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Financial Skeptic Bulletin, August 2011

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Another crisis. This time with S&P touching 1100. But it was the bond market that was the most affected: [Aug 08, 2011] Corporate Bond Pipeline Snaps Shut


U.S. companies are showing restraint by passing up cheap cash and easy access to investors by way of the corporate bond market — at least for now.

Market volatility and investor risk aversion brought on by the Standard & Poor’s downgrade to the U.S. credit rating has temporarily sidelined issuers.

High-rated companies that use the investment-grade bond market to raise capital via debt offerings are shelving planned deals until the market regains some footing. A brief poll of New York-based syndicate desks indicates clients have decided to push back or postpone debt offerings until stability returns to the market.

... ...

To be sure, the cost of borrowing via the U.S. debt market has been at its most attractive level in years, and company treasurers have taken note. High-grade companies have sold more than $600 billion in new issues so far this year, and investors have gladly snapped them up...

Junk bonds dropped 7-10%.

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[Aug 11, 2011] It’s the Political Economy, Stupid! by Peter Dorman:

Economist's View

...While I catch up, let me toss something out for discussion:

It’s the Political Economy, Stupid!, by Peter Dorman: Sometimes living in the world of ideas makes it harder to understand the real one. If you happen to be an economist, and the time is now, that is true in spades. Take Paul Krugman, for instance. After bemoaning the terrible policy choices of the last two years, he writes, “I’m still trying to make sense of this global intellectual failure.” It’s as if the core problem is that political leaders didn’t learn their macroeconomics well enough.
But Keynes was wrong about the power of “academic scribblers”. Idea-smiths provide language, narratives and tools for those in control, but the broad contours of policy depend on who the controllers happen to be. We are not living through an epoch of intellectual failure, but one in which there is no available mechanism to oust a political-economic elite whose interests have become incompatible with ours.
This is not some sudden development, much less a coup d’etat as is sometimes claimed. No, the accretion of power by the rentiers has been systematic, structural and the outcome of a decades-long process. It is deeply rooted in modern capitalist economies due to the transformation of corporations into tradable, recombinant portfolios of assets, increasing concentration of and returns to ownership, and the failure of regulation to keep pace with technology and transnational scale. Those who sit at the pinnacle of wealth for the most part no longer think about production, nor do they worry very much about who the ultimate consumers will be; they take financial positions and demand policies that will see to it that these positions are profitable.
The rapid and robust global restoration of profits post-2008 was not an accident. Public funds were used to bail out exposed creditors and shore up asset values, while the crisis was used to suppress wages and postpone meaningful regulatory reform. Indeed, I can predict with some confidence that many of the profits, particularly in the financial sector, that have been reported in official filings and blessed by the accounting firms will later be found to be illusory—but not before those who have claims on the revenues have cashed in to their own personal advantage. The institutions will be decimated, but those who owned, lent to or bet on them will be rich. This is not a failure, at least not for them.
You could make a case that, collectively, the interests of the financially endowed ultimately require a rescue of the real, nonfinancial global economy. Surely, when we take our painful plunge into the second dip of the Great Recession, their wealth will be at risk. But the ability to see it at a system level presupposes either a system-level organization of the class or the existence of individual interests that are transparently systemic. Neither appears to be the case today. From what we (you and me) can see from our vantage point, the ruling demands are to make sure my bonds are serviced, my counterparties pony up, the markets I invest in stay liquid, and expenditures for public welfare (i.e. the losers and chiselers) are slashed.
The first principle of political economy is that the scope of democracy depends on the range of views and interests (typically tightly linked) of the owning and controlling class. Genuine public debate and decision-making extends only to those issues on which the elites are divided. In what country today is there a significant division among political-economic elites over core economic questions? How would our situation be different if Obama, Cameron, Merkel, Sarkozy et al. had been on the losing side of their elections?
So, the current mess is not the result of a failure by intellectuals—although clearer, less ideologically-driven thinking by economists would certainly be a good thing and might make a small dent at the margin. As long as there are even a few economists who proclaim the virtues of austerity and deregulation, however, their views will dominate. They haven’t won a battle of ideas; they are simply the ones who have been handed the microphone.
The real problem is political, and it is profound. Unless we can unseat the class that sees the world only through its portfolios, they may well take us all the way down. Unfortunately, no one seems to have a clue how such a revolution can be engineered in a modern, complex, transnational economy.

argeec :

The best post I've read in a long time!
Lollipop :
to argeec... Me too. I recently spent some time back with the working class side of my family due to a death and I was startled by just how bad things were for them. No leave, paid or unpaid, for a family death, children losing adult teeth due to lack of funds for dental care, adults so beaten down by multiple hardships they can hardly function.

As a middle class person, I don't have the money to make things better, but I can damn well see when it's time to remind the elites that there are limits to how much oppression people will take before they get chaos.

JeffF :
to Lollipop... So far in the UK the elite seems to think the solution is to simply crack down harder.
Ron :
It would have been easier to do in the sixties, but almost everyone except racial minorities were fat dumb and happy then. MLK had begun to change his focus from race to poverty and economic equality but a sniper ended that.

Boutique liberals at a disco were not exactly a revolutionary crowd. Most revolutionary groups at the margins were dominated by dark and sinister agendas of revenge and hate and lust for their own power.

Democracy still needs a little work.

paine :
to Ron...

 " everyone except racial minorities were fat dumb and happy then" are you speaking of the meany era white wage class ??

you might want to review that period. Notice a little thing called the wage price spiral. Yes the corporate reaction starting with carter/volcker vastly amped by reagan crushed that manifestation of class struggle

But fat dumb and happy. Nope two out of three of those are probably wrong about the white wage class. Yes lots of em were wedged into a pack of reactionary idiots by a wonderously effective two party one two punch. But after the break down of bretton woods and the national de industrialization process began to work its grim magic

Yhy to me at least a little chauvinist opium seems understandable. Of course at some point you hit bottom go cold turkey and sober up maybe when they get the monkey off their back white job class amerika may find itself in 1931 and begin to take names and kick ass

ilsm :
to paine ...

 "yes lots of em were wedged into a pack of reactionary idiots by a wonderously effective two party one two punch"

Calvinism, or as the Muslims say Inch Allah. Predetermination

Patricia Shannon :
Ron... Minorities have never been the only people who were poor.
me :
"Consequence of rising income/wealth inequality: riots in Middle East, Israel, UK & popular anger in China. Will they start in the US too? -" Nouriel Roubini

Just sayin......

paine :
to me... exactly never underestimate the people
denim :
"The real problem is political, and it is profound. Unless we can unseat the class that sees the world only through its portfolios, they may well take us all the way down. Unfortunately, no one seems to have a clue how such a revolution can be engineered in a modern, complex, transnational economy."

There are those who make their living with their large portfolios. True. They are the mule. When enough oats are eaten by the mule, the sparrows find a few pass through for them.

That mode is via our pension portfolios, 401k portfolios, IRA portfolios and indirectly by the portfolios of our life insurance company. You know the mule hates Social Security and Medicare primarily because it makes no money for him. But strangely enough, we make the oats for the mule. If we become unproductive, the mule's portfolio shrinks. Thus, the mule hates unions because strikes reduce his income. "If I went to work in a factory the first thing I'd do is join a union." FDR

paine :
to denim... there are better contrived set ups to use up local mules out there else where beyond our borders

and yet i see the beginnings of a recycling process in the green sprouts of minimum wage manufacturing

its all highly transport cost dependent right now but ....

we just needed to destroy the legacy of the CIO that is nearly complete

i can imagine a broad meeting of trans national corporate bosses where the key note speaker begins

"mission accomplished"

let us hope Clio makes the bastards eat such words

just a guy :
"Unfortunately, no one seems to have a clue how such a revolution can be engineered in a modern, complex, transnational economy"

Mme. Dufarge knew what to do.

evagrius :
to just a guy... Actually, there might be one approach....

A universal, global day in which no one buys anything.

Shut off electricity, buy no gas, don't go to work, no shopping whatsoever, no watching TV, no computers, no internet, no buying newspapers, no radio, nothing.......

In other words....a full, real, complete Sabbeath day.

A day of silence....mourning for democracy.

It certainly wouldn't cause a complete change but...if truly organized, even on a rolling country basis...who knows?

paine :
great stuff in here for instance

"Keynes was wrong about the power of “academic scribblers”. Idea-smiths provide language, narratives and tools for those in control, but the broad contours of policy depend on who the controllers happen to be..... As long as there are even a few economists who proclaim the virtues of austerity and deregulation, however, their views will dominate. They haven’t won a battle of ideas; they are simply the ones who have been handed the microphone."

and i'll add if the necessary" few economists " don't already exist then they will be constructed quickly out of the existing crew of highly positioned opportunists

forget the life time sycophants with pure hoodoo models like lucas and sargent and instead think hard about greg mankiw john taylor and marty feldstein ---to be fair it prolly would happen to me if i was worth the effort--

more importantly its my guess put brad delong champion of sane neoliberalism as he is now "out side the tent " put him in the right golden harness shoot bob rubin in front of him and bingo you'd have taylor's intellectual twin --recall the john candy brain wash in volunteers --


on the other hand

this conflation of finance capital with rentiers is a bad blunder

and this is worse " the ability to see it at a system level presupposes either a system-level organization of the class or the existence of individual interests that are transparently systemic. Neither appears to be the case today"

in fact this all against all when focused not on the generality of corporate capitalism but just among the finance sub class it becomes dead wrong

the various "national" and institutional partitions and fissures exist between finanz corporations but short of inter great power war this is secondary notice the ease of the bank bail versus the meager auto bail these hi fi guys are well hooked up

we do not suffer from the anarchy of financial striving but its tightly concentrated interests

part versus whole "class" perspectives do not dominate wall street

yes all corporate bottom lines are inter connected this is well understood but hio fi bottom lines are as we discovered hyper inter connected

we need to sharply draw the conflict of class interests here

i think the contrived stag through out the advanced economies suggests the deeper interests conflict arises from a conflict of the corporate global pov and each advanced country's job class's national point of view

its childs play for cross board global playing board MNCs to grasp the preference they manifest for advanced hemisphere stag and emerging hemisphere boom right now

follow the arbitrage

paine :
to paine ... and as for this:

" Unless we can unseat the class that sees the world only through its portfolios, they may well take us all the way down."

its hysterical chicken little nonsense how that motivates organized fight back escapes me when we need to face the daunting task of building the organizations to fight back thru and that looks to require time time some may conclude we don't have before the corpos take us all down

my guess for lots of good folks arriving at that conclusion will sink into despair and depression or desperation

isn't that a likely response to cries of their taking us all down. Shades of eco doom scenarios

paine :
to paine ... look

we have plenty of time to throw these bums out

take that on faith if nothing else

long arch of history bending toward justice and all that

paine :
to paine ... "the narcotic effects of power are such that those who drive the dynamics of elite conflict rarely see the larger picture -- behave, for all practical purposes. as though they were incapable of seeing the larger picture (call it, if you like, discursive hegemony), and those who believe they see a larger picture are structurally excluded from bringing about changes in response to their perception" precisely the type of panic i'm suggesting

corporate stooges doped up on power will crash the planet

ilsm :
to paine ... Living with type II error.........

Soylent green is people.

The eaters have the war machine

The eatees.............

carping demon :
paine ... It's all a matter of scale, under the arc of history, but will our grandchildren be measuring fleas with metersticks or oceans with demitasses?
ken melvin :
Wow! Thanks to you both. What recourse do we have. All the media mentioned the role of unions in the WI elections, none them mentioned the role of the Kochs.
Yang :
This is a great post.

It always is and always will be a power struggle. But then what can we do about it?

