works you over real good. ] .

Tommy Vu:

Citizen AllenM wrote:

Look at the failures of our government. Can't generate employment, while riding herd on a giant ephemeral empire, while the rich keep on looting and thinking they are winners and the rest are just losers to be ripped off at will. Mercenaries are a sign of failure, big time. If you have to hire mercenaries it means the populace, which is the state, no longer believes in the state, and will fall, when becomes the only question

That's beautiful .


currency and debt will primarily be one of assigning the costs to different economic groups, and this is never an easy or conflict-free exercise.

You read and read and then a phrase, a sentence leaps out and smacks you upside the head. That one did it for me. .


One more quote from Jesse:

"The problem is that the system has never been reformed, and the money is not reaching the real economy, but merely being used to bail out the creditors who were principally responsible for the financial fraud and subsequent crisis in the first place.

Let's see how this plays out. But expect things to get more disruptive and blatantly unjust because of a general lack of moral leadership and a deterioration of honor, duty and obligation to country and the people in our leaders and the 'me generation.'"

Spot on. .


Keith, Keynes (and many others) would argue that transfers from surplus to deficit countries, including especially transfers of demand, are precisely what is needed, but history suggests that surplus countries will strongly resist the transfers, to their and everyone else’s detriment. Let’s this time really is different.

His reply to a comment is above. The current situation in this country is the same dynamic on a smaller scale. A wealth transfer was successfully completed and they will not be willing to give it back. .


nova wrote:

A wealth transfer was successfully completed and they will not be willing to give it back.

Absolutely - and what some of us have been saying for a long time here .


"As Keynes pointed out as far back as 1922, the process of adjusting the currency and debt will primarily be one of assigning the costs to different economic groups, and this is never an easy or conflict-free exercise." "You read and read and then a phrase, a sentence leaps out and smacks you upside the head. That one did it for me."

"Princes and governments are far more dangerous than other elements within society."

Niccolo Machiavelli .


The system will change when people change. They never have, but they might, in ways we can hardly imagine now. If you could see how, you wouldn't like it.

Over and over again the fantasy of change by political means and force. It never changes the ingredients of the stew, it only stirs the pot. Opportunists rejoice in that sort of cookery. .

Mr Slippery:

[T]he distribution of these costs is not determined by economic theory but rather by political interests.

It is no different in the US. The costs have so far been assigned to the working class and the poor, and they have so far proven either uninformed, powerless, or both.

edit: I've had numerous debates with work colleagues about the distribution of wealth and costs. Their generalized response: fuck the poor. .

Mr Slippery:

Rajesh wrote:

"Give us better terms on the loan or we leave the currency."

You are assuming the people negotiating for Ireland had Ireland's best interests in mind. .


pavel.chichikov wrote:

That they haven't should tell you which end of the lever they're on.

Either you're the lever, or you're about to get flushed.

Spunkmeyer :

pavel.chichikov wrote:

We do know that Ireland has been committed to policies against its people's interests. Tremendous pressure must have been applied - of what sort we don't know. Were there personal inducements as well? I really doubt that anything so crude happened. Later? I certainly wouldn't know that, and neither would anyone else here.

I'm reminded of a line from Mario Puzo's The Godfather, where a person is told that their signature (or their brains) will be be on that piece of paper. .


1.Gridlock in the Senate for the next two years including no renewal of 99'ers benefits

2.Wikileaks BoA files

3.Consumer spending stops, drops, and CRE rolls over. .

Jonathan :

'4. Terrorist event in the US affecting a major metro area with casualties in the 10's of thousands

Ooohhh. False flag I assume! .


What happens to growth when the government stops spending an extra trillion plus that we don't have and the Fed stops manipulating the yield curve with QE?

you are naive to think that, at this point, it will ever stop. we face collapse, invasion, or global annihilation before these things stop. enjoy the ride. .


km4 wrote:

How much longer can the Fed print new money equal to 100 percent of the debt that we're issuing each month before pandora's box blows a gasket

for probably a very, very, very long time. it appears a lot people... powerful people... owe the fed a debt gratitude right now. a big debt of gratitude. .


Bad Dawg Bobby wrote:

the People (J6P, Workingman)

the People are completely oblivious. go to the mall. go to a sporting event. look at the people. step away from the mirror for a moment and go observe these people you speak of. they don't have a clue. they are still mobbing the shopping center for 20% off of chinese-made junk they don't need / stuffing their faces at mickey-d's, buying crappy cars from GM, etc, etc, etc.

the People don't understand this stuff like you do. they don't have a clue and most of the ones that do, they don't really care. this will last for a long time. .


1 currency now -yogi wrote:

Setting up for a[nother] bailout scam...