I am frustrated with Obama and his administration. However, because of the issues stated in this article, I do end up being like an Obama apologist. But mainly, I still know that Obama and the democrats are still strictly better than ANY Republicans, especially because I want to work on environmental policy. In order to stay in power, they do need to cater to public opinion, which has unfortunately been fiscally conservative for at least a couple of decades now. How can we change that?

mrrunangun :
to Yang... We can change the government by changing the elected officials who comprise it. And keep rejecting incumbents until we get people, at least in the WH who will oppose the banksters' servants in Congress. But if we continue to support the Obamas, Schumers, Franks, et al because their hearts are in the right place on our pet issues, the banksters can rest easy knowing that their will shall be done.
DrDick :
to mrrunangun... This, however, overlooks the stranglehold the rentiers have on the nominations process. We do not even get to vote for anyone they do not approve of. The only way to overcome that is full public financing of elections and barring all private contributions. The current SCOTUS is no likely to allow that.
beezer :
to DrDick... The change, if it comes, will rise from the municipal and state levels.

The DC downshift to states is running further down to municipalities right now. Not later. Now. And it's pissing a whole lot of property taxpayers off.

Time to hang the local nose of anger on the Teapublican/free staters from the bottom up.

DrDick :
to beezer... I agree completely that the resistance must build from the local grassroots up. The rentiers have less of a presence there and it is easier to have a direct perceptible impact. It also establishes an independent organizational structure and trains politicians to compete at higher levels.
foosion :
>>the class that sees the world only through its portfolios>>

Portfolios are not doing very well these days. Equities are down sharply. Bond value are up, but lower yields means lower returns. What good does it do to save a few points of tax when you're losing more than few points of income? What good does it do to hold wages down when that hurts the growth of your portfolio.

A better economy with low taxes and oppressed workers would be ideal for the portfolio class, but lacking that a better economy would be best.

JeffF :
to foosion... Once you are rich enough it matters far more what your wealth is relative to others than what it is absolutely.

Absolute wealth just buys stuff, and the top .1% long ago could buy all the stuff they can think of.

Relative wealthy buys power. Political power. Servants. Cheap underclasses to employ. Freedom to act regardless of the laws that exist or used to exist.

Matt Young :
"Unfortunately, no one seems to have a clue how such a revolution can be engineered in a modern, complex, transnational economy."

We do it all the time, we rebel against central government. Remember where the elites hang out, central government. We are simply a little shocked after the last episode in 1860, but we are over that and the revolutions can continue.

moopheus :
In other words, economics is politics by another means.
Mercutio :

"The real problem is political, and it is profound. Unless we can unseat the class that sees the world only through its portfolios, they may well take us all the way down. Unfortunately, no one seems to have a clue how such a revolution can be engineered in a modern, complex, transnational economy."

There are plenty of ideas about how to do precisely that. I suggest you begin with John Robb's Global Guerrillas blog 

me :
@just a guy said

Unfortunately, no one seems to have a clue how such a revolution can be engineered in a modern, complex, transnational economy"

SDS United States and SDS Germany.

Michael Vester was a German exchange student (Fulbright at Bowdoin College. Back in Germany he encouraged Gerhard Brandt who coined the term "New Left". University of Michigan, Al Haber became the first president of the US - SDS. Tom Hayden became the public face of SDS and the "New Left".

Vester visited Haber and Hayden at the US SDS headquarters in NY. Thus the collaboration began. West German students adopted the Black Panthers militancy and became the RAF (Red Army Faction). As usual the state department and CIA had to be involved. They attempted to sponsor pro-American rallies. The US was surprised at the negative reaction of the German press. I think the point is, history doesn't repeat, is just rhymes. :
One would think that "those who sit at the pinnacle of wealth" would realize that it's in their best interests to share that wealth more equitably, as in the past. After all, they now have the most to lose.
Sasha :
to Monkey with his fist in the cookie jar.

FDR and Keynes were the true friends of capitalism and the wealthy, but many are not so wise.

wallyfurthermore :
"We are not living through an epoch of intellectual failure, but one in which there is no available mechanism to oust a political-economic elite.."

Oh, there's a mechanism.

beezer :
to wallyfurthermore... Wally, the mechanism is that you go to the local Dem city committee and volunteer. If you have money you give it. Then you host the candidate for the neighbors. Then you hold a sign for four hours on election day.

And now that the Teapublicans have exposed their real selves, many will agree with you and the candidates you support.

If you don't think that doesn't work you weren't paying attention in 2010. Teapublicans said they wanted jobs, and they hung death panels and taking $500 billion away from Medicare, on Democrats. Wipe out.

But now it's clear to all but the retarded that Teapublicans are the ones who want to end Medicare and SS too, just for good measure. Time to use the lesson of 2010, but in reverse.

We can force Obama to be Democrat. We really can. But it takes some effort.

Patricia Shannon :
beezer... Right, beezer.
rufus :
[Dorman] "But the ability to see it at a system level presupposes either a system-level organization of the class or the existence of individual interests that are transparently systemic. Neither appears to be the case today. From what we (you and me) can see from our vantage point, the ruling demands are to make sure my bonds are serviced, my counterparties pony up, the markets I invest in stay liquid, and expenditures for public welfare (i.e. the losers and chiselers) are slashed."

In order to affect the paradigm the incentives must be properly tied. As Reich puts it, the realization that [liberal paraphrasing] 'a slightly smaller piece of a much bigger pie, is better than a large piece of a smaller rotting pie'.

[Robert Reich] 

I like his point on missing a golden opportunity to require/extort concessions from the banks/financial elites that would have helped the economy. I would have liked to have seen a significant measure further of imposing specific regulation in exchange for the bailout parachutes (a blank check concession would have been sufficient at the time...hell, what choice did they have). But such is the benefit of hindsight woulda, coulda(s).

[apologies if this is double posted...trying to preview on the run is no bueno]

Sandwichman :
"Unfortunately, no one seems to have a clue how such a revolution can be engineered in a modern, complex, transnational economy."

That's not true. Someone has a clue. A revolution CAN'T be "engineered" by technocrats -- even "progressive" ones. A revolution can only be an organic development. The clue is in the historical narrative that the progressive technocrats spend so little time trying to comprehend.

hapa :
to Sandwichman... how about a short list.
W :
In other words, the ruling ideas of each age have ever been the ideas of its ruling class.

Why not just say that?

Oh, wait... I remember why....

Kevin P. Gallagher :
The most thorough and well researched book on the relationship between economists and the change in macroeconomic policy in the US can be found in a 2002 Cambridge University Press book by Brown University political scientist, Mark Blyth: "Great Transformations: Economic Ideas and Institutional Change in the Twentieth Century" 

Recommended reading for anyone thinking about political economy in the US and for "recovering economists" like Mark Thoma who rightly said a few weeks back that he needed to look outside the profession. Here is the "product description" of the book:

Mark Blyth argues that economic ideas are powerful political tools as used by domestic groups in order to effect change since whoever defines what the economy is, what is wrong with it, and what would improve it, has a profound political resource in their possession. Blyth analyzes the 1930s and 1970s, two periods of deep-seated institutional change that characterized the twentieth century. Viewing both periods of change as part of the same dynamic, Blyth argues that the 1930s labor reacted against the exigencies of the market and demanded state action to mitigate the market's effects by "embedding liberalism" and the 1970s, those who benefited least from such "embedding" institutions, namely business, reacted against these constraints and sought to overturn that institutional order. In Great Transformations, Blyth demonstrates the critical role economic ideas played in making institutional change possible and he rethinks the relationship between uncertainty, ideas, and interests on how, and under what conditions, institutional change takes place. Mark Blyth is an assistant professor of political science at the Johns Hopkins University specializing in comparative political economy.

William :
I agree completely with this post. But I think things are even more depressing. For the elite almost everyone else (say those below the upper10% of the distribution) is now just an expensive nuisance - their very existence leads to a demand for welfare programmes, Social Security, taxes etc. The traditional factors (Christian charity, fear of revolution, the need for soldiers to defend the rich or domestic servants to attend to their daily wants) which linked the rich and poor have disappeared. As the very rich can avoid taxes (by moving to a suitable haven) or manipulate the political system to remove any element of progression in the system, they can ensure that the crisis is used as an excuse to eliminate the elements of redistribution and insurance which made post-1945 capitalism a productive and socially acceptable system. F
Sasha :
to William... "say those below the upper 10% of the distribution"

You mean they're slumming it? It'd be amazing if the top 1% make the cut.

Jesse :

Which came first, the flawed theories or the corrupting influences that promoted them.

I would not consider the academic scribblers as virtuous in this, as quite a few along with the regulators, etc. proved to be willing tools. And still are. 

Fred C. Dobbs : 

NYT - August 11, 2011, Romney to Hecklers: ‘Corporations Are People’

A small but aggressive audience challenged Mitt Romney at the Iowa State Fair on Thursday about threats to Social Security and corporate earnings

Mitt Romney, who likes to promote his years in the private sector when out on the stump, offered a glimpse into his own business perspective at the Iowa State Fair on Thursday, telling a group of hecklers, “Corporations are people, my friend.”

Mr. Romney was speaking at the fair’s soapbox Thursday morning, but when it was time for the question-and-answer session, the mood turned heated, with a small group of angry hecklers calling on Mr. Romney to support raising taxes on the wealthy to help fund social entitlement programs. ...

“We have to make sure that the promises we make in Social Security, Medicare and Medicaid are promises we can keep, and there are various ways of doing that,” Mr. Romney said. “One is we can raise taxes on people.”

“Corporations!” the protesters shouted, suggesting that Mr. Romney, as president, should raise taxes on large businesses. “Corporations!”

“Corporations are people, my friend,” Mr. Romney responded, as the hecklers shouted back, “No they’re not!”

“Of course they are,” Mr. Romney said, chuckling slightly. “Everything corporations earn ultimately goes to people. Where to do you think it goes?”

When someone in the front row angrily suggested that “it goes in their pockets,” Mr. Romney, becoming increasingly animated, asked: “Whose pockets? People’s pockets!” ...


Well, rich people's pockets, anyway.

On the other hand, “We have to make sure that the promises we make in Social Security, Medicare and Medicaid are promises we can keep, and there are various ways of doing that,” Mr. Romney said. “One is we can raise taxes on people.”

So it appears he's FOR raising taxes. Just not on rich people?

“We’re led by a man who is a fine fellow but he’s out of his depth and doesn’t understand how the economy works,” said Mr. Romney, who is leading the Republican field in many polls but is not taking part in Saturday’s Iowa Straw Poll.

When the questions turned combative, Mr. Romney held his ground.

“If you want to speak, you can speak, but right now it’s my turn,” Mr. Romney said to applause, leaning down into the crowd to cut off an elderly man who was yelling at him about Social Security.

“You came here to listen!” the man retorted, to which Mr. Romney replied: “No, no, I came here to talk. Hold on a second, let me speak.”

Moments later, when he realized he wasn’t changing any of the hecklers’ minds, he said they were free to vote for someone else.

“I’m not going to raise taxes — that’s my answer,” he said. “And if you want someone who can raise taxes, you can vote for Barack Obama.”

stunney :
to Fred C. Dobbs...

 “'We’re led by a man who is a fine fellow but he’s out of his depth and doesn’t understand how the economy works,' said Mr. Romney, who is leading the Republican field in many polls but is not taking part in Saturday’s Iowa Straw Poll."

But isn't Romney a Republican?

Republicans' economic record is risibly awful, and demonstrably way worse than that of Democrats:

Fred C. Dobbs :
Fred C. Dobbs... Well, do we want a president who will let the Bush Jr Tax-Cuts-For- the-Wealthy expire in 2012, or not?

Obama prepares to revive tax cut debate - for now and 2012  - USA Today

Fred C. Dobbs :
Fred C. Dobbs... S&P Does Not Believe The Bush Tax Cuts Will Get Lifted In 2012  - Business Insider

A very interesting line in S&P's full report wherein it downgraded the sovereign debt of the US from AAA to AA+.

'Compared with previous projections, our revised base case scenario now assumes that the 2001 and 2003 tax cuts, due to expire by the end of 2012, remain in place. We have changed our assumption on this because the majority of Republicans in Congress continue to resist any measure that would raise revenues, a position we believe Congress reinforced by passing the act.'

rufus :
to Fred C. Dobbs... “We have to make sure that the promises we make in Social Security, Medicare and Medicaid are promises we can keep, and there are various ways of doing that,” Mr. Romney said.

This, to me, epitomizes the great 'shell game' of the right. They may be construed as ‘promises’, or miss-titled as 'entitlements', but in fact they are ‘social contracts’. Given that the populace has paid into the accounts and met their part of the agreement over their lifetimes. Failing to keep such 'promises' is a breach of contract.

Fred C. Dobbs :
Fred C. Dobbs... (Mitt got into a lot of trouble in the last Iowa straw poll, basically ended up looking VERY foolish. So, keep a stealthy profile this time. Best way to stay in first place is to keep very low & very quiet. It's not yet about collecting delegates, it's about collecting $$$.) 

NYT - August 10, 2011 - FRANK BRUNI Mitt’s Vanishing Act

Pella, Iowa

If the Iowa Republican debate were to provide a truly accurate mirror of the race at this juncture, Tim Pawlenty would wear a sandwich board, with a scrawled plea to the state’s voters: “Save me.” Michele Bachmann would spin onto the stage in a giant teacup, to find a microphone three times the size of anyone else’s and a spotlight four times as bright. Newt Gingrich, looking characteristically put out, would unveil a new campaign slogan: “The Glower for This Hour.”

And the party’s most likely nominee, Mitt Romney? He wouldn’t show. The less seen of him, after all, the better.

That’s not my harsh assessment. That’s been his de facto campaign strategy this summer.

His curious absence through the debt-ceiling showdown even set off a spirited name game in the news media, with different scribes lofting different sobriquets: the missing Mormon, the phantom front-runner and (courtesy of Ben Smith of Politico) a denizen of the Mittness Protection Program.

Couple his low profile with his history of reinvention and you wind up with a candidate who campaigns in disappearing ink. It’s tough to get a read on him, and he leaves no strong impression.

He did, in fact, emerge from Mittness Protection and materialize (or is that Mitterialize?) in Iowa on Wednesday, in advance of the debate, which he will actually attend. But he’ll leave before the straw poll on Saturday. Now you see him. Now you don’t. ...

Patricia Shannon :
Fred C. Dobbs... I wouldn't vote for Romney, but he is right about this. A corporation is made up of people. The profits go to rich people.
anotherBudgetWonkasaurus :
"The real problem is political, and it is profound. Unless we can unseat the class that sees the world only through its portfolios, they may well take us all the way down."

The unfortunate thing here is that people have been voting in the very people who will make their lot worse, not better and have been doing it since the Reagan Administration. Revolution? Where? By whom? Are we talking Teajadists here? They aren't going to make anything better for the middle and lower classes because all the cuts they want disproportionately affect those classes. Take education...who benefits from solid public education? Certainly not the classes that can afford to send their seed to private schools, right? And where does that leave the next generation? How about all this Social Security talk? Who does that affect? Certainly not people with 5M in the bank, but the middle and lower classes who now have no pensions, and can't save for retirement because there is nothing left to save after the bills are paid.

So spare me all this talk. I used to care a lot but people are now getting what they voted for. And I hope they get it in spades. Only then might they wake up and realize that they are only screwing themselves.

Lollipop :
to anotherBudgetWonkasaurus... The nomination process is owned by the rentiers and they also control the media. People of limited education and average cognitive skills are at a distinct disadvantage given those realities.

Find it within yourself to have compassion for the duped. We'll need all the compassion, mercy, and forgiveness for each other we can muster if we actually want to take our responsibilities as self-governing adults seriously.

FR :
same comments as I posted in the original thread....

Thanks for the very well thought out reasoning in you post.

While you correctly identify the problem and its solution (current "ruling class" and its unseating), you are shy in suggesting how a solution might come about. While I do not advocate violence, history has shown us that fundamentally there are two ways by which subjugated classes improve their position. A traumatic way and less traumatic one.

Revolutions (most egregious examples are the French, Bolshevik, Chinese, and Cuban revolutions), whereby the ruling class, along with its interests, are eliminated by the subjugated classes. A traumatic event indeed, but, in my opinion, not sustainable in the long run unless the entire world adopts those political and economic paradigms.

Less traumatic and, more sustainable in the long term, are the outcomes of strong labor and student movements like the ones that took place in Europe in the 60s and 70s. Those movements made sure to convey to the ruling classes the message that a more equitable wealth distribution and effective social safety net were needed to avoid the extremes and dispossession that a revolution would involve. Reluctantly, the ruling class complied and the social safety nets and income distributions typical of Western Europe emerged.

In the same light, one must interpret the recent unrests in Western European countries (UK, Greece, France) (and most recently in Israel) as a response to the austerity measures taken by conservative governments of these countries to protect rentiers and capitalists. The austerity movement is trying to undo at least some (ideally, all) of the achievements of the 60s and 70s and redistribute wealth away from the “ruled classes”, when it is clearly the “ruling class” that should bear most of the cost of its disastrous, reckless, and self-serving policies. While the current message in Western Europe is still not of the same intensity of the 60s and 70s due to a current better wealth distribution than that of the 60s, the message is similar in content and direction. Its intensity may increase if the rentiers and capitalists will insist with their policies.

So, why the US labor and student movements do not materialize or are active to the same extent of the ones in Europe? The answer is very simple… while in Europe the “ruled classes” realized a long time ago that there will never be cooperation between them and the “ruling class”, in the US people still believe and pursue the American dream, which is fueled by the once in a while admission of few “mortals” on Mount Olympus. Let’s also not forget that constant sense of guilt passed on by the Pilgrims that, somewhat, it is exclusively the individual’s fault if his/her life is not better… and, maybe, the Pilgrims they were right given that US citizens keep electing the same (type of) people over and over to lead them. After all, wouldn’t you rather have a beer with a nice guy from Texas or Hawaii than protesting in some square?

bakho :
Ronald Reagan famously said, "I am paying for this microphone!"

Dornan is correct, "They haven’t won a battle of ideas; they are simply the ones who have been handed the microphone."

Anti-intellectuals have been handed the microphone the same way BigTobacco attacked science linking smoking to cancer, the same way BigOil and DirtyCoal attack climate science or creationists attack evolution.

Al Gore has the right idea with his TV network. Al Gore bought a microphone and simply needs better market penetration to start making more inroads.

Bill McCullam :
We need an Athenian style democracy. There and then one applied one's taxes to what one favored. All Americans can easily be given an option on their IRS 1040 for how their tax dollars be distributed. For example, I may wish to have 60% of my tax dollars given to Medicare, 20% to The Library of Congress, 10% to pay off the national debt, and 10% to The Department of Justice. My neighbor could choose 75% of his contribution to The Marine Corps; 20% to The Department of Transportation, and 5% to The Department of Labor.
ron :
"Genuine public debate and decision-making extends only to those issues on which the elites are divided."

The American public has been focused on the importance of consumption right along with the elites and political class. The elites are elites since they can buy whatever they choose which makes them VIP's to the political class which views it's primary role to create a positive business environment to foster greater consumption. The big issue suddenly is that large parts of the public can no longer practice excessive luxury consumption therefore we have a crisis. If the stock market tanks then the big worry is that the elites might curtail spending, the horror! We all are products of this advertising/consumption mentality including the so called academics along with the elites and political class. The idea that large percentage of the population will suddenly wake up and elect a political class that promotes an alternative to the public's interest in luxury consumption seems extremely unlikely.

beezer :
The big issue is that Teapublicans want to ruin both Medicare and Social Security. That's it. Tell the public they are about to be screwed out of their wages that go to Medicare and SS and that's all you need to do.

If someone says we're broke, just say America has more money than God and you've been lied to. No explanation will be needed.

bakho :
Interesting post.

How likely is it that the wealthy elites that rule the world are pulling the strings themselves?

Is it more likely that they rely on MBA type smartest guys in the room to manage the day to day? Those guys are laser focused on short term and justify their pay by the latest quarter. As long as they get paid before the bottom falls out, they don't care.

The incentives for the political system need to be longer term.

don :
"No, the accretion of power by the rentiers has been systematic, structural and the outcome of a decades-long process." A few things that need to change: An end to "deny and delay" - if financial insitutions used the proper accounting, their net worth would drop greatly. What has been happening lately is some rethinking about the ability of these institutions to 'muddle through' or to pass their losses through to taxpayers, the cusp coming with the U.S. downgrade. I doubt if the pressure will ever come to end Asian currency manipulation. But China 'tightening' to halt inflation and at the same time that it keeps the currency dramatically undervalued? How much of this misbehaving will we put up with? Part of the U.S. worker's plight is increased competition with low-wage foreign suppliers, but part is deliberate underpayment of foreign workers.
Sasha :
Overall excellent and to the point - more to the point these days than a thousand discussions of macroeconomic theory. Is Dorman channeling the spirit of Thorsten Veblen?

One quibble. Dorman mentions "failure of regulation to keep pace with technology and transnational scale". But what's happened is not so much that regulation hasn't kept up, as that regulation has been dismantled (e.g. Glass-Steagall) and enforcement all but eliminated.

Other than a few TLA's (three letter acronyms) such as CDO and CDS, there is very little new here. Veterans of the Panic of 1837, for example, would recognize it immediately.

gunste :
Democracy we have in name only. But this republic is a oligarchic plutocracy. The recent Supreme Court rulings have affirmed it: Money rules the day in elections. One man one vote has given way to moneyed propaganda that changes that motto.
CharlieH :
I think it is the promises about Social Security, Medicare, and Medicaid which Romney would like to change.

The GOP has never accepted any of those three, and would like to rewrite history.

The whole debt issue since the 1980s has played out to the GOP's liking. We raised taxes on the first dollar of incomes - Social Security taxes - to cover future Social Security obligations. Taxes on upper bracket income were cut by a similar amount, and the GOP allowed spending to be increased by a similar amount as well - the GOP was happy to spend the Social Security surplus as it came in AND to run up ADDITIONAL DEBT which would make it difficult to repay the Social Security trust fund bonds. That's what STARVE THE BEAST's basic idea was - don't worry at all about spending or deficits, just get revenues as low as possible, and eventually the gap between spending and revenue would be so big, and the debt so close to spiraling out of control, that spending would have to be cut.

Fast forward to spring 2011. The GOP first tried to simply phase medicare out. That failed miserably - if any seniors remember that in two years, it is quite unlikely that the GOP will retain more than half of the seats in congress they now have. But they then just switched gears to an abstract idea of deficits and debt - and latched onto the only way a gridlocked government could be manipulated to stop spending dead in its tracks, the debt limit. The Govt only brings in 60 cents of every dollar spent!

So now, while the GOP congress is unpopular, they've largely succeeded in getting the narrative across - spending is too high, if we don't radically cut spending particularly for entitlements, the debt will spiral out of control.