We've moved on to more efficient loot distribution scams -- bailouts. Manufacturing doesn't offer the same profit margins; hell, eventually high tech will be abandoned for the same reason. The corporate state and the financial powers behind the throne and controlling access to markets will be the only game in town. True "socialism" as the elite understand it. .

[Dec 01, 2010] Senate GOP Pledges to Block All Bills Until Tax Cuts are Extended for All

Economist's View


"I think Republicans are misreading the message of the election, especially if they think it was a call to extend tax cuts for the wealthy."

Mark, you are too full of the milk of human kindness. For the Reps, the message of the election is that obstructionism, along with their propaganda machine, worked. So they are practicing more obstructionism. Extending tax cuts for the wealthy is not popular (even exit polls found Tea Partiers in favor of raising taxes on the wealthy if the tax hike went to Social Security). It is just the current pretext for obstructionism.

lonesome moderate:

I don't think the Republicans misread the election at all. They believe their election victory was bought and paid for by the ultra-wealthy in this country, and that their first order of business has to be to feed the country's hedge-fund managers and next generation of old-money heirs. No matter how blatantly pro-rich and anti-everyone-else their policies are, with enough money they can spin it into something that the voters will go for.

I have yet to see any reason why that point of view is wrong.

Jim Nichols:

If it looks like class warfare and smells like class warfare... it probably is class warfare. Hey if Obama caves on the tax cut debate when do we start having a discussion about who is going to run again him in the primary in 2012?


Obama should be pounding the GOP on unemployment and the layoffs of police and firefighters.

Who is running the WH political operation?


a socially-liberal grover norquist type who admires reagan.

the relevant question is who did *you* think was running the WH political operation?


Yes, they have to feed the people that took them here; and yes, Min, they are simply continuing an obstructionism that was astonishingly successful for them. But neither of those would work if there were a real Democratic response. They work because the Democratic leaders don't have enough spine to play for a win.

I keep hearing that the Democrats think the Republicans have all the cards in the tax cut issue. How on earth can that be?? The Democrats have all the cards! They should declare right now that the Bush tax cuts are off the table, period. No negotiations on that. Those tax cuts were concieved and constructed by a Republican President steeped to the gills in trickle-down, pamper-the-rich, supply-side, Ayn Randian fantasy. So they should say: "ok, we offered the compromise, to extend some of the Republican tax cuts, those that apply to the average American, but the party of NO declined that offer, so we withdraw it". Then they should propose better tax cuts---for example, raise the personal exemption to the poverty level income for whatever situation the taxpayer is in, which just declares that we aren't in the business of taxing people who are already under the poverty level. Challenge the Republicans to fillibuster that. Take it to the public, as forcefully as they can.

But there are no Dems up there who would even think of that. The are too busy quivering.


I take it back. The House Democrats are scheduling a vote for tomorrow on continuing the Bush era cuts only for the middle and lower income levels, and letting the rest expire. So they ARE challenging the Republicans to vote against tax cuts.

They aren't playing for a big win, exactly, or not the kind of win that would make me all giggly and joyful, but they are at the very least playing for a minor win.

Of course, this is very like a vote of no confidence in Obama's plan to negotiate on this with the Republican leadership. The Republican response to this development is to cry foul, to declare that this is bad faith, the President promised to talk with us and dicker. And he did. But the Democrats in Congress apparently have no more faith in that process than the people responding here do. And that means that Obama has some major problems within his own party.


You can discuss what people should do until you are blue in the face, but the US isn't going to become more fair, more just and more hospitable to the non-rich as well as the rich until you get different people elected to office. And it seems clear this isn't going to happen because the non-rich don't even understand their own interests and vote for people who are hostile to their well being, out of stupidity mixed with confusion. Since you evidently can't make them brighter or wiser than they are, their cause in quite hopeless. The plutocrats have their minds in their grasp and they can't escape. Give it up. The plutocrats have won, period.

Stephen Heyer:

??? Isn’t anyone seeing it???

So “Republicans have decided to block all bills unless they get their way over extending tax cuts for the wealthy”.

For God’s sake, that’s wonderful for the Democrats!

All they have to do is slap together a whole bunch of mom and apple pie bills that all the citizens will love, railroad them through, then chuck them at the idiot Republicans in the Senate like they were coming out of a machine gun.

Oh! And with lots and lots of publicity and loud moralizing about how evil the Republicans are in the media, Internet and anywhere else they can.

Of course that creepy suit Obama would never think of that, or perhaps he has and is desperately hoping no one else does, being bought and paid for by Wall Street and probably a secret Republican plant, but surely everyone else can.

Well, that’s sure how he behaves.

Stephen Heyer



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