I think some in the GOP expect the temporary tax cuts not to be renewed - but they'd much prefer to have that happen than to simply have the top bracket taxes revert while those for lower incomes stay at the reduced rates. GOP can run on a promise either to extend the temporary tax cuts again, retroactively, or to permanently cut them to a lesser extent - and will probably win that battle of votes!

But it should be clear - the plan is to starve govt. We spent 18% of GDP before the Baby Boom generation got out of high school, and before there WAS medicare. We've known since the 1960s that we'd have to increase spending in the long run to pay for full social security benefits for the boomer generation and to account for longer life expectancies. And we've known the same thing re: Medicare, along with the fact that medical inflation would crush the budget.

But where are we now? Revenues are 2.5 standard deviations below the mean - nearly 3 sigma, meaning they don't belong to the same set of data as the typical revenues since 1946. Spending is about 2.1 standard deviations above the mean - though not extraordinarly beyond spending during the Reagan years, and we weren't even at war then. But revenue levels during the Reagan years, though substantially lower than what preceeded them especially for income tax revenues - were pretty close to the post-war mean.

Why would we now have the lowest revenues as a fraction of GDP for the past 65 years, at a time when we have LONG known that revenues would need to begin to increase to accomodate the boomer bulge and rising medicare expenses? If not in order to try to scale back or eliminate those benefits?

[Aug 08, 2011] Corporate Bond Pipeline Snaps Shut


U.S. companies are showing restraint by passing up cheap cash and easy access to investors by way of the corporate bond market — at least for now.

Market volatility and investor risk aversion brought on by the Standard & Poor’s downgrade to the U.S. credit rating has temporarily sidelined issuers.

High-rated companies that use the investment-grade bond market to raise capital via debt offerings are shelving planned deals until the market regains some footing. A brief poll of New York-based syndicate desks indicates clients have decided to push back or postpone debt offerings until stability returns to the market.

... ...

To be sure, the cost of borrowing via the U.S. debt market has been at its most attractive level in years, and company treasurers have taken note. High-grade companies have sold more than $600 billion in new issues so far this year, and investors have gladly snapped them up...


[Aug 17, 2011] The Death of the Eurozone

Yahoo! Finance

The news from the joint presser which generated the most immediate response was the announcement that France and Germany will propose a "financial transaction tax" in September. With the possible exception of Merkel and Sarkozy, nobody has any idea what this transaction tax proposal will entail, but that didn't stop traders from guessing.

The knee-jerk reaction was to bail on the exchange stocks like NYSE Euronext (NYX), which fell 8.3% and Nasdaq OMX (NDAQ), which dropped 4%. Whether this tax will be paid by traders in order to stem transaction frequency, or by the exchanges to reduce ECB debt is unimportant. Higher fees mean fewer trades

[Aug 17, 2011] Who will rescue the rescuers Presseurop (English)

“Is the world going bankrupt?" headlines Der Spiegel, wondering about the implications of US public debt, the euro crisis and chaos on the markets. The Hamburg-based magazine paints a bleak picture in which policy in Europe and the United States is struggling to keep up with financial markets, which are increasingly unstable and destabilised by initiatives that aim to restore order.

[Aug 17, 2011] SPIEGEL Interview with George Soros 'You Need This Dirty Word, Euro Bonds'   by Gregor Peter Schmitz and Thomas Schulz

08/15/2011SPIEGEL ONLINE - News - International

SPIEGEL: Is the current crisis even worse than the one in 2008?

Soros: This crisis is still the continuation of the same crisis. In 2008, the financial system collapsed and it had to be put on artificial life support. The authorities managed to save the system. But the imbalances that caused the crisis have not been removed.

SPIEGEL: What do you mean?

Soros: The method the authorities rightly chose three years ago was to substitute the credit of the state for the credit in the financial system that collapsed. After the failure of Lehman Brothers, the European financial ministers issued a declaration that no other systemically important financial institutions would be allowed to fail. That was the artificial life support; it was exactly the right decision. But then Chancellor Merkel stated that such support would only be granted by each EU member state individually, and not by the European Union.

... ... ...

SPIEGEL: You have been very critical of how the crisis has been handled by governments. Many European citizens, however, blame speculators like you for their attempts to bring down the euro. Huge hedge funds like yours have waged massive bets against the European currency over the past year. And in recent days, several European countries have even imposed temporary bans on short selling, bets on falling share prices.

Soros: You are confusing markets and speculators. At the moment, the biggest speculators are the central banks because they are the most important buyers and sellers of currencies. Hedge funds have definitely been supplanted by central banks. Markets expect the authorities to produce a financial system that actually holds together. If there is any hole in that system, speculators will rush through that hole.

SPIEGEL: That sounds very noble. But in reality, speculation makes any crisis worse. Look at the credit default swaps (CDS) market where speculators can bet on a further decline of currencies and economies. How can that be helpful?

Soros: Of course, speculation will always make a crisis worse. If there is a weak point, it will expose it. And you are right, the CDS market is a very dangerous instrument and I think it should not be allowed. I am one of the very few people who argue that the CDS is a dangerous instrument because it is so lop-sided in favor of a negative outcome.

... ... ... SPIEGEL: The United States is drowning in even more debt than Europeans. Its economic recovery has been painful. Are we going to see a double-dip recession in the US?

Soros: The indebtedness of the US is not all that high, but if a double-dip recession was in doubt a few weeks ago, it is less in doubt now, because financial markets have a very safe way of predicting the future. They cause it. And the markets have decided that America is going to see a recession, particularly after the recent downgrade of the US by the rating agency Standard & Poor's.

SPIEGEL: President Barack Obama has been fiercely criticized for his handling of the economy. You were one of his biggest supporters in 2008. Are you happy with his economic policy?

Soros: No, of course not. But the reality is that we have had 25 years of excesses building up in America -- a combustible mix of too much credit and too much leverage. You need a long time to reverse that.

SPIEGEL: Obama tried to stimulate growth with a gigantic stimulus program which increased the national debt further. Was that a mistake?

Soros: Obama embraced the ideas of John Maynard Keynes. Basically, the analysis of Keynes is still very relevant -- with one big difference between now and the 1930s. In the 1930s, governments had practically no debt and could therefore run deficits. Nowadays, all governments are heavily indebted, and that is a big change.

SPIEGEL: If Keynes were still alive, would he adjust his theory?

Soros: Definitely. He would say governments can still benefit from running fiscal deficits, but the new debt has to be invested in a way that will pay for itself. So the money spent would have to increase productivity.

SPIEGEL: The $800 billion stimulus program launched by Obama did not live up to that?

Soros: Obama's stimulus program was not big enough and it was not directed at improving infrastructure nor human capital. So it was not productive enough.

SPIEGEL: And any further stimulus is now basically a non-starter, because the conservative majority in Congress is hell-bent on preventing it.

Soros: That is what is pushing the world towards another recession, into a double dip.

SPIEGEL: The Republicans are doing that?

Soros: Yes, but Obama is also at fault. He yielded the agenda to the Republicans. He is talking their language. The president would have to show leadership to counter the Republican wave, and so far he has not done so.

SPIEGEL: Do you think the US deserved the recent downgrade by Standard & Poor's?

Soros: Probably not. This decision was the attempt by the rating agencies to reinvent themselves as anticipating rather than responding to changes that have occurred. So they are really basing that downgrade on the expectation that the political process will not provide the solution. Judging such political developments is a very new role for the rating agencies, though.

SPIEGEL: As an investor, do you listen to the rating agencies?

Soros: Well, I do not, but many other investors do.

SPIEGEL: The credit rating agencies are accused of exacerbating the crisis. Do you think the role of the rating agencies in the financial system needs to be scaled back?

Soros: I do not have an answer to that.

SPIEGEL: There are no alternatives.

Soros: Frankly. It is an unsolved problem in my mind

SPIEGEL: As an investor, would you still bet on the euro?

Soros: I certainly would not short the euro because China has an interest in having an alternative to the dollar. You can count on China to back the efforts of the European authorities to maintain the euro.

SPIEGEL: Is that the reason why the euro is still so strong compared to the dollar?

Soros: Yes. There is a mysterious buyer that keeps propping up the euro.

SPIEGEL: And it is not you.

Soros: It is not me (laughs).

SPIEGEL: In the end, will China be the only winner in this crisis?

Soros: China, of course, has been the great winner of globalization, and if globalization collapses, the Chinese will also be among the losers. So they have a strong interest in preserving the current global system. However, in some ways, they have been just as reluctant to accept it as the Germans. Germans have been hesitant to accept responsibility for Europe, and the Chinese have been hesitant to accept responsibility for the world. But they are both being pushed into it.

[Aug 16, 2011]   One Of Worst Monthly Sell Offs In High Yield Market's 25 Year History Implies "100% Probability Of Mild Recession"

More flashing red recessionary indicators are coming courtesy of the largely ignored High Yield market, which following a 5.3% decline is, as Bank of America (itself ironically contributing substantially to the blow out) says, is shaping up to be "among the worst months in the HY market's 25 year history, in a bad company of post-Lehman, post-WorldCom, post-9/11, and post-Russia sell-offs. The difference of course is that we did not have the largest bankruptcy in history taking place (LEH or WCOM shared that title at a time), no terror attack, and no outright sovereign default (Russia in Aug ’98). What we did have however, is a global risk-off trade, sparked by concerns that this fragile environment could slip into a double-dip recession as consumer and business confidence fails to sustain repeated beating from sovereign and financial systemic risk issues." What we also did have is the near end of the modern ponzi economic model, whose viability was once again extended courtesy of a variety of sticky objects thrown at the wall with hopes one sticks. For now the obliteration has been halted, although one thing is undeniable - central planner intervention buys increasingly less and less time. We are confident that August is just the beggining of pain for not only HY, but all other asset classes. And some more ammo for those who like comparing 2011 to 2008: "Parallels are being drawn between today’s environment and that of 2008, given the degree of equity destruction that has taken place across the financial space. Financial CDS – the epitome of ’08 systemic risk – are trading at an average of 190bp in the US, within reach of Oct ’08 levels, and 240bp in Europe, well north of their ’08 wides." What do spreads imply? Nothing short of recession: "The HY index, in the meantime, has widened to 739bp as of close on Thursday, its widest level since Nov 2009. With the spread normally peaking at 1,000bps in full recessionary periods2 (1991 and 2001-02) and bottoming at 250bp in times of strong economic growth, the current level is pricing in an 80% probability of a fullblown contraction in GDP, and a 100% chance of a mild recession."

[Aug 13, 2011] Asia Times Online Asian news and current affairs By Scott B MacDonald

Aug 12, 2011 | Asia Times

What do we take from this market upheaval?

  1. Credit, equity and commodity markets are pricing in a recession. US economic data has been signaling that the "soft patch" may be something more significant - a stall that could well turn into a recession. This explains the re-pricing in those sectors associated with economic growth - mining, materials, oil & gas, retail (clothing), and infrastructure. Financials, the villain at the heart of the drama in 2008, are also under pressure in both spreads and stock prices. (This was also pushed by a degree of contagion from French banks and concern over their exposure to peripheral European economies.) The Bank of America 5-year credit-default swap ended the day at 300/310 basis points and its stock was at $6.77 (down from a high in the year of $14.89 on February 14).
  2. While the Standard & Poor's downgrade of the United States sovereign debt to AA+ was the spark that appears to have lit the market explosion, it is not the core reason. The core reason is that the US and other advanced economies are in the middle of a multi-year process of deleveraging. This is impacting the public sector and households. The S&P downgrade only underscored that the US political establishment did a very poor job in dealing with a problem that was well-identified and had considerable time before the August 2 deadline.
  3. Although the market re-pricing is brutal, it comes at a time when US corporate strength is solid. Earnings over the last quarter were good, with far more positive surprises than negative. Moreover, earnings forecasts for the rest of the year depicted a degree of caution, not Armageddon. It is often forgotten, but market upturns and downturns tend to overshoot.
  4. The US banking sector is in better shape now than it was in 2008. Although banks and other financial companies have been pummeled in the market downturn, there has been a considerable effort to reduce toxic assets, rebuild balance sheets and stockpile reserves. Creditsights (August 10, 2011) observed: "The takeaway message is that the large banks and brokers should have sufficient liquidity resources to manage through these market dislocations caused by S&P's sovereign downgrade."

[Aug 12, 2011] Credit Market Indicators Suggest Darker Days Ahead

High yield bonds are essentially a leading indicator...


Hate to follow up one downbeat post with another, but I have to mention a note from Mike Darda at MKM Partners today pointing out that the credit market is still singing a very different tune than the cheery stock market.

First, a note about Mr. Darda. He is not a perma-bear. Going back to the crisis, he has consistently done a good job in sussing out the direction of the market and economy, both higher and lower, by following credit-market indicators.

He warned ahead of the crash in 2008 that things were about to get ugly, and he pivoted with near-perfect timing to bullishness in March 2009.

He maintained that bullishness throughout 2009 and much of 2010, but warned that 2011 would be a tougher year.

Sure enough, it has indeed been a tough year, and unfortunately, according to the indicators Mr. Darda is watching, it could get tougher still:

Although  some  recent data releases have come in better than expected (jobless claims, retail sales), we believe these could be misleading, given the abrupt tightening in financial conditions and the associated spike in equity  volatility.

Here are the indicators on his dashboard flashing red:

The Bloomberg Financial Conditions Index has fallen sharply in recent weeks and remains at levels consistent with soft economic conditions going forward.

High yield spreads, which have risen to 438 bps from 151 bps in February, lead year-ahead earnings estimates for the S&P 500 by three to six months and now suggest more than 30% downside to analysts’ earnings expectations for the next year.

And the large spike in volatility this year suggests this spread-widening may not have run its course, meaning the magnitude of the appropriate downward adjustment to forward earnings estimates may be a moving or,perhaps more appropriately,  falling target. Thus,  we would continue to sell any rally in cyclical equity sectors and focus long positions on areas better able to weather a slow growth/recessionary storm, such as utilities and consumer staples.

The FRA/OIS spread, which is based on forward expectations for LIBOR/OIS  settings, has worked its way up to 40+ bps from about 15 bps in early April. This spread (along with the VIX Index) tends to lead corporate bond spreads.

At the same time, the 2yr/10yr term spread has collapsed to 209 bps from a 289 bps peak in February (the spread briefly fell to 192 bps this week before recovering some ground yesterday). … The collapse in the spread from February onward suggests deep pessimism about future growth prospects. Remember, Japan slipped into recession in 1997 when its 2yr/10yr  spread fell to 175 bps. Flatter term structures and wider credit spreads  point to slower, not faster, growth.

While many of the clients we interact with appear to believe that the equity and credit market environment  resembles 2010,  we believe the outlook is much more precarious now.

[Aug 08, 2011] Corporate Bond Pipeline Snaps Shut


U.S. companies are showing restraint by passing up cheap cash and easy access to investors by way of the corporate bond market — at least for now.

Market volatility and investor risk aversion brought on by the Standard & Poor’s downgrade to the U.S. credit rating has temporarily sidelined issuers.

High-rated companies that use the investment-grade bond market to raise capital via debt offerings are shelving planned deals until the market regains some footing. A brief poll of New York-based syndicate desks indicates clients have decided to push back or postpone debt offerings until stability returns to the market.

... ...

To be sure, the cost of borrowing via the U.S. debt market has been at its most attractive level in years, and company treasurers have taken note. High-grade companies have sold more than $600 billion in new issues so far this year, and investors have gladly snapped them up...

A Second Recession Could Be Much Worse Than the First - By

August 7, 2011
If the economy falls back into recession, as many economists are now warning, the bloodletting could be a lot more painful than the last time around.

Given the tumult of the Great Recession, this may be hard to believe. But the economy is much weaker than it was at the outset of the last recession in December 2007, with most major measures of economic health — including jobs, incomes, output and industrial production — worse today than they were back then. And growth has been so weak that almost no ground has been recouped, even though a recovery technically started in June 2009.

“It would be disastrous if we entered into a recession at this stage, given that we haven’t yet made up for the last recession,” said Conrad DeQuadros, senior economist at RDQ Economics.

When the last downturn hit, the credit bubble left Americans with lots of fat to cut, but a new one would force families to cut from the bone. Making things worse, policy makers used most of the economic tools at their disposal to combat the last recession, and have few options available.

Anxiety and uncertainty have increased in the last few days after the decision by Standard & Poor’s to downgrade the country’s credit rating and as Europe continues its desperate attempt to stem its debt crisis.

President Obama acknowledged the challenge in his Saturday radio and Internet address, saying the country’s “urgent mission” now was to expand the economy and create jobs. And Treasury Secretary Timothy F. Geithner said in an interview on CNBC on Sunday that the United States had “a lot of work to do” because of its “long-term and unsustainable fiscal position.”

But he added, “I have enormous confidence in the basic regenerative capacity of the American economy and the American people.”

Still, the numbers are daunting. In the four years since the recession began, the civilian working-age population has grown by about 3 percent. If the economy were healthy, the number of jobs would have grown at least the same amount.

Instead, the number of jobs has shrunk. Today the economy has 5 percent fewer jobs — or 6.8 million — than it had before the last recession began. The unemployment rate was 5 percent then, compared with 9.1 percent today.

Even those Americans who are working are generally working less; the typical private sector worker has a shorter workweek today than four years ago.

Employers shed all the extra work shifts and weak or extraneous employees that they could during the last recession. As shown by unusually strong productivity gains, companies are now squeezing as much work as they can from their newly “lean and mean” work forces. Should a recession return, it is not clear how many additional workers businesses could lay off and still manage to function.

With fewer jobs and fewer hours logged, there is less income for households to spend, creating a huge obstacle for a consumer-driven economy.

Adjusted for inflation, personal income is down 4 percent, not counting payments from the government for things like unemployment benefits. Income levels are low, and moving in the wrong direction: private wage and salary income actually fell in June, the last month for which data was available.

Consumer spending, along with housing, usually drives a recovery. But with incomes so weak, spending is only barely where it was when the recession began. If the economy were healthy, total consumer spending would be higher because of population growth.

And with construction nearly nonexistent and home prices down 24 percent since December 2007, the country does not have a buffer in housing to fall back on.

Of all the major economic indicators, industrial production — as tracked by the Federal Reserve — is by far the worst off. The Fed’s index of this activity is nearly 8 percent below its level in December 2007.

Likewise, and perhaps most worrisome, is the track record for the country’s overall output. According to newly revised data from the Commerce Department, the economy is smaller today than it was when the recession began, despite (or rather, because of) the feeble growth in the last couple of years.

If the economy were healthy, it would be much bigger than it was four years ago. Economists refer to the difference between where the economy is and where it could be if it met its full potential as the “output gap.” Menzie Chinn, an economics professor at the University of Wisconsin, has estimated that the economy was about 7 percent smaller than its potential at the beginning of this year.

Unlike during the first downturn, there would be few policy remedies available if the economy were to revert back into recession.

Interest rates cannot be pushed down further — they are already at zero. The Fed has already flooded the financial markets with money by buying billions in mortgage securities and Treasury bonds, and economists do not even agree on whether those purchases substantially helped the economy. So the Fed may not see much upside to going through another politically controversial round of buying.

“There are only so many times the Fed can pull this same rabbit out of its hat,” said Torsten Slok, the chief international economist at Deutsche Bank.

Congress had some room — financially and politically — to engage in fiscal stimulus during the last recession.

But at the end of 2007, the federal debt was 64.4 percent of the economy. Today, it is estimated at around 100 percent of gross domestic product, a share not seen since the aftermath of World War II, and there is little chance of lawmakers reaching consensus on additional stimulus that would increase the debt.

“There is no approachable precedent, at least in the postwar era, for what happens when an economy with 9 percent unemployment falls back into recession,” said Nigel Gault, chief United States economist at IHS Global Insight. “The one precedent you might consider is 1937, when there was also a premature withdrawal of fiscal stimulus, and the economy fell into another recession more painful than the first.”

There is at least one factor, though, that could make a second downturn feel milder than the first: corporate profits. Corporate profits are at record highs and, adjusted for inflation, were 22 percent greater in the first quarter of this year than they were in the last quarter of 2007.

Nervous about the future of the economy, corporations are reluctant to make big investments like hiring. As a result, they are sitting on a lot of cash.

While this may not be much comfort to the nation’s 13.9 million unemployed workers, it may be to their employed counterparts.

“In the financial crisis, when markets were freezing up, the first response was, ‘I’ve got to get some cash,’ ” said Neal Soss, the chief economist at Credit Suisse. “The fastest way to get cash is to not have a weekly payroll, so that’s why we saw such big layoffs.”

Corporate cash reserves today, he said, could act as a buffer to layoffs if demand drops.

“There are arguments that another recession would be worse, and there are arguments in the other direction,” Mr. Soss said. “We just don’t know at this juncture. But ultimately it’s a question you don’t want to know the answer to.”

[Aug 06, 2011] Will S&P Downgrade Be Another Y2K Scare

August 6, 2011 | naked capitalism


This situation is not really comparable with Y2K. Y2K was, by definition, a once in a millennium event. There was either turmoil on 1 Jan 2000, or there wasn’t. I agree that the S&P downgrade will not mean much for US yields in the short run, because US debt is such a cornerstone of the financial system that most debt holders will change their rules and procedures rather than be forced sellers, but the downgrade is like another hole in the US boat. A reason not to take on new exposure, a reason to search for alternatives a little harder.

As for S&P’s reasoning, I think it would be hard not to downgrade a country with an influential group of politicians who have just shown themselves to be ready to drive the country to default if their demands are not met. This downgrade should be blamed mainly on the tea party nutters. And, as a US firm, S&P’s action must go some way to repairing their credibility.

Jim A:

The downgrades were based on the failures of the underlying loans. You can’t have it show up in one product and not the other.

It was horribly negligent of them to not realize that since the pools were already diverse, further pooling and tranching provides very little additional risk management. The underlying MBSs were made and rated to the the same pattern, and so the losses in them were very highly correlated. Either most of them would pay off, or very few of them would. It simply wasn’t possible for only some of them to fail in a predictable, domino like fashion.

lambert strether:

“Negligent,” forsooth? Criminal.

Part of a systemic accounting control fraud exploit.

Jim Haygood:

‘Ratings agencies assess credit ratings, not interest rate risk.’ — Yves Smith

Exactly. The primary factor which determines short-term returns in Treasuries is general interest rate movements. Ratings agencies don’t have the slightest insight into those.

Secondarily, when default is of concern, economic recession is a key trigger of crises. Just look at the correlation of US bank and corporate failures to recessions. Again, rating agencies have no ability to forecast GDP. Whether a recession occurs in 2012 is of far greater import than S&P’s rating.

Like analysts’ earnings estimates, ratings are primarily an analytical fig leaf to drape a veil of due diligence on institutional bond purchases. Real world bond traders and hedgers have little need of ratings, except as short-term news events to trade. The market-derived yield conveys more information than a debt rating.

As for S&P’s rating cut, it was in the market all day Friday. Whether European debt is crashing or rallying on Monday will have far more influence on UST yields than S&P’s action, which is probably publicity-oriented more than anything.

lambert strether:
Use 18 US 1361 to jail them for “criminal mischief.

Of course, the real point of the exercise may be to show that the rentiers are not subject to the rule of law. I mean, we know this because none of the banksters have been prosecuted for accounting control fraud, but now we really know it, since S&P is just thumbing their nose at the Fourteenth Amendment.

Hehe.. nice point.
F. Graeber:
 “Use 18 US 1361 to jail them for “criminal mischief. " "

“Of course, the real point of the exercise may be to show that the rentiers are not subject to the rule of law. I mean, we know this because none of the banksters have been prosecuted for accounting control fraud, but now we really know it, since S&P is just thumbing their nose at the Fourteenth Amendment.”

Sure. The “shall not be questioned” clause in the 14th Amendment means that it’s illegal to raise questions about the debt. That’s a, shall we say, creative — maybe a better description would be “blindingly stupid” — reading of the clause. And it’s always good to see people advocating the criminalization of opinions, because I guess the 14th Amendment does trump the 1st Amendment.

lambert strether:
Check the statute and you’ll see. (I shouldn’t have written “thumbs one’s nose at the 14th Amendment,” since that’s not law, unlike that statute.)

* * *

Gee, it’s nice to see “free speech” being used to defend the work product of a commercial entity, even if the courts don’t agree. Money talks, I guess.

* * *

As to the larger point, that the rentiers are no longer subject to the rule of law, I note, from your silence, that you agree. That’s the main point at issue.

Allen C:
Anyone not looking beyond ratings is a fool. Any competent analyst concludes that the US is a greater credit risk than 40 years ago. 35+ years of chronic trade deficits and now massive debt growth without material, corresponding GDP growth has to be alarming!

The evolution of the recent crises clearly demonstrates that investors are complacent until they suddenly realize the ugly fundamentals. Years of preparation were involved in Y2K. Essentially nothing has been done to address these unsustainable macroeconomic trends. The US continues to run up debts, the great outsourcing machine continues to drive production offshore, and numerous inefficiencies continue to increase costs.

So S&P are corrupt and criminal according to Yves, thus their downgrade is of no merit. So does that mean that Moodys and Fitch who have not downgraded are upstanding corporate citizens?

The problem with Yves’ argument is that it is essentially ad hominem in nature.

One of the smaller ratings agencies Eagan Jones who are widely viewed as credible downgraded the US a couple of weeks ago. Here is their data (PDF). Perhaps Yves would like to comb through that and deal with the facts instead of jumping on the White House emergency PR campaign train. 

lambert strether:
An attack on a corporation can’t be ad hominem, since corporations are not persons. Unless you regard Citizens United as settled law, of course.
Krugman nailed it in his latest column.
  1. These are the guys that kept rating subprimes AAA until the end.
  2. There’s no logic behind this rating, it seems to be based on the arbitrary idea that $4 Trillion in deficit reduction over 10 years is some sort of magical construct.
  3. They acknowledged that their math was off by $2 Trillion but went ahead with the downgrade anyway.
David Jones:
Amusing to read the article and comments above. Oh my, oh my, how the American left gets itself into such a dither over a minor ratings downgrade.

Gee Dorothy, I guess we’re not in Kansas anymore and that wicked witch S&P is trying to tell us something.

There’s no mention of the fact that in the CDS market the U.S. hasn’t been pricing as a AAA, AA+, or even A credit for some time, but heck who cares about what the market thinks. Listen fellow workers reality should be what our dear leaders say it is.

Why should the printer of the world’s fiat currency have to live by any rules? We’re the greatest nation on the planet, the last remaining empire from the previous century, and we should be able to print and spend as much money as we want – medical care, retirement, and subsidized housing for all Americans.

Socialist nirvana here we come baby! Who cares about the bill, we have the printing press, we deserve it, and the rest of the world can damn well keep lending us money to pay for it! After all, it’s our fiat money in the first place.

Dear “Mr Jones,” Albeit you have all the earmarks of a Troll, I’ll try to put a counterpoint or two.

Finally: What’s wrong with Socialist Nirvana? Have you ever had to sell your blood to feed your family during a layoff? (I have, back in ’83.) Have you ever had to live in a tent because what you made from a full time job didn’t pay inflated rents? (We did.)

I could go on, but it’s time to go to work. Good bye, and good luck!

Queue Sideshows, Avoid The Real Issues As Much As Possible

Would somebody just go shoot S&P for downgrading American debt?

Honestly … I don’t care about why S&P did the dirty deed. Their intentions are irrelevant. The fact is this country is in trouble. Instead of letting distraction prevent us from addressing the problems we are served up propaganda from every niche and corner.

The first thing to do is to institute a flat tax. The tax code is the single biggest source of corruption in Washington.

It is the single largest reason why lobbyists are paid money. It is the primary reason which those wishing to influence government tax policy donate to politicians. I propose exempting the first $25,000 of income and taxing everybody else at the rate which is set by Congress every year.

And to control the financial/accounting screams implement it based on this day forward. Existing program participants go to the end of their particular life expectancy. No waivers.

The 2nd thing to address is ending Congress’ exemption from the laws they pass. If social security is good enough for us, it is good enough for them. If medicare is good enough for us, it is good enough for them. If we can’t descriminate, neither can they.

Japan also survived her downgrades.

The thing is, Japan used to copy us, now we are copying Japan.

‘You have a lost decade.’

‘We will have a lost decade too.’

‘Just to out-do you, we will have a lost century.’

[Aug 05, 2011] Time to Say It - Double Dip May Be Happening

"The Republican attitude toward our economy is nihilistic -- and is going to dump more folks into being unemployed"

When what may eventually be known as Great Recession I hit the country, there was general political agreement that it was incumbent on the government to fight back by stimulating the economy. It did, and the recession ended.

But Great Recession II, if that is what we are entering, has provoked a completely different response. Now the politicians are squabbling over how much to cut spending. After months of wrangling, they passed a bill aimed at forcing more reductions in spending over the next decade.

If this is the beginning of a new double dip, it will have two significant things in common with the dual recessions of 1980 and 1981-82.

In each case the first recession was caused in large part by a sudden withdrawal of credit from the economy. The recovery came when credit conditions recovered.

Seth J Hersh

Although I was a fervent and committed Obama supporter, I have been unimpressed and mostly disappointed with President Obama's leadership abilities. He has, to his credit, constantly promoted infrastructure spending, alternative energy development and education spending, he has not promoted these issues effectively nor as a way to lead us out of this poor economy.

The Republican attitude toward our economy is nihilistic -- and is going to dump more folks into being unemployed. If their wish is to make President Obama a one-term president, they are doing it (like everything they propose) on the backs of the middle-class and disadvantaged.

I remain a (disappointed) Obama supporter because I realize the Republican alternative will be an unmitigated disaster and catastrophe for Americans, across the board, except for the wealthy and the big corporations. It's difficult to comprehend how the bulk of TPs vote against their own best interests -- but that is increasingly the case, apparently, when misleading information is spoon-fed to the electorate by the Republican leadership.

The government MUST spend our way out of this mess -- and let far more people "touch the dollar". This means increased infrastructure investment, alternative energy development (which will, eventually, reduce our energy costs AND create NEW jobs ... and NOT preserve jobs in the dinosaur industries, eg, oil) and allow educational spending to help bring the US back to the top tiers of an educated population.

We need long-term strategic solutions, not short-term political ones.

Seth J Hersh

upstate NY


Well, I do not remember when we were out of the last recession, unemployment is still as high as it was in 2007, the government stimulus package saved the banking and the insurance companies Ceo's from defaulting on their bonuses, and where are all those green energy jobs? So here we are eleven years into the new century and when we left the last one our bills were paid on time, and our debt was practically nil. Now we owe more than any nation on earth, we are engaged in two illegal wars and are heavily invested in another newer one, our congress just passed the largest defense budget in our nation's history, but are telling seniors to stock up on cat food as a necessary way of life as they are vacationing and feasting on caviar and champagne while the rest of the country is going to hell in a hand basket.


Call it a Correction, rather than a recession. We flew high far too long, and had to be brought back to earth, though greed still rules. I am glad Obama is President, for the always-a-white-guy thing was tedious, and it was time for America to walk the walk as well as talk the talk. Obama is a decent, intelligent person who inherited a horrible mess. However, I wish he exhibited more FDR and MLK leadership, rather than trying to please everyone.

Thomas Mischler

For the love of God, would someone, somewhere in Washington initiate some jobs programs? Now!!?? And I don't mean handouts to favored constituencies in the guise of federal stimulus programs - I mean identifying needs, using federal (yes, deficit spending) dollars to pay for these needs, and then hiring people to do the work. How in the world can that not improve the economy, putting people to work and increasing spending? When are we going to realize that businesses aren't going to hire until demand increases?

Yes, yes - I know. We can't spend what we don't have, we can't spend our way out of recession, government doesn't create jobs, etc. You know what? Shut up. Just shut up with all your favorite right wing garbage. I'm sick of it.

I'm a math teacher who can't find a job. That's insane - but a direct result of a nationwide wave of insanity that blames anyone who receives money from tax dollars for the current economic troubles. What amnesia! Does anyone remember the Lehman Bros collapse and the subsequent financial panic? Hello??? It's like all of that never happened - and teachers, firefighters, and other government workers who have been working hard all their lives are suddenly responsible for all of this. And we have to cut their pay, benefits and bargaining rights immediately in order to rescue the economy. What a bunch of pig slop.

Yes, I'm frustrated. Turn off the Fox noise machine, people! And MSNBC while you're at it! Think for a change, will you? Millions of peoples' lives are at stake! This is not an arcade game

John Michaels

What is not being discussed in the public discourse? Permanent changes in our culture, lifestyles, and the global stage that render the past cycles poor predictors of the future. A good percentage of our workforce is now obese. We are addicted to foods, substances, behaviors, gadgets, consumption at an unprecedented level. We have less energy and less power of focus. We take more pills, have more illnesses, and spend more time in hospitals. We are in the midst of permanent changes. We are losing, or have lost, our greatness. As anyone whose spent time abroad can attest, the American workforce is comparably lazy. No politician would utter such truths. But economists and journalists can demonstrate more courage by writing about how these and other societal changes are impacting our economy.


those of us without bank accounts in the Cayman Islands have felt this for some time and the real surprise would be if anyone is surprised. All the ineptitude of Washington, the greed of corporations that keep moving jobs from the US to other countries, the inability of making real reforms are finally catching up with us. I voted for Obama but I have to admit that his priorities from the beginning have been misguided and precious time and money has been wasted. And the GOP, in the meantime has provided very little leadership. But these are our rulers, folks. If you trust an inept doctor, don't expect to get cured and I fear we are in the hands of amateurs. Sadly, this is true in other countries as well and as a planet we are headed towards another recession, but with no real change, should we expect a triple dip?


Economic growth is defined as GDP = C + I + G +NX. C and I are private sector consumption and investment. NX is our current account which is negative due to the trade deficit. That leaves G, government spending. Almost all of the run up in spending over the past two years were government transfers from automatic stabilizers. G has been a drag on GDP all this year as government reduced spending. It will get much worse as cuts are made deeper. The national debt, more properly called our National Savings, is no drag on the economy, especially with interest rates so low. We are in a balance sheet recession because households are trying to reduce debt. Households have little capacity to spend. Corporations have record levels of cash and won't invest r hire until they see a pickup in demand. Global GDP is down due to the austerity programs in Europe.


It never stopped. Only for a few elite.

As for most of northern New England the area never recovered from the recession in the 80's. Probably why economists don't count us much north of Boston.

There are no jobs. There are no social services. Call the state and you can't even get a live person to answer the phone. A simple part time cashiers job where I work got over 250 applicants. People living over 30 miles away applying for it!


This is what happens when we elect an inexperienced Senator to the office of President of the United States of America.

The Tea Party Republicans are in the lead in Washington, DC simply because they are filling the void of leadership that President Obama refuses to occupy!

Expect economic and financial matters to worsen under the directionless, visionless, undisciplined President Barack H. Obama.

Expect economic and financial matters to improve once Obama is voted out of office.

[Aug 06, 2011] Washington’s appetite for self-destruction

August 5 |

a greek:

Any detective knows : If you want to solve the mystery, follow the money.

If you follow the money, all this Tea Party thing boils down to struggle for a massive redistribution of income in favor of the rich. As simple as that.

They may dress it up with a lot of fancy spin about freedom, individualism, small government, big government, medium-sized government, extra large government and other bull**it, but as even my grandmother knows, money makes the world go round.

It is pure class war. The rich refuse to part of any money (in increased taxes) to fund government spending ( some transfer of income to the less well off).

This is a trend that becomes very en vogue all over the world. And it may succeed, because the less well off are no more presenting a credible class threat.

The specter of communism has been defeated. Societies have slipped gradually to more authoritarian modes of operation. Collective action from the masses is in decline. That is why the better off are rushing brazenly to the offensive.

Ironically, this will eventually lead to a rebound. People pushed to the limit are bound to react. It may take time, even a long time, but radicalization will take roots again. Class wars will flare up again.

By, the way, where is today that most arrogant idiot who some years ago had the temerity to declare the 'End of History' ?

Frenchman in HK:

As Henry Kissinger pointed out in his early days PhD thesis about Napoleonic Wars and then much later in his book "Diplomacy", people always fail to understand and deal with revolutionary.

They believe they can understand their motives, they are wrong. They believe they can negociate with them, they are wrong. They believe they can settle score with them through a compromise, they are wrong. They believe they avoid total and unconditionnal surrender, they are wrong. Because revolutionaries are not ordinary people and are as self-centered as obsessed with their blind ideology.

Tea Party people are revolutionaries and they seriously need to be stopped before further damage is done both to the US and the rest of world.


This is a wonderful, wise and adult column - the best that I have seen in the FT in a very long time. Why was Weisberg's Saturday column cancelled not too long ago and replaced by Christopher Caldwell's ineffable right wing distortions? That, surely, was one of the worst editorial decisions the FT has made in a long time. I hope we will be seeing many more of Weisberg's columns - then we will understand the full tragedy that is taking place in America.

Weisberg's comparison of the Republican's rejection of modern economic theory with their rejection of Darwin and global warming is especially apt. My only criticism is that Weisberg repeats the mindless myth that an act of Congress is needed in order to make America's immigration system more liberal. Anyone familiar with immigration law know that the president has broad executive power to make sweeping changes in the immigration system on his own.

Obama has used this broad power - to make the system much harsher and punitive than under Bush, for both legal and illegal immigrants. In doing so, Obama has also seriously undermined his own reelection chances. Immigrants have American families and employers whose votes Obama badly needs next year. He will not get them, unless he quickly makes a 180 degree change in his cynical, shortsighted and utterly senseless "enforcement only" policy on immigration.

[Aug 05, 2011] Discuss BEA revised 2009 & ’10 Personal Income Sharply Lower

August 4, 2011 | The Big Picture
Concerned Neighbour

The one group that has seen improvement over the last decade is the wealthy, and they are the only group of whom nothing is being asked to solve the problem. I think there is a lot – A LOT – of anger out there, though much of it is comically (and tragically misfocused). The recent debt ceiling theatre no doubt made it worse.

I laugh when people say Keynesianism doesn’t work, and that’s because Keynesianism isn’t practised in the U.S. True Keynesianism calls for paying down debts and – prepare to be shocked – actually saving money during the good times so that the system has some resiliency in the bad times. Things were so fragile to begin with thanks to the Bush tax cuts and the Bush Holy Oil Wars that when real stimulus was needed, the capacity of the country to administer it was drastically reduced. If the system weren’t so stressed, you wouldn’t see the Tea Bagging loonies come out of the closet in such force. Now they’re just compounding their past mistakes, and no doubt will try to blame it all on the Democrats. And since the Democrats have proven to be utterly spineless, I have little doubt they will succeed. Prepare for a Sarah Palin presidency, because it’s a distinct possibility at this point. And that is downright terrifying to any thinking person.


The BEA’s retroactive revisions were bad enough. But here’s a way to make them look even worse. Instead of using the BEA’s GDP deflator, Doug Short looked at what real GDP would be if the CPI were applied as the deflator. Answer: 2nd quarter GDP growth flips from slightly positive to minus 3.2%. Here is the butt-ugly chart: 

Article link: 

Not that CPI is an appropriate deflator for GDP. But the inflationary reality probably lies somewhere in between the BEA and CPI numbers.

What rings true about the chart above is that the direction is right — 2nd quarter growth actually decelerated (or went negative) compared to the first quarter, rather than rising slightly as the flash GDP estimate improbably asserted.

whskyjack Says:

The 10 yr treasury note was down to 2.29%. over 10 years that is free money Why would anyone advocate turning down free money especially when there are infrastructure needs and some of them can be payed off in 10 years. Like sidewalks in the central city. Jack

[Aug 05, 2011] Fed Watch: That. Was. Unpleasant.

Tim Duy:

That. Was. Unpleasant., by Tim Duy: The rapidity with which confidence can shift is nothing short of a wonder of nature. I am not sure there was any terribly new news today. The evidence the US economy is weakening has been mounting for weeks. That equities had not sold off yet was something of a testament to the underlying profit situation.

But now fear grips financial market participants as the rush to cash or cash equivalents accelerated.

[Aug 03, 2011] Washington Chain Saw Massacre

First of all this fight between Democrats and Repugs was fake, much like fights in World Championship Wrestling. Those are just two branches of the party of oligarchy. That's why Obama served as a willing Trojan horse for Tea party to get what they want. As we were reminded yesterday the Bush Tax Cuts could have been linked to the debt ceiling in December.  So nothing new, althouth it's more theatric then usual. They should give awards to congress for some of the best acting since Nickleson in the movie the shining. For this reason panic forecasts like "50% mandatory U.S. currency devaluation in 12-18 months" should probably be taken with a grain of salt.
August 3rd, 2011 |

Tom McMahon

What people fear is the truth. Due to this fact they live in delusion. Everywhere one looks irrational over-rides logic. Tell people lies long enough, they start to believe they are true. Hence we find ourselves where we are as a country. Math does not lie, had the Ronald Reagan era tax cuts and George W Bush tax cuts had never taken place we would have no debt. The rich would still be rich.

The economy would have been much more resistint to calamity or catasrophe and in all likelyhood would have grown at an annual rate of between 3-5 percent. Forty two trillion dollars trickling up to the wealthiest less than one percent over the last thirty one years has done no good for us economically at all. We have a revenue problem, we do not have a spending problem. When so many freshman republican tea party members deep in debt or illegally behind on child support payments attempt to espouse fiscal responsibility one can only find a single word that comes to mind, hypocrite and criminal. They know nothing but rhetoric, always short on fact.


A frighteningly brilliant analogy, Maureen. There is only one other iconic type of "monster" to which you should have compared the right-wing extremists who have been running rampant in Washington, and that would be zombies. Soul-less, emotionless, creatures inexorably plodding forward leaving havoc and devastation in their wake - as they struggle, fruitlessly, to acquire "brains".


Obama abdicated his responsibility to the American people by not standing up to these mindless savages. He acted cowardly while hiding behind his centrist compromise stance.

On the other hand, we elected these mindless zombies, personified by the vacuous Michele Bachmann, and in a democracy, the people deserve the government they get.

It is the height of insanity to believe that a country can wage two major wars for more than a decade, then engage in two more minor ones, and not raise taxes to pay for any of it. Well, we're paying the price starting now.

We used to manufacture all sorts of things here, now we just make wars.

As for me, I'm working much harder than I did last year to convince my wife that the U.S. is doomed, and that we need to plan our move to Canada as soon as possible, before civil war breaks out.

I predict a 50% mandatory U.S. currency devaluation in 12-18 months, perhaps even sooner.

Doug Terry

Why was everyone so afraid of the tea party radicals in the House that they would not even speak ordinary truth, such as this: the manner in which you get your way in Washington, DC, is to win elections (more than one), get into the majority and, if possible, win the White House, too. By the new rules, it is better to lose the presidency and have a loud, never compromising minority inside the majority of the most fractured and disagreeable house, the House of Representatives. By the new rules, Obama actually lost more than he gained when he won the votes of millions of Americans and took the solemn oath of office.

The tea party groups, obviously backed by millions from wealthy contributors (rather than being a "grass roots effort" as profiled in the Times back pages), declared Obama out of office in March, 2009, less than two months after he had gotten in. The way things have been going, I'd expect Obama to agree with them. "I am here, but maybe I'm not", like the movie about Dylan that stars everyone but Dylan.

When the Republicans got the House, everyone from media to president to commentators, acted as if they had won the war. An important fact was left out. They can't pass anything on their own. The House has no power at the moment EXCEPT obstruction. Is this so difficult to figure out? It is, at base, nothing, but Obama allowed them to puff themselves up into being...almost everything. This is negotiation?

Some of the tea party groupings have the nerve to call themselves Tea Party Patriots. After spending the last fifty or sixty years attacking anyone who even dared question the direction of the U.S., who even dared to stand on a corner with a sign against wars, they are now the patriots? The House Republicans committed one of the most unpatriotic acts in the last 100 years by elected officials. And, they do this while, even at this moment, our troops are in harms way? This isn't a horror movie. It is anti-science fiction.


The "tea party" members of Congress have a noble cause, so it would seem, but their adamant refusal to submit to any tax increases exposes them as frauds - they've been bribed by wealthy interests, the obvious reason they couldn't compromise on the "new tax" issue. The wealthy interests who finance the so-called Tea Party are not paying their share of taxes, and want to keep it that way. The "Pledge" the Tea Party Congresspeople signed with Grover Norquist and his "Americans for Tax Reform" was clearly a Contract, not a Pledge. They were promised excessively handsome rewards for sabotaging reasonable debate between reasonable people. Thank the Supreme Court for giving corporations and the wealthy a license to contribute unlimited amounts of money to "support" those politicians who will do most anything for personal gain. On the latter point, would be very interesting to know who came out really big, with inside knowledge of what many certain Congresspeople would do, during the past couple of weeks of market trading.

Rob M.

I'm afraid you've got it exactly right, Maureen. There isn't likely to be any way out for Obama and the Democrats now that they've eaten the Satan Sandwich. How could they be had so easily? Not even 24 hours have passed since it was passed and those role-models of good faith negotiations, the Republican leadership, have resolutely announced that they won't appoint anyone to the "Super Congress" who might remotely vote for revenue increases. So it was a complete sham, predestined to deadlock. That will usher in the across-the-board cuts the Tea Party have long drooled over. They may not have figured out yet that their own oxen will be badly gored when that happens, but we'll all be bleeding along with them.

As for the Bush tax cuts, if they are ever allowed to expire the Tea Party will make sure the increased revenues aren't appropriated for anything but more tax cuts for their idolized plutocracy (which, ironically, despises them). The damage is done, the President gave the Tea Party the keys to the kingdom, and we're going to be living with the consequences of this historic disaster for as long as I can foresee.


The Republicans live in their own fairy tale world where government is the enemy and default of the government is either 1) media hype or 2) a good thing because it forces us to prioritize political sacred cows. The tea party Republicans are their own suicide bombers and they have come to Congress to blow it up.

They wrap themselves with the flag in a false belief that by destroying government, they are patriotically saving the country from liberal spending excesses. But by holding America hostage to their own perverted whims, they have destroyed the American dream - a country that can do great things, that honors those who personally sacrifice to help their fellow man, and builds on the past to make our kids have a better tomorrow.

The tea party has a false patriotism that has been sold to America as fiscal responsibility when it only wants to starve government to the point of dysfunction. We have found the war on terrorism in America and they have infiltrated the highest levels of our political system. Unfortunately, our president has also wrapped himself with the flag, but his is colored white.


I think villians and monsters may be in the eye of the beholder as much ias scripted. About two weeks ago Grover Norquist appeared on C-Span's 'Washington Journal' their daily 3 hour call-in and interview program, and I watched him in action for most of the 30 minutes he was alloted. During that segment he made all his usual points about 'bloated' government, 'Obamacare, 'Tea Party Patriots' and his other familiar illusions about fitting government into a 'bathtub'. As dreary as all that seemed to me, there was a more important dimension that suddenly struck me: His overbearing arrogance. He exercised it deftly when shredding caller's comments. He mesmerized me. I saw and heard a level of pomposity and arrogance that is rare even among the most self-assured of Murdoch's cadre of over-paid talking heads. And suddenly I felt at ease. There, gloating before the C-Span camera, was no ordinary right wing spook, but a brilliant tool for Progressives. What we need to accomplish now is finding more and more ways to give this character national exposure. Mr. Norquist may be able to do more in 30 minutes to neutralize Right Wing anti-Obama venom than any anti-toxin known to science. Certainly he is more positively venomous than anyone among the current crop of Republican 'presidential' candidates, and I've already forgotten much of the vitriol Senator McConnell and Speaker Boehner spewed recently. Those two gentlemen, like all the Republican 'Presidential candidates, are really amateurs. It's Mr. Norquist who has just the right touch. His brilliant snearing overbearance has immense political potential on national audiences. We think he is magic.


Good analogy since there never was a Tea Party... it was just a show written, directed and produced by the Koch Bros.

They gathered an insane cast of characters from the most unstable groups of Americans and they knew right where to look for these bit players who would flesh out the scenes for the real stars, the bought and paid for republican politicians that they sought to instal in congress.

Koch used the bigots, the religious, the poor and the elderly as props for their productions, the walk-on characters were coached on their parts and whipped up into a frenzy of exuberance for their unpaid parts. The monsters in this twisted media extravaganza even supplied their own costumes and props.. Misspelled signs and tri-cornered hats embellished with tea bags all for our amusement and horror.

The election of 2010 is over and so is the production.... the Koch bros. have now abandoned the stragglers and hangers on in this bizarre tale. They are now reaping the rewards of having their stars take encore after encore at the box office which is the house of congress.

The tea party bit part actors are now lucky if they can get 30 people to show up at their rallies and without Koch industries financing them now, they have run up huge debts. Half a million dollars owed to a hotel for unsold rooms after their Tea Party convention was canceled due to lack of interest. Many of their other events also canceled due to lack of interest, even booking Joe the Plumber failed to produce more than 70 people.

That is like organizing a Star Trek convention where the only attraction is a guy who played a red shirt in season 3.

There never was a tea party, just an extravaganza of showmanship and special effects... it was a blockbuster and Koch will be pulling in the residuals for years to come! They will own all of the republicans and at least one of the democrats on that super committee... pretty good return on their investment to never have to pay taxes again.

Ed Burke:

The United States allowed Ronald Reagan to Triple the National Debt. Gerge W. Bush spent, and spent and spent until he had taken a 5 trillion dollar national debt and turned it into 11 trillion dollars of debt. This kind of financial destruction was ignored by the self same people who now want all deficit spending arrested at the worst possible moment. I guess we should not be surprised.

America's massive sins have caught up to her. did we really need 10 Nimitz Class Mega Aircraft Carriers after the cold war ? Did we need to invade Iraq the second time ? Would the money have been better spent on infrastructure, solar panel installations and non-fossil fuel energy generation ? Stupid is, as stupid does said Forest Gump, but unlike Forrest we aren't winning any windfalls or medals, we're just celebrating stupidity. That is a horror, to be sure, but not nearly as entertaining as Ms. Dowd


I think you've got the wrong horror genre. The Republican Party propaganda organizations like Fox News and Freedom Works went to the wasteland of middle America, and unearthed from the unconscious of its inhabitants all the class resentments, buried racism, unfulfilled desires, insecurities and hatred and molded them together to form their creation, the Tea Party, who now like Frankenstein, has broken free of their masters and and ran amok through the Congress.

Like Boris Karloff's monster, who screamed "Fire Bad!" "Water, Good" the Tea Party rebelled against their Dr. Frankenstein Republican creators screaming in monotones, "Obama Bad", "Taxes Bad" "Spending Bad", "Democrats Bad" "Compromise, Bad" "Dept Ceiling, Bad" scaring all the townsfolk in the village to cower behind closed doors.

The problem was that unlike the villagers in the original movie, the Democrats and somewhat rational Republicans did not band together, light torches, and go out to hunt down the monster and destroy it. Instead, Town Constable Obama, met with Dr. Frankenstein's representatives to see what would appease the beast and what would have to be sacrificed for the monster to be temporarily satiated. In the movie, Frankenstein the monster inadvertently kills a little girl and throws her in river, motivating the villagers to summon up the courage to kill him, or so they thought. In our recent horror show, it was decided by the cowardly townsfolk to appease the villager by offering him our economic recovery as a sacrifice. "Frankenstein's Revenge" opens in November, when the newly appointed town council will decide once more what to do about their beastly creation.

There are many more possible sequels. Will Constable Obama be fired? Will the villagers take matters into their own hands and drive the monster from the town along with his creators? Will Constable Obama find his courage or be replaced?

Real monsters aren't so much fun are they?


To the duke (comment #6): what horrifies the democrats is that the debt is not the problem, the lack of jobs is, and the debt deal will not solve that problem. What horrifies democrats is the poor logic of the Tea Party, the "I've-got-my-fingers-in-my-ears-so-I-can't-hear-you" mentality of the Tea Party, and the abandonment of the republican party to a group of know-nothings who are proud of being know-nothings.

Guy Thompto

Pithy little commentary on monsters, Maureen. The real monster is the ever increasing interest obligation on the debt. This bill just erased a couple trillion dollars of potential new debt. What is not being mentioned is that it locked in an additional $7.5 trillion in new debt. That brings us pretty darn close to $20 trillion in total debt - double what Obama inherited. It also brings us very close to the point of only having enough "revenue" to cover debt payments. That would leave Medicare, Medicaid, Social Security and defense with zero "revenue" to fund.


When an extremist faction takes hostages, demands a ransom and threatens to destroy the nation if they don't get their way... that, by definition, is terrorism. It is what it is — an ugly word for an ugly thing.

The latest White House capitulation to this ongoing extortion has poured more gas into that "Washington chain saw". It has set a horrific moral and legal precedent that will haunt us for generations to come, dragging us from crisis to crisis. Even crass and cynical Wall Street recognizes a gross horror movie in process and has reacted accordingly.


Now that the tea-party has found out how to manufacture a crisis and exploit it, our country is in for one manufactured crisis after the other. The pros from both parties had better step in to stop this madness, built on lies and innuendo. The really scary thing is that a habitual liar like Michele Bachmann just could win the Presidency, running a campaign built on false hoods and distortions, and it is evident that the tea-party has enough financial muscle from shadow groups that care not a whit about our country, but rather just winning and control, to make this happen. Our county's penchant for a lack of intellectualism has finally caught up with us, and a few really smart and devious persons are leading the lesser-educated with pitchforks and torches into a Salem-like situation for our country.

[Aug 01, 2011]   Smoke And Mirrors Aside, What Happens Next

One big question is what will we do if the data continues to deteriorate? Another stimulus package seems like it would be hard to get done given we allegedly just agreed to keep spending in check. After the latest bits of data, even the most staunch supporters of QE must have some doubts as to its effectiveness. The Bernanke Put and the Obama Put may be difficult to implement going forward. The market has relied so much on government intervention that it will be interesting to see how strong it can be if investors lose faith in the government's ability to provide a strong backstop on any bit of weakness.

[Aug 01, 2011]  Wall Street Mobilizes to Raise Debt Ceiling -

Wall Street is no longer watching from the sidelines as the most polarizing political fight in years plays out on Capitol Hill. In the last few days, top executives have been in close contact with Washington in a last-ditch attempt to prod lawmakers toward a compromise by Tuesday, the administration’s deadline to reach a deal.




Groupthink : Two Party System as Polyarchy : Corruption of Regulators : Bureaucracies : Understanding Micromanagers and Control Freaks : Toxic Managers :   Harvard Mafia : Diplomatic Communication : Surviving a Bad Performance Review : Insufficient Retirement Funds as Immanent Problem of Neoliberal Regime : PseudoScience : Who Rules America : Neoliberalism  : The Iron Law of Oligarchy : Libertarian Philosophy


War and Peace : Skeptical Finance : John Kenneth Galbraith :Talleyrand : Oscar Wilde : Otto Von Bismarck : Keynes : George Carlin : Skeptics : Propaganda  : SE quotes : Language Design and Programming Quotes : Random IT-related quotesSomerset Maugham : Marcus Aurelius : Kurt Vonnegut : Eric Hoffer : Winston Churchill : Napoleon Bonaparte : Ambrose BierceBernard Shaw : Mark Twain Quotes


Vol 25, No.12 (December, 2013) Rational Fools vs. Efficient Crooks The efficient markets hypothesis : Political Skeptic Bulletin, 2013 : Unemployment Bulletin, 2010 :  Vol 23, No.10 (October, 2011) An observation about corporate security departments : Slightly Skeptical Euromaydan Chronicles, June 2014 : Greenspan legacy bulletin, 2008 : Vol 25, No.10 (October, 2013) Cryptolocker Trojan (Win32/Crilock.A) : Vol 25, No.08 (August, 2013) Cloud providers as intelligence collection hubs : Financial Humor Bulletin, 2010 : Inequality Bulletin, 2009 : Financial Humor Bulletin, 2008 : Copyleft Problems Bulletin, 2004 : Financial Humor Bulletin, 2011 : Energy Bulletin, 2010 : Malware Protection Bulletin, 2010 : Vol 26, No.1 (January, 2013) Object-Oriented Cult : Political Skeptic Bulletin, 2011 : Vol 23, No.11 (November, 2011) Softpanorama classification of sysadmin horror stories : Vol 25, No.05 (May, 2013) Corporate bullshit as a communication method  : Vol 25, No.06 (June, 2013) A Note on the Relationship of Brooks Law and Conway Law


Fifty glorious years (1950-2000): the triumph of the US computer engineering : Donald Knuth : TAoCP and its Influence of Computer Science : Richard Stallman : Linus Torvalds  : Larry Wall  : John K. Ousterhout : CTSS : Multix OS Unix History : Unix shell history : VI editor : History of pipes concept : Solaris : MS DOSProgramming Languages History : PL/1 : Simula 67 : C : History of GCC developmentScripting Languages : Perl history   : OS History : Mail : DNS : SSH : CPU Instruction Sets : SPARC systems 1987-2006 : Norton Commander : Norton Utilities : Norton Ghost : Frontpage history : Malware Defense History : GNU Screen : OSS early history

Classic books:

The Peter Principle : Parkinson Law : 1984 : The Mythical Man-MonthHow to Solve It by George Polya : The Art of Computer Programming : The Elements of Programming Style : The Unix Hater’s Handbook : The Jargon file : The True Believer : Programming Pearls : The Good Soldier Svejk : The Power Elite

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The Last but not Least

